The idea was first floated in the 1980s to cut down on tax avoidance but was defeated in the Senate in 1986 after public outrage.
But in recent months, business, government and Labor figures have warmed to the idea to stop fraud and improve national security.
Mr Ruddock told the Australian Finance Review the main issue now was not whether an ID card should be introduced but what information it should contain, what legislation was needed and how much it would cost to implement.
"The fear that a lot of people have about national identifiers is really quite misplaced," Mr Ruddock said.
"It is a fear based upon concerns about possible intrusions into privacy and I am saying that privacy issues are dealt with not by whether or not you have one identifier.
"They are dealt with by what information you hang off that identifier and allow others to access,” Mr Ruddock said.
"I am simply saying that the protection that you give for information for which there ought to be afforded privacy wouldn't be opened up by a national ID card -- it would be opened up by a fresh discussion on data exchange," he added.
Mr Ruddock said government agencies such as the tax office and Centrelink already hold large amounts of personal information.
He said one of the key reasons for a new system was national security.
"They are important in terms of broader national security questions: we have to know who it is you are dealing with, who comes and who goes," he said.
Police Chief welcomes inquiry
Australian Federal Police chief Mick Keelty has backed an inquiry into a national identity card.
Mr Keelty said that while it was a matter for government, the issue warranted a review.
"It's going to be a matter entirely for government as to whether they go ahead with a national ID card," Mr Keelty told reporters.
"The announcement by the attorney-general of a review or an inquiry into it is probably a good idea to see whether the thing is going to be feasible or not."
Mr Keelty said the benefits of the card would depend on what information was attached to it.
He said the AFP would make a submission to the review.
"We would have a view to put forward, particularly about identity security and identity fraud, which is something that not only faces the Australian law enforcement community but the law enforcement community across the world," Mr Keelty said.
"It's one of the biggest growing crimes," he added.
Mr Keelty said it was too early to say whether the AFP was in favour of an ID card.
"It's too early for us to say because we haven't seen the proposal from the government," he said.