He says it is part of the government's reform program aimed at creating jobs, growth and opportunity.
Many of Australia's international competitors are changing their tax systems to make them more competitive.
"Australia can't risk falling behind," Mr Hockey said releasing the discussion paper on Monday.
About 70 per cent of commonwealth tax revenue is collected from personal and company income taxes.
"Australia's heavy reliance on income taxes may be unsustainable," he says.
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Explainer: Key points from Hockey's tax paper
This over-reliance is projected to increase further, largely as a result of wages growth leading to individuals paying higher average rates of tax, or so-called `bracket creep'.
He warns around 300,000 Australians are expected to move into the second highest tax bracket in the next two years.
Furthermore, in just 10 years, nearly half of all taxpayers will be in the top tax brackets - 43 per cent of taxpayers rather than the 27 per cent today.
The rise of the digital economy and globalisation also presents significant challenges for the effectiveness of the tax system.
"Our current tax system, which was designed before the 1950s, is ill-suited to the 2050s," the treasurer says.
"Capital is more mobile and we need a competitive corporate tax regime to encourage investment."
At the moment a dozen companies pay around one third of Australia's company tax.
Submissions and suggestions on the discussion paper are due by June 1.
These responses will inform the government's tax options Green Paper, due to be released in the second half of 2015.
"The government will seek further feedback on those options before putting forward policy proposals for consideration by the Australian people in 2016," he said.
Hockey to talk to the states about GST
Mr Hockey is hoping he can have a fair dinkum conversation about the GST now that a series of state elections are out of the way.
He is meeting with his state counterparts in two weeks when he will invite them to discuss changes to the GST, a task he admits will be difficult.
He insists the federal government won't be going it alone in hiking the rate of the GST above 10 per cent or broadening its scope to include fresh food, health and education. To do that, he wants community and political backing.
Relying more on indirect taxes such as the GST, rather than income and corporate taxes is one of the issues raised in a discussion paper about tax reform released by the government ahead of a white paper later in the year.
No immediate changes to super
The Treasurer also poured cold water on any immediate tightening of tax concessions for superannuation.
Mr Hockey told ABC radio that tinkering at the edges would change a system many expect to remain the same during their working lives.
But he didn't rule out prospective changes to superannuation tax rules.
Government won't move yet on bracket creep
Wages growth and inflation will lead to more people paying higher average rates of tax due to so-called bracket creep over the next decade.
If it's not addressed anyone earning more than $80,000 a year will be paying tax at the second highest level of 37 cents in the dollar.
But Assistant Treasurer Josh Frydenberg says the government won't consider adjusting the tax rate thresholds until it achieves budget surpluses.
"But certainly over time we do not want to see people go into the higher tax brackets," he told ABC television on Monday.
Labor wants to lead tax reform talks
Shadow treasurer Chris Bowen says Labor will take a constructive and proactive role in the debate on tax reform but is ruling out support for increasing the 10 per cent GST rate or broadening the base to include fresh food, health and education.
It was "lazy" to say this was the only tax reform worth doing, he said.
Mr Bowen also said the tax treatment of superannuation needs to be improved and he will be consulting the sector this week about possible options.
Labor, as the creator of compulsory super, would not only defend and protect the system but improve and reform it, Mr Bowen said.
"Something this government is singularly incapable of doing," he told reporters in Sydney.
Read the Tax Discussion Paper in full below.
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