CSIRO chairman and former Telstra chief executive David Thodey will lead the independent inquiry, which has received broad terms of reference that could let it recommend an entirely new structure and legislation to govern the Australian Public Service.

Malcolm Turnbull and the minister assisting on the public service, Kelly O'Dwyer, on Friday said technological and global public policy changes were "transforming our economy and our society, presenting both opportunities and challenges".

"The public sector has a critical role in this context. Our APS must be apolitical, professional and efficient. It needs to drive policy and implementation, using technology and data to deliver for the Australian community," the ministers said.

"Many of the fundamentals of Australia’s public sector in 2018 reflect the outcomes of a royal commission held back in the mid 1970s.

"It is therefore timely to examine the capability, culture and operating model of the APS, to ensure it is equipped to engage with the key policy, service delivery and regulatory issues of the day.

"Crucially, this also means ensuring our public service attracts and retains people with the appropriate skills and capabilities to fulfil its functions."

The government expects the review, due to report in the first half of 2019, to identify "an ambitious program of transformational reforms".

The announcement follows steep cuts to public service staffing under the Coalition government, and coincides with growing scrutiny of the booming spend on contractors and consultants.

Ms O'Dwyer said it was an "exciting time" for the public service and the review would improve its engagement with citizens and businesses.

Labor urged the government not to use the inquiry as a smokescreen for further job cuts, while unions pointed to the number of businesspeople on the panel.

Opposition finance spokesman Jim Chalmers said the review should not become an excuse to ignore problems in the bureaucracy.

"For this review to be a genuine bipartisan effort, the opposition should have been meaningfully involved and consulted in its implementation, but we weren’t," he said.

Dr Chalmers said the inquiry needed to address the public service's use of contractors and consultants, its travel budget, senior bureaucrats' salaries, the APS staffing cap, and the amount of full-time and permanent staff within agencies.

Mr Thodey will lead a panel of six people with public and private sector experience, and be supported by a team of public servants from Mr Turnbull's department.

It is understood the review will also draw on the knowledge of former ministers from both major parties, ex-APS leaders, and both former and current civil service heads overseas.

The panel members include ANZ executive Maile Carnegie, University of Melbourne vice-chancellor Professor Glyn Davis, former Environment Department secretary Gordon de Brouwer, University of Sydney chancellor Belinda Hutchinson, and Coca-Cola Amatil executive and Business Council of Australia board member Alison Watkins.

Professor Davis is a leading scholar on public policy and co-chaired the 2020 Summit with then-prime minister Kevin Rudd, in 2008. Fairfax Media understands the review is likely to have a strong focus on technology, reflected in the appointments of Ms Carnegie and Mr Thodey.

Community and Public Sector Union national secretary Nadine Flood said a "clear-eyed and objective look" at the APS was needed, but feared the inquiry would be "subservient" to an ideology in favour of cuts to public services.

"This review must be a catalyst to repair the ongoing damage that’s been inflicted by the Turnbull government on public services, regulatory and policy capability, rather than a licence to double-down on those flawed policies," she said.

The most significant review of government administration in recent decades took place in the early 1970s, when H. C. "Nugget" Coombs led a royal commission over two years. Its report helped form the structure of today's APS.

Mr Thodey took part in a forum organised by the Institute of Public Administration Australia late in March, where Industry Department secretary Heather Smith urged a rethink of how policymakers work.

Dr Smith told the forum that while the APS wasn't broken, there was "no sense of a burning platform, no sense of strategic preparation for the decades ahead".

The review team's website is apsreview.gov.au.