Letter drop part and parcel of Australia Post shake-up

An overhaul of how Australia Post will operate is on the cards, driven by a decline in letter deliveries as parcel services boom.

The federal government has launched a discussion paper aimed at modernising the postal service and making it more financially sustainable.

Communications Minister Michelle Rowland says it is important Australia Post is sustainable because local post offices remain key service providers in many communities.

"It performs a range of vital community service obligations and especially in rural and regional Australia," she told reporters in Sydney on Thursday.

"Australia Post not only serves as the post office, often it is the only banking service in town, the news agent, or the retailer, so it is important."

Ms Rowland said while nothing had been decided yet, the changes would be a "productivity driver", with the organisation subject to the same regulation as it was a quarter century ago.

She also backed in postal workers, saying when the last letter was delivered, it would be by Australia Post.

"We understand how important they are to ensure Australia Post remains financially viable, so their jobs, their good-paying jobs, also remain viable," she said.

Ms Rowland said the government would not let the postal service fail.

Australia Post CEO Paul Graham said the organisation was entirely self-funded and didn't want to become a financial burden on the government.

"We seek to gain bigger market share, but if we don't address our letter business, that will impact our ability to service the community," he said.

Australia Post delivered more than 500 million parcels during the past financial year, but letter deliveries have been falling rapidly.

Australian homes receive just 2.4 letters per week on average and this is expected to halve again in the next five years.

Opposition communications spokesman David Coleman said the government needed to ensure none of the 2500 regional and rural communities that rely on post offices would be disadvantaged by any changes.

"The regional network of post offices must be protected at all costs," he told AAP.

"They're the centrepiece of many communities and we will fight to protect them."

Mr Coleman said the minister needed to be transparent about job losses under the restructure.

Opposition Leader Peter Dutton said he understood the difficulties facing Australia Post but the service needed to meet its community obligations.

"People will always have that requirement to send a letter and that's their right to do so," he said.

Earlier this year, the postal service reported a first-half loss of $189 million and it is set to report its first annual loss since 2015.

Despite the talk of modernisation, the discussion paper said Australia Post would remain in public hands, regardless of any changes.

The union representing postal workers warned against watering down services at the expense of community needs.

Communication Workers Union national president Shane Murphy suggested Australia Post be granted a banking licence "allowing them to bring back genuine local banking services to communities being neglected by the big banks".

Figures showed bills and bank statements made up nearly 98 per cent of letters delivered.

Public consultation on the discussion paper is open until April 27.