Cabinet has approved a proposal by Communications Minister Malcolm Turnbull to introduce a two-tiered pricing scheme for letter deliveries that is expected to see basic stamp prices increase to $1.
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The reforms will allow Australia Post to introduce a "regular" and "priority" letters service. Letters sent with a "regular" stamp will arrive an average of two days later than they do currently, with mail within metropolitan areas arriving a day later than the current timetable.
Australia Post was expected to apply to the Australian Competition and Consumer Commission to increase the cost of a "regular" stamp from 70 cents to $1 when the new regulations come into effect.
Safeguards will be put in place so that prices remain frozen at current levels for concession card holders, including pensioners. And Christmas cards could still be sent with a 65 cent stamp, Australia Post chief executive Ahmed Fahour said at a press conference in Melbourne on Tuesday.
"These reforms mean we will be able to reduce our losses in the letters business and we will be aiming to get it back to break-even," Mr Fahour said.
"The letters business won't make a profit, and that is not our objective. Our objective is to reduce the losses so that we can support five days a week delivery of mail and secure the future of post offices across the country."
Australia Post would keep about 4400 post offices, including 2500 in regional areas, and at least 10,000 post boxes. It currently has 15,805 post boxes.
About 97 per cent of letters sent in Australia were posted by government or businesses. Mr Fahour said there was no correlation between the cost of sending a letter and mail volumes, rather increased online communication affected mail volumes.
Australia Post will be able to charge what it likes for a "priority" stamp, which would see a letter delivered on the current timetable. Regular mail would take four days, allowing Australia Post to save money on air freight. Posties would still deliver mail five days a week.
Priority stamps are expected to cost around $1.50 when they are introduced and prices could rise to $2 in later years.
The reforms are aimed at stemming the bleeding in Australia Post's letters division. Australia Post last week announced a first-half profit of just $98 million - a dive driven by mounting losses of $151 million in its letters business.
A report by the Boston Consulting Group, commissioned by the government, forecast that Australia Post's letters business would lose $12 billion over the next decade. Australia Post management hopes the reforms announced by the government will cut these losses in half to $6 billion.
Mr Fahour also defended his salary of $4.6 million a year - the highest paid public servant in Australia - saying 75 per cent of Australia Post's activity was commercial logistics and it was a "highly successful business". The latest annual report revealed 409 managers and executives at Australia Post were earning more than $195,000 a year.
The new regulations do not require changes to legislation but can be disallowed by the Senate.
