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.

“Australia Post serves so many communities, particularly in rural and regional Australia,” she told ABC TV.

“In many cases it’s not only the office, it’s the general store, it’s often the only place also providing banking services.

“So the whole point of this consultation is to understand from Australians, and in particular from small businesses and people representing rural and regional Australia, what they need in a modern Australia Post.”

Rowland said while nothing had been decided yet, the changes would be a “productivity driver”.

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

Since a peak of 8.5 addressed letters per week in 2007/08, Australian homes now receive just 2.4 letters per week.

The discussion paper said the number is expected to halve again in the next five years.

“While traditional postal services usage declines, Australians are increasingly relying on Australia Post’s nationwide parcel delivery services, which operate in a highly competitive market,” the discussion paper said.

Finance Minister Katy Gallagher said the review would look at how Australia Post locations across the country would be able to operate successfully into the future.

“The government is committed to ensuring that Australia Post continues to modernise to ensure that it is financially sustainable and continues to provide employment opportunities and deliver essential services to all Australians,” she said.

“Australia Post has been a constant driver of economic activity for businesses and consumers across Australia.”

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

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

The union representing postal workers warned against watering down services at the expense of community needs, and suggested Australia Post be granted a banking licence.

“We also want to see Australia Post secure a banking licence, allowing them to bring back genuine local banking services to communities that are being neglected by the big banks, and to stimulate genuine competition in the sector at a time the public are crying out for it most,” Communication Workers Union national president Shane Murphy said.

He said governments should also take advantage of its vast network and retail footprint to deliver services, rather than leaving the public in long and frustrating telephone queues.

The chief executive of Australia Post told a Senate estimates hearing last month that rules requiring the postal service to deliver letters five days a week should be reviewed in light of falling letter numbers.

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.

-AAP