The government is preparing to loosen the regulations governing Australia Post so that it can introduce a "priority" and "regular" letters service. An official announcement is said to be "imminent" with an announcement expected as early as next week. Fairfax Media understands that, under the reforms, Australia Post will be able to charge what it likes for a priority stamp, which would guarantee next-day delivery for metropolitan areas. The Australian Competition and Consumer Commission would retain oversight over stamp prices for regular mail, which would arrive a day later than the current timetable. The Communications Minister would be able to disallow any excessive price rises for regular stamps. Australia Post CEO Ahmed Fahour has said that Australia Post should be able to fully recover the costs of delivering a letter – estimated to be $1. "We're at a crisis point," Mr Fahour told Fairfax Radio on Monday.

"What we need to do is to fix the regulation on letters to stem the losses, and that [will allow] us then to take our resources from subsidising the losses [on letters] to continuing to invest in the parcels business." Communications Minister Malcolm Turnbull said the financial result for Australia Post's letters business was "not a pretty one". "Without change the company is heading to an overall loss," he said. Fairfax Media revealed in December that, under a range of scenarios outlined in Australia Post's latest Corporate Plan, a "priority" stamp would cost $1.25 to $2 while a "regular" stamp would cost 70 cents to $1. The plan has not been released publicly. Under the government's reform package, concession card holders – including pensioners – would continue to pay only 60 cents for a basic stamp and stamps would remain cheaper during the Christmas period.

The government will justify the reforms by pointing out that businesses and governments send 97 per cent of mail and that a two-tiered business service has already been introduced for letters. There have been concerns at high levels of the government of a backlash to increased stamp prices, including from small businesses. A coalition of printers, mail houses, licensed post offices and unions - called the Coalition of Mail Service Stakeholders - accused Mr Fahour of making a "cynical attempt" to build support for major cuts by releasing the half-year financial results one day before a scheduled appearance at Senate estimates. "Australia Post's claim that the organisation is on track to record a loss is not supported by the organisation's recent performance," Bill Healy from the coalition said. "The underlying profit reported by [the company], before one-off costs such as restructuring, was actually up by over 10 per cent to $518 million last year." The Post Office Agents Association Limited, representing licensed post offices, said it supports the concept of mail reform.

"It is obvious that without changes to the letters service Australia Post will incur greater and greater losses," the group said.