Labor is prepared to help the Abbott government throw a lifeline to Australia Post, which faces a revenue crisis in its letter division, by allowing it to deliver Medicare and welfare operations.
Fairfax Media understands senior Labor figures, including opposition communications spokesman Jason Clare, have decided not to play "raw politics" with the issue after being convinced of the seriousness of Australia Post's financial woes.
But the stance could ignite a stoush with the Labor Left and the union movement, which argues that handing more front-line duties to Australia Post would lead to job losses and longer queues at the post office.
Acting Prime Minister Warren Truss said on Sunday that Australia Post faced a revenue "crisis". Fairfax Media has reported Australia Post would axe 900 jobs this week, a revelation that has devastated the organisation's 32,000-strong workforce.
Mr Truss said postal services should be maintained to regional areas but it would be fair to expect city residents to visit the post office more often.
Australia Post is pushing to be allowed to deliver mail two or three days a week, rather than the five days required by government regulations. Customers wanting more frequent delivery would pay more.
The company also wants to shore up the viability of post offices by delivering more government services, an idea backed by Communications Minister Malcolm Turnbull in March.
Australia Post has been lobbying both sides of politics on the need for major changes, with private modelling indicating the company would lose $7.1 billion through to 2022-23 on its present path.
Mr Clare said: "We support expanding the number of government services provided at post offices.
"Australia Post has challenges. The number of letters it delivers every year is falling and its mail delivery service is losing money."
Mr Clare, a member of the Labor Right, supports allowing Australia Post to deliver some over-the-counter Medicare and Centrelink services, such as distributing payments or collecting forms. More complex tasks, such as case work, would remain with the agencies.
But opposition human services spokesman Doug Cameron said transferring more government responsibilities to Australia Post was "not a practical proposition".
"I don't think there are the skills or capacity in Australia Post to deliver Centrelink or Medicare services," he said.
The Community and Public Sector Union has said Australia Post staff were not trained to cope with the aggression and abuse Centrelink staff often receive from customers.
With Beau Donnelly