Communications Minister Amy Adams says taxpayers should not have to keep up propping up New Zealand Post.
New Zealand Post wants the number of days it is required to deliver mail to most addresses cut from six to three days a week, and to replace some postal outlets with self service kiosks.
Unions fear thousands of jobs could be lost, and have vowed to fight the change.
Amy Adams says mail volumes are falling and are soon likely to be to half that of 2002. At the same time, many more premises are getting deliveries.
"That's creating an unsustainable system for New Zealand Post," she told Radio New Zealand's Morning Report programme.
Ms Adams said reducing delivery days means that the price could be kept the same and taxpayers would not be asked to prop up the system.
New Zealand Post chief executive Brian Roche has said that several hundred people will lose their jobs across its services, but said nothing is set in stone.
"I'm neither confirming nor denying. All options are open - it depends on what level of attrition we have, how we deal with it. I think the key point here is, let's do it once and let's do it properly."
The Postal Workers Union said about one third of posties could lose their job under the plans.
Chris Lake, New Zealand Post employee and delegate for the Engineering, Printing and Manufacturing Union, estimates about a third of the workforce will have to go.
The EPMU plans to meet with New Zealand Post next month.
The New Zealand First leader Winston Peters said the cuts have been caused by a lack of foresight by those running the postal service in the past.
He says the people who still send letters will be really disadvantaged by changes to what has been part of the fabric of society.