Treasurer Josh Frydenberg admits much more needs to be done to reduce the rates of indigenous people in prison.
Mr Frydenberg lamented the fact indigenous people made up just three per cent of the Australian population but almost 30 per cent of prisoner numbers.
"That is too high, that is unacceptable in modern Australia," he told reporters on Tuesday.
"The prime minister has established a mechanism to work through these issues with the national cabinet to make reforms."
Indigenous Affairs Minister Ken Wyatt is working with Aboriginal and Torres Strait Islander organisations to reshape the Closing the Gap targets on incarceration rates.
"While we're still in final negotiations, it has been agreed that there will be justice targets contained within that agreement that focus on incarceration rates," Mr Wyatt said in a statement.
"I will keep on working to empower Indigenous Australians - improve health, education and employment outcomes - and reduce the number of Aboriginal and Torres Strait Islander Australians in custody."
The Morrison government is reportedly looking to scrap a draft agreement to reduce the rate of young indigenous people in prisons by up to 19 per cent by 2028.
It will take a higher target to the states and territories next month.
"We're absolutely working on ambitious targets," Mr Frydenberg said.
Victorian Premier Daniel Andrews, whose state has a poor record on indigenous incarceration and deaths in custody, said the whole country needed to do better.
"Too many people have died, too many people's lives have been forever changed, so we all need to sign on to a very different way," he told reporters in Melbourne.
"It is something we should all be ashamed of - the fact that so many indigenous Australians are behind bars and that so many die so young."
Australian Associated Press
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