Attorney-General Christian Porter has suggested improving living standards to reduce Australia's "lamentable" indigenous jail rates.
Global protests about the police killing of African American man George Floyd have renewed focus on the systemic mistreatment of Aboriginal people.
More than 400 indigenous people have died in custody since 1991.
Although Aboriginal and Torres Strait Islander adults make up just two per cent of the national population, they constitute 27 per cent of the national prison population.
The problem is even worse with young First Nations people.
Mr Porter says both sides of politics are committed to reducing indigenous incarceration rates.
"They are lamentable. They are a sharp policy focus. It is a very difficult problem to solve," he said in Sydney on Wednesday.
"It is a problem that has to be acknowledged, and is acknowledged, at all levels of government."
He said indigenous incarceration rates were driven by complicated economic factors.
"The greatest thing in my observation that we can do to, over time, decrease rates of indigenous incarceration is increase rates of indigenous welfare and employment," Mr Porter said.
"The mistake has always been made by looking at rates of incarceration, which I absolutely agree are lamentable, but to view that as a criminal justice problem.
"It is a much broader problem that has to require significant increases in the welfare and employment of Aboriginal Australians."
He cautioned against drawing too many parallels between the United States and Australia.
"We shouldn't mistake specific problems of grotesque police brutality in America - literally a world away - with our own problems," Mr Porter said.
"Which is not to detract from the necessity to recognise our own problems and solve our own problems, but we shouldn't mistake one problem for another."
Labor frontbencher Jim Chalmers said the images coming out of the US were heartbreaking and pointed to the need to address the underlying causes.
"We can't just pretend that racial injustice is something that just exists on our TV screens or in other countries," he told the ABC.
"We have work to do here in Australia as well."