The City of Perth is considering cancelling its Australia Day fireworks event due to COVID-19 but the state government says it is too soon to make that call.

The biggest Australia Day fireworks event in the country could be cancelled because of COVID-19 fears but the City of Perth has been urged not to make a premature decision.

The city is considering scrapping the Australia Day Skyworks event in 2021, as well as its nativity and New Year's Eve events this year amid uncertainty about mass gatherings and the possibility of a second wave of coronavirus infections.

"The City of Perth Skyworks event takes more than 10 months to plan to ensure the event is safe, accessible and enjoyable for the whole community," the city said in a statement on Monday.

"Waiting until late 2020 to decide whether to go ahead would be a significant risk to the finances of both (Perth and South Perth) councils, and provide insurmountable issues for other event stakeholders, especially given the current economic climate."

The city is considering diverting the money to other priorities, which reportedly include helping the homeless.

But Local Government Minister David Templeman said it would be premature to cancel the events now and said the City of Perth should consult more widely before making a decision.

"We know that if we do things safely, if things are monitored carefully, we're in a great position in WA, and so I wouldn't be ruling a line through events at this point in time so far out," he said.

"I understand that there might be some contractual issues and bookings that need to be made early, but I would just be cautionary with regard to that decision at this point in time."

Mr Templeman said while it remained uncertain when large-scale events could be held again in WA, it might be that Australia Day is just celebrated in a different way in 2021.

"We might see a different event but still with people enjoying the city," he said.

Mr Templeman said he planned to speak with the City of Perth about their "inclination".

"We still have a lot of time between now and the end of the year, and careful consideration is still important," he said.