Speaking on the BBC’s The Andrew Marr Show, Hammond admitted the UK electorate were “weary” of spending cuts, which dominated his predecessor George Osborne’s fiscal policies.
Instead, the chancellor said he would look to change the fiscal targets to create “a lot more flexibility to respond to the situation on the ground”.
“People are weary of the long slog,” he said, adding that any extra spending would need to be funded using tax rises, claiming a deficit of 2.5% of GDP was “not sustainable in the long term”.
“We never said we won’t raise some taxes,” said Hammond.
The comments come as May is still hashing out the terms of a deal with the Northern Ireland Democratic Unionists Party which would allow the Conservatives to rule with a minority government.
The Conservatives lost their majority earlier this month when the UK election resulted in a hung parliment where no political party managed to secure the 326 seats required to form a majority government.
The Queen’s Speech - which lays out the laws that ministers want to pass in the coming year – is expected to take place on 21 June.
It is seen as a critical test for the government and failure to win the backing of a majority of MPs is seen as a vote of no confidence.