While the fortunes of Pauline Hanson's party continued to climb since the May budget, in which Dr Chalmers expended significant political capital to enact Labor's long-held tax agenda, reform was essential to Labor's response, he said.
Speaking at an event hosted by the Australia Institute in Canberra, Dr Chalmers told the left-leaning think tank's audience hoping the far right went away or imploded was not a viable strategy.
"Perhaps a key mistake made by parties of the left is that in their defence of democracy and institutions they've also inadvertently become the party of the status quo," the treasurer said on Tuesday.
"We are not making that mistake. We are reforming the status quo in tax and housing and in other ways, in the interests of working people."
In a year, One Nation has gone from being the preferred party of about one in 10 Australians to about three in 10, according to opinion polls.
Dr Chalmers said Labor could win back disaffected voters not with "smug moral superiority", but by making a positive tangible difference to people's lives.
Within the next year, changes to negative gearing, capital gains tax and the taxation of trusts would be legislated and bedded down, inflation was projected to ease and real incomes would be growing again, he said.
By contrast, One Nation's superannuation policy would decimate Australians' retirement savings, their wages policy would shrink pay packets, their unfunded commitments would blow a hole in the budget and their migration cuts would smash the economy, Dr Chalmers said.
Ealier on Tuesday, Senator Hanson said no business would be deprived of skilled workers under a One Nation government.
She plans to slash temporary migrant numbers by 750,000 over three years, then cap net overseas migration at 130,000 a year.
That target risked triggering a "deep recession", Australian Chamber of Commerce and Industry chief executive Andrew McKellar said when the policy was announced in September.
But Senator Hanson was keen to smooth things over with the business lobby.
"We are not going to hold back any business that requires skilled labour to come into the country - we're not attacking that," she told ACCI's business leaders' summit in Canberra on Tuesday.
The anti-immigration party is alone in wanting to turn away skilled workers' partners and dependants, who make up more than half of that visa category's roughly 130,000-strong intake.
"No more Uber drivers, no more tax accountants and all this rest of it that we don't need," Senator Hanson said during Tuesday's summit.
One Nation treasury spokesman Barnaby Joyce, a former tax accountant, said he would be happy to debate Dr Chalmers.
He said the party in government could speed up skilled worker visa processing for businesses in need.
"If there is a demand, we'll actually expedite that process," he told the business leaders.
"But this superfluous idea that someone comes out and they bring seven family members ... it's just untenable."
Senator Hanson also floated opening more regional training colleges to steer some young people away from university.
"I want to start the apprenticeships scheme again. I want to start up TAFE colleges, agricultural colleges," she said.
"A lot of these kids shouldn't be in universities ... taking up a debt that the taxpayer is responsible for."
The Queensland senator has labelled higher education institutions "visa factories" and pledged to cut foreign student places from 590,000 to 350,000, as well as almost eliminate graduate visas.
The Nationals leader Matt Canavan earlier told the conference targeting net overseas migration was "ridiculous".
Senator Canavan slammed the single-minded pursuit of the closely watched figure a week after the opposition headlined its migration policy with a plan to temporarily cut net migration to 100,000 a year, and then 160,000 long-term.
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