Mr Smith was involved in a drunken car crash on Saturday night which saw him slam through a residential fence with a blood alcohol level of 0.131.
While not throwing his support behind the Kew MP, Mr Frydenberg said Mr Smith had been a “very hard-working advocate” for his local community and a strident opponent of Premier Daniel Andrews.
“He’s taken the fight up to Daniel Andrews and there’s certainly been a need for accountability at that state level by the state government,” Mr Frydenberg told Sky News Australia on Thursday.
The Treasurer said Mr Smith’s actions were “very dangerous” and “certainly unacceptable” but refused to comment on whether he should resign from Parliament.
Tim Smith needs to do some ‘soul searching’ before deciding on future career
“Thankfully in this case no one was injured but it does cause a need for him to reflect on what he wants to do with his career going forward,” Mr Frydenberg said.
“This is a decision for Tim to take, it’s not a decision for me as the federal member to take. It’s his decision based on a bit of soul searching and reflection about his future career.
“I’ll allow him to take that decision in his own time.”
The embattled MP resigned from the shadow frontbench on Sunday but has not yet confirmed whether he will recontest his seat at the upcoming state election after Liberal leader Matthew Guy urged him not to do so.
Mr Guy doubled down on his earlier calls for Mr Smith not to contest the election, telling reporters on Thursday that the party administration could reject an individual’s preselection nomination.
Tim Smith ‘needs to carefully consider’ his political future
“The party can refuse to accept anyone’s nomination, whether it’s an MP or a candidate or a layperson party member,” he said.
“As I’ve said, I don’t think he should stand – that’s what I said the other day and I stand by it.”
A defiant Mr Smith did not rule out remaining in parliament during a marathon press conference on Wednesday.
He said he would take the two weeks in the lead-up to preselection in the seat of Kew to determine his position.
The Herald Sun has reported several Federal MPs, including Mr Frydenberg, who were privately encouraging Mr Smith to run, have now concluded the MP’s position is untenable.

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