Public hospitals, social housing and palliative care services are ripe for privatisation, outsourcing and other reforms to inject greater competition into what have been public sector monopolies, the Productivity Commission has found.

But the influential commission also warned against excessive attempts to harness the free market, citing the disastrous experience of opening up government loans to private vocational education providers.

Treasurer Scott Morrison says Australia must confront the "air of unreality" about its budget challenge. Credit:Alex Ellinghausen

Of 26 services it assessed, the commission identified only five as being best-suited to more competition: end-of-life care, human services in remote Indigenous communities, public dental services, public hospitals and social housing.

Others, such as disability services, jails, residential aged care and schools, could potentially benefit from reform but should be left alone for the time being, it urged.