The Productivity Commission has added its voice to the growing suggestions for change to the vocational education and training sector with the release of an interim report on Friday.

The scathing review says the 2012 agreement between governments on funding is long overdue for replacement.

Governments have turned away from many aspects of that deal while its "overly ambitious" targets have been missed and become meaningless, the report says.

It presents a range of options and some recommendations for change.

Commissioner Jonathan Coppel hopes these will provoke debate.

"There is substantial scope to reduce waste and better target the $6.1 billion in government spending," he said in a statement.

"We want to see an improved VET sector that gives students and employers more flexibility and choice."

The report says the old agreement should be dumped and replaced with a new, less prescriptive version based on key principles.

A new vocational reform road map misses vital aspects of the earlier agreement and may lead to further ad hoc policy decisions.

The commissioners want any new deal to put students and employers - not providers - at the system's centre and give them more and better information.

Another vital principle is efficient pricing and subsidies.

There are more than 3800 training providers who teach about four million students in 1400 types of qualifications plus many short courses and single subjects.

Government subsidies vary wildly and every jurisdiction has its own method of deciding them.

The Productivity Commission says at very least there should be a common approach to calculating subsidies.

It also canvasses the possibility of a student voucher system.

It suggests any expansion of funding into the system might be best done by offering more student loans rather than increased subsidies.

Widespread rorting of the VET FEE-HELP loans by dodgy providers damaged the system's reputation.

But the commission says the current, very tight loans system limits access and may push students into universities instead or into cheaper VET courses against their preferences and capabilities.

Skills Minister Michaelia Cash said the report underscored the government's view the old agreement was a major hurdle to improving the system.

"We need a new funding model to better link funding to actual forward-looking skills needs, based on what businesses need," she said.

Australian Associated Press