Federal agencies should be abolished, privatised or made state responsibilities in recommendations to be outlined by the federal government's Commission of Audit on Thursday.
The Commission has recommended Canberra devolve responsibility for health, education and other services in a bid to reduce the size of government in a direct snub to former prime minister Kevin Rudd's ideal of co-operative federalism.
The report, seen by a small group of ministers and bureaucrats, is believed to be built around the theme of competition, Fairfax media reports.
News Corp reports the radical reforms will stop short of calling for the dismantling of federal health and education departments, but recommend selling federal assets to pay down debt and move from non-essential services.
Among the report's 86 recommendations are calls for axing agencies, including the National Preventive Health Agency, which is due to release its report into a minimum floor price for alcohol on Thursday.
As well, Defence Housing Australia, which manages and owns properties for defence families, is also earmarked for privatisation or abolition. Ministers and bureaucrats accept that some proposals will be adopted, while others are considered "untenable", or will be modified or placed into long-term planning frameworks, Fairfax said.
National secretary of the Community and Public Sector Union (CPSU), Nadine Flood said the cuts will place immense pressure on public services.
"We’re concerned you could see anywhere up to 25,000 jobs or more go. And this comes on the back of the cuts already occurring under this government, with 6,000 jobs having gone since September," Ms Flood told ABC Radio.
"The government made a clear election promise that it would cut no more than 12,000 public service jobs by natural attrition," Ms Flood said.
"There is no way you could do the sorts of things that are being canvassed as being in the Commission of Audit without closure of agencies, mergers, moving responsibilities to the states without many people around the country being forced out of their jobs.
"If they go beyond that in the budget, we will absolutely hold them to account."
Ms Flood didn't confirm how the CPSU would hold the government to account, but didn't rule out industrial action.
"We’re going to wait to see the Commission of Audit and the budget before determining our response of course, but what I will is these are real people doing real jobs with real bills and mortgages to pay."
Finance Minister Mathias Cormann says the audit will show the spending growth projectory inherited from the previous Labor government is unsustainable.
The audit would recommend budget reform that would build structural savings over time but there was an urgent need for an immediate effort to begin the repair task, the senator said.
"We're not making any excuses," Senator Cormann said.
"We're not doing any of this out of fun," he said.
Opposition finance spokesman Tony Burke expects the report will pave the way for a "road map of broken promises" by the government. He dismissed talk of a budget emergency, saying the coalition had overseen a doubling of the deficit since it came to office.
"The government is getting the report that it wanted," Mr Burke told ABC Radio.
The Audit Commission report will be published at 2pm (AEST) on Thursday.
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