Prime Minister Scott Morrison will announce $2 billion in federal funding, with another $500 million in matched state and territory funding, for re-skilling and up-skilling.

In May the Prime Minister signalled an overhaul for funding of vocational education, saying the system was "marred by inconsistencies and incoherence," and an interim Productivity Commission report found reform was needed to make the system more efficient and competitive.

By signing up to the new funding agreement the states and territories will be signing a new Heads of Agreement, setting out some immediate reforms to the VET system regarding quality and relevance, and paving the way for further changes.

Mr Morrison called out the complexity of the system in a National Press Club speech, calling it "clunky and unresponsive," with little accountability and transparency over the quality of training available.

Under new agreements to be made between the federal government and the state and territory governments, $500 million will come from the federal government and $500 million from the states and territories, but the time period is still to be negotiated.

Up to 340,700 places will be available under the funding, including 5700 for the ACT.

Courses in areas of identified need will be either free or low-cost as part of a push to help people out of work due to the pandemic-induced recession find jobs.

In keeping with the government's naming conventions, Thursday's announcement has been titled "JobTrainer".

"COVID-19 is unprecedented but I want Australians to be ready for the sorts of jobs that will come as we build back and recover," Prime Minister Scott Morrison said.

"The jobs and skills we'll need as we come out of the crisis are not likely to be the same as those that were lost."

As well as millions of Australians out of work, 250,000 students are set to leave school at the end of 2020, starting their careers in a tough job market.

Employment and skills minister Michaelia Cash said the program would provide pathways for those school leavers.

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"We will work with States and Territories to develop a list of qualifications and skill sets that will provide job seekers with the skills that are in demand by employers and are critical to the economic recovery," she said.

Free short courses in areas with skills shortages will be negotiated with states and territories by the new National Skills Commission.

Mr Morrison has already pitched the new funding arrangements to the states through the national cabinet process.

In 2018 the VET system had a $6.1 billion price tag, about $2.8 billion of which was provided by the government and $3.3 billion by states and territories.

The Productivity Commission has found the government will not meet its 2020 goals to increase skill levels under the National Agreement for Skills and Workforce Development and that the agreement is overdue for replacement.

"There is a manifest capacity to better allocate the $6.1 billion in governments' spending on VET to improve outcomes," the interim report said.

As coronavirus first hit Australia and the economy, the government announced it would fund 50 per cent of apprenticeship wages in small businesses until the end of September.

Now the program is being expanded to include businesses with up to 200 employees, and will be extended until March 2021.

It's expected an extra 180,000 apprentices will be supported to stay in jobs under the measure.

Businesses will be able to claim back up to $7000 a quarter for an apprentice's wage.

Labor has accused the government of creating a "training crisis" in Australia and cutting funding to the TAFE system.

After the Prime Minister's National Press Club address in May, education and training spokeswoman Tanya Plibersek said the government had cut $3 billion from TAFE and underspent a further $1 billion.

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