A Productivity Commission draft report has identified six government services as suitable for national competition reform: social housing, public hospitals, palliative care, public dental services, remote Indigenous services and grant-based family and community services.

A fortnight ago the Baird government announced it would seek private operators to redevelop five regional public hospitals, including Shellharbour.

Ms Berejiklian this week introduced legislation to establish a $1.1 billion Social and Affordable Housing Fund, to be used to encourage private and not-for-profit organisations to supply 3000 additional social housing dwellings in exchange for a 25-year tenancy management contract with the Baird government.

Federal Treasurer Scott Morrison has flagged that the federal government is likely to make productivity payments to the states for the delivery of competition reforms, in a repeat of John Howard's National Competition Policy that made incentive payments totalling $5.7 billion between 1998 and 2006 through a National Competition Council. 

The NSW government was paid $1.92 billion during this period. 

"NSW has previously stated that it is supportive of any competition reform that is in the interests of the state and we would welcome the introduction of competition payments," said Ms Berejiklian. 

"We look forward to further discussion of these matters with the Commonwealth and other states."

The NSW government's submission to the Productivity Commission said that although governments may move away from providing services, government needs to retain "stewardship" and hold "ultimate responsibility" to improve outcomes for citizens and protect the vulnerable.

The NSW submission acknowledged Family and Community Services had bungled the major reform of outsourced homelessness services in 2012, which saw a community backlash as small women's and children's refuges had funding cut.

Homelessness NSW told the commission the Going Home, Staying Home reform had cut the number of shelter providers, and questioned how this can be seen as improving consumer choice.

 "Homelessness NSW has trouble understanding how consumer choice can operate in homeless services. The vast majority of people experiencing homelessness find it as a crisis in their life. Notions about consumer sovereignty when ... a woman is escaping a life-threatening domestic violence situation or a teenager being kicked out of their home by a parent's new partner could be seen as nonsense on stilts," the submission said.

The Productivity Commission will release a final report in November.

A powerful union previously responsible for an aggressive campaign against the Baird government says it will spend up to $1 million in three months to campaign against plans to privatise the operation of five hospitals.

"We've resolved to spend up to $1 million by the end of the year," said Brett Holmes, the general secretary of the Nurses and Midwives' Association.

"Some people said there was no basis to our concern, but the more we see the running of hospitals handed to private operators, the more it seems we are headed to an American [health] system."

The state government unveiled last week plans to privatise the operation and building of five hospitals across NSW, including at Maitland, Wyong, Goulburn, Shellharbour and Bowral. Private operators will be invited to submit expressions of interest to run the hospitals.

Last state election, the union campaigned heavily against private operation of hospitals and an "American" health system, relying heavily on the example of the Northern Beaches Hospital at Frenchs Forest.

With the addition of five similar plans, Mr Holmes said a campaign was approved overwhelmingly this week at a meeting attended by more than 200 delegates.

But Health Minister Jillian Skinner said the campaign was unfounded.

"Unions are peddling the tired lie they trotted out at the last election," Ms Skinner said. "There is no change to the way public patients receive their free healthcare."

The new hospitals were expected to employ more than 1000 additional staff, Ms Skinner said.

But the timing of this campaign could prove particularly significant.

The National Party is facing a large swing against it in a November 12 byelection for the seat of Orange.

Though still ahead, the party is facing swings of up to 15 per cent, polling shows. Many in the media have speculated a loss could be fatal to the leadership of the Deputy Premier and leader of the Nationals, Troy Grant.

Fairfax understands one poll has found the second most important issue nominated by voters in that seat is healthcare.

The Greens have pledged to support any campaign.

"This is Mike Baird's WorkChoices' moment and it will cost him the next election," said Greens MLC Jeremy Buckingham. "The reaction on social media to plans to privatise public hospitals has been like a volcano of anger directed towards Premier Baird."

But Mr Holmes was coy about what role the union might play in any Orange campaign, noting that it had yet to register to spend money in the seat.

Last year's campaign against the plans to privatise the operation of the Northern Beaches Hospital was branded a "Pinocchio" effort by Mr Baird. 

"I think we've been shown to be right," said Mr Holmes.

The union claims 60,000 members across NSW.

- James Robertson, smh.com.au