Some industry training organisations are losing half their government funding due to the recession and funding cuts.
The Industry Training Federation says some of the organisations (ITOs)are likely to merge.
The federation says the sector's $180 million combined annual funding will drop by a quarter because of the effect of rule changes and lower trainee numbers.
It says ITOs usually arrange more workplace training and apprenticeships than they are funded for.
But this year, it says, will be the first that this does not happen because businesses are not taking on new trainees.
New rules to improve completion rates by trainees mean ITOs also face reduced government subsidies.