"If they can deliver great results for people, why not?" Ms Tolley said.
"I was very involved in the development of the Wiri contract...that is not just running a facility, that is delivering 10 per cent better than the public service in rehabilitation.
"That's going to make an enormous difference to the families of prisoners. If private enterprise can deliver those sorts of results, I wouldn't hesitate to use them."
Labour has attacked the Ministry of Social Development (MSD) for paying large salaries and a big increase in spending on management courses.
Asked about those criticisms, Ms Tolley said a greater problem for the Government - and why it was changing the way social services are delivered - is that there was a problem in measuring results from investment.
"I am very focussed on the fact that we put $351 million out into communities, and we really don't know whether we are meeting the needs of that particular community...and whether we are making a difference."
Labour's Social Development spokesperson Carmel Sepuloni said Ms Tolley's comments were both alarming and comical.
"Fifty-three MSD staff are on annual salaries of over $200,000. That is more than double the number who were receiving a similar amount five years ago.
"Just as bad, the department's spend on leadership workshops has climbed to an astonishing $780,601, up from a far more modest $137,155 last year.
"That it is also looking to contract outsourcing giant Serco to manage some community services, ostensibly to save money, is laughable."
Ms Sepuloni said Serco was "hardly a world-leader in good management".
"It has been accused of mismanagement, lying and charging for non-existent work in the UK and has a poor track record here where it is contracted to run Mt Eden prison which has the highest prisoner on prisoner assaults in the country."
