The federal government needs to rethink apprenticeship subsidies and “barriers” to hiring such as minimum wages because there is “little evidence” payments to employers boost enrolments, the Productivity Commission has warned.
In a major report on reforming the vocational education and training system, released on Friday, the Productivity Commission called into question a key plank of the Morrison government’s strategy to spend $348m to boost apprenticeships in areas of shortage.
The PC report nevertheless backed the government’s calls to improve student choice and rationalise inconsistent subsidies, a week after Scott Morrison flagged a major shakeup of the sector, including adding conditions to $1.5bn of federal subsidies.
Labor has repeatedly targeted the government over underspending in vocational education and the fact there are 150,000 fewer Australians in apprenticeships than in 2013.
In the 2019 budget the government committed to spend $200m over four years and a further $148m in 2023-24 to create 80,000 apprenticeships by doubling incentive payments to employers to $8,000 per placement.
But the PC report said there was “little evidence that incentive payments to employers to train trade apprentices have been effective in increasing enrolments”.
That was because incentive payments “offset only a small share of the total costs to employers of taking on a trade apprentice” – less than 2% of the full costs of hiring, remuneration and training.
Subsidies are also less generous than they seem because “most of the payment (62.5%) is paid on completion of a training contract with the employer, which occurs in less than half of all trade apprenticeships”.
The PC said on average fewer than 5% of employers nominate financial incentives as a main reason for their decision to hire an apprentice.
“As many employers will train apprentices without the need for an incentive, governments will often provide incentive payments to businesses for training that would have occurred anyway.”
The PC did find financial incentives “initially boosted non-trade apprenticeships, although with questionable benefits, if any, for genuine skill formation as much of the upturn was in areas deemed to be low priority and was associated with rorting”.
“Policies have now tightened access to traineeships.”
The PC report recommended the government “address barriers to hiring apprentices, including their foundational skills, work readiness, and the minimum wages or other award conditions set by the Fair Work Commission”.
Support services for employers and apprentices, such as mentoring and pastoral care for apprentices, would be a “more cost-effective” option than subsidies, it said.
The interim PC report was commissioned by the treasurer, Josh Frydenberg, in November to increase participation in vocational education in a bid to boost skills, jobs and productivity.
Commissioner Jonathan Coppel said there was “substantial scope to reduce waste and better target” the total of $6.1bn spent by federal, state and territory governments on vocational education.
Commissioner Malcolm Roberts criticised the existence of “dozens of different subsidy rates, even for the same courses”. He cited a certificate 3 in individual support, the course for work in aged or disability care, subsidies for which can vary by as much as $3,700 across Australia.
The report concluded the government should reform the sector to make it “a more efficient, competitive market driven by the informed choices of students and employers”.
It said the government should pursue a single national regulator, reform course pricing and curate clearer information for students about course quality and outcomes.
The report also canvassed reform options, including:
Expanding access to student loans by relaxing loan caps and course and qualification restrictions
Requiring all governments to apply a nationally-consistent set of course subsidies
Using student vouchers instead of subsidy payments to registered training organisations to facilitate user choice
In April 2019 a review of the sector by a former New Zealand skills minister, Steven Joyce, called for the National Skills Commission to achieve a “nationally-consistent funding model based on a shared understanding of skills needs”.
At the National Press Club on 25 May, Morrison said the government would use the commission to present clear information about Australia’s skill needs and fix a funding system “marred by inconsistencies and incoherence, with little accountability back to outcomes”.
