Financing Vocational Education and Training in Australia: Present and Future

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1 MONASH UNIVERSITY - ACER CENTRE FOR THE ECONOMICS OF EDUCATION AND TRAINING Financing Vocational Education and Training in Australia: Present and Future Gerald Burke and Peter Noonan Paper presented at the European Centre for the Development of Vocational Training CEDEFOP Agora Conference Investing in People: Strategies for Financing VET Thessaloniki,19-20 May 2008 (Minor amendments November 2008) CEET, Faculty of Education, Monash University, 3800 Australia Phone Fax

2 Contents Executive summary 1 1. Introduction 3 2. Background 3 3. Enrolments and income 4 4. Reviewing financial and regulatory changes Background Public funds flowing to provider of choice The quality framework Training packages Incentives for employers and co-financing Individual co-financing: subsidised fees, full-cost fees and income contingent loans Conclusion 16 References 18 Tables Table 1. Students in the VET system, Australia Table 2. Hours of training provided by level of qualification and by funding source, Australia, Table 3. Revenue of the VET system, Australia, 2002 and Table 4. Australian Government Resources for VET ($million) and

3 Executive summary This paper considers key aspects of the financing of Vocational Education and Training (VET) in Australia against the major policy objectives for VET which include developing a national system, improving the skill base of the workforce, making the system more responsive to industry needs, sharing the costs and improving equity. The paper provides background information on the development of the current system, the size of enrolments and the sources of revenue. It considers the major development in funding and associated regulatory arrangements. These are the arrangements for contestability for public funds, quality assurance of providers of training, a system of qualifications based on industry determined competency standards and financing arrangements affecting employers and individuals. For employers this includes incentives provided to employers to train apprentices and trainees and proposals to extend their contribution to training. For individuals it includes proposals to extend access and entitlement to training but also increases in fees and charges which may be supported by income contingent loans. This paper sums up on the achievements to date. the development of a national VET system in Australia A comprehensive and well distributed public Technical and Further Education (TAFE) system has been developed and major policy objectives mutual recognition of qualifications, a consistent quality assurance framework, growth in apprenticeships, development of VET provision in schools and the opening up of the training market have been largely implemented. Employers and industry groups are still concerned about inconsistencies in the operation of the national training system between states, for example inconsistent approaches to funding. However while the VET system remains administered at a state level some degree of inconsistency is inevitable. expanding the provision of VET, for new entrants to the workforce and for existing workers, and increasing numbers in higher level courses There was considerable expansion of the system in the late 1990s. In recent years there has been little change in the number of VET students. Public funding has not changed in real terms in recent years There was relatively fast and continued expansion into the 2000s in apprentice and trainee numbers. However higher level enrolments for Diploma and Advanced Diploma courses have stagnated in the last few years so the objective of more highly trained VET graduates is not yet being met. addressing skill shortages Skill shortages remain a driving force in government policy. The extent of skill shortages varies considerably by occupation and by region with the resource boom states such as Western Australia having notably greater difficulties. The additional places supported by the Australian government being allocated from 2008 are explicitly directed at areas of skill shortages. The recent expansion of the numbers undertaking traditional trade apprenticeships suggests that the VET system has been quite responsive in a number of areas and the financial arrangements underpinning apprenticeships and traineeships reasonably successful. 1

4 orienting the system more efficiently to industry needs From the early 1990s the system has become increasingly industry led e.g. in the development of Training Packages. Public funding has become accessible by private providers for a range of courses (mainly apprenticeships and traineeships) though most public funding is still allocated to public providers. Changes proposed in 2008 at both national and state level to the allocation of finance seem likely to expand VET enrolments and to increase contestability among providers of training. sharing the costs of the expansion among national and state governments and employers or students The changes in financing over the last decade have seen a relatively small increase in private financing of VET delivery and an increase in government support for employers of apprentices and trainees. Changes proposed will see some increase in employer contributions to funding and an increase in individual payments, perhaps supported by income contingent loans. improving equity in education and training The VET sector in Australia caters for a higher proportion of students from lower socioeconomic background than the higher education sector. Indigenous persons are disproportionately highly represented in VET though they tend to undertake mainly lower level courses. VET offers the most opportunities for older persons to participate, as evidenced by the high proportion of older persons engaged. The recent expansion in the numbers of young persons engaged in VET is probably a response to policies in some states to guarantee funding for all young people to have access to a qualification equivalent to that of completing secondary school. Current proposals by both the Australian and state governments will improve access but it will be important to supplement these with support and information for those who in the past have not been successful in the formal education system. 2

5 1. Introduction 1 This paper considers key aspects of the financing of Vocational Education and Training (VET) in Australia against the major policy objectives for VET which include: The development of a national VET system in Australia expanding the provision of VET, for new entrants to the workforce and for existing workers; increasing enrolment and completions in higher level courses, addressing skill shortages; orienting the system more efficiently to industry needs; sharing the costs of the expansion among national and state governments, employers and students improving equity in education and training To provide a context the paper first presents an overview of: The background to the current financing arrangements the size and composition of students and courses in the VET system; the level and sources of income of the VET sector and changes. It focuses then on: the flow of government funds to public and private training providers; the associated regulatory framework to promote efficient and responsive delivery of training; incentives for employers and employer contributions including leveraging arrangements; and removing the gap between low tuition fees for government supported training and fullcost fees for other training and the case for income contingent loans. The conclusion assesses the changing financial and regulatory arrangements against the major objectives for the VET system. Further research to be undertaken in extending this paper is outlined in the final section. 2. Background Under the Australian constitution, education is a responsibility of the States. However, since the 1960s the Australian Government has provided an increasing level of funding for education through grants to the State Governments. These grants have assisted the States to develop and expand their education and training systems, and have also underpinned a significant expansion of non-government schools. In 1974 the Australian Government assumed responsibility for public funding of Universities, 1 Thanks to Fran Ferrier for comments on the draft. 3

6 although they remain under state legislation. Following a major inquiry into Technical and Further Education in 1974 (Kangan Report) the Australian Government over the next two decades also contributed significant funding to the development of the TAFE system, principally through a major program of capital works. Under this arrangement the states generally provided the majority of recurrent funding to support the growth in TAFE provision. However the 1980s this funding compact had begun to break down. The States were unable to provide the level of resourcing required to meet ongoing demand, at a time when government and industry recognised the importance of lifting the skills base of the Australian workforce, and the Australian Government was reluctant to provide additional recurrent funding as it was concerned that the states might reduce their own expenditure. In 1992 the Australian Government made a formal offer to also assume responsibility for funding TAFE (or VET as the broader sector had become known) on a similar basis to universities, in exchange for a commitment of substantial funding for growth. However most of the states rejected the offer. As an alternative a formal inter-governmental agreement was reached under which the Australian Government committed substantial additional resources with the states agreeing to maintain their expenditure on VET in the short term and system enrolments for the duration of the agreement to boost participation in VET. The governments also committed themselves to the development of a national VET system in Australia, principally based on mutual recognition of the accreditation of VET qualifications and providers between the states. The Australian National Training Authority (ANTA) was established with an independent industry based Board to oversee the development of the system and the financial agreement. Most of the functions and funding for VET of the Australian Government were transferred to the Authority. The Agreement was renewed a further 3 times, however new agreements only provided for stable or limited additional funding. New agreements also saw a strong focus on the growth of the apprenticeship system and an opening up of public funding to providers other than the public TAFE institutions. In 2004 ANTA was abolished and its functions transferred back to the Australian Government. A further agreement Skilling Australia s Workforce was reached which continued the joint commitment of the Australian and state governments to a national VET system. However the previous Australian Government also initiated a number of major funding programs outside of the national\state agreement for example a network of 18 Australian Technical Colleges were established and directly funded by the Australian Government a Workskills vouchers were made available to employers and individuals to allow them to purchase training from training organisations. The Australian Government elected late 2007 has committed itself to cooperative federalism with the states and new arrangements are currently being negotiated with the states for VET funding, including the allocation of additional VET places for existing workers to be allocated on the advice of a newly established independent advisory agency Skills Australia. The analysis of VET funding in Australia should therefore be seen in the light of these systemic and policy developments and outcomes. 3. Enrolments and income A brief overview of the VET system is provided to indicate the size of the system, the composition of the students and the courses, and the sources of funding. 4

7 Students Table 1 shows that the student numbers in VET are nearly 1.7 million. This represents 12 per cent of the population aged 15 to 64. About 45 per cent of students are aged 30 or over. OECD data shows Australia to be second only to the United Kingdom in the rate of participation in education of persons aged 30 and over (OECD 2007 Table C2.1). The rate is more than double the OECD average. Most of the older students are in the VET system. Table 1. Students in the VET system, Australia 2006 Provider Share Age Share Qualification level Share TAFE and other government providers 79% 19 and under 26% Diploma or higher 10% Community providers 10% 20 to 24 years 17% Certificate IV 11% Other providers 11% 25 to 29 years 10% Certificate III 28% 30 to 49 years 33% Certificate II 17% 50 and over 12% Certificate I 6% Not known 3% Secondary education 0% Other 28% Total 100% 100% 100% Total students 000 1,676 Total 000s 1676 Total 000 1,676 Source: NCVER 2007c About 80 per cent students are enrolled with large government providers TAFE institutions and about 10 per cent with community providers (not for profit institutions largely providing short, lower level and access courses). The remaining 10 per cent are with other providers, mainly commercial private registered training organisations. However, the statistics in Table 1 do not include privately funded students in private training organisation. The total student numbers in private training organisations, including international students is much greater than the 11 per cent of students (approximately 185,000) shown in Table 1 2. Table 1 shows in the final column the distribution of students by the level of the course in which they are enrolled. Australia has an Australian Qualifications Framework (AQF) and the main VET sector qualifications are Certificates I to IV and Diploma and Advanced Diploma. About 10 per cent of students are on Diploma or higher level courses and 40 per cent on Certificate III and IV courses. At the other end, are persons listed as other, largely persons not enrolled for a recognised VET qualification. Some of the other enrolments are for very short activities. The nearly 30 per cent of students in Other absorb a little over 10 per cent of the hours of training provided, as shown in Table 2. Higher level courses involve longer hours of training. The 10 per cent of persons enrolled in Diploma and higher courses absorb 2 The statistics do not cover all of what can be considered to be VET. The statistics cover the activities of public providers of training, mainly technical and further education (TAFE) institutions but do not-cover non-accredited training delivered by employers, or training provided on a fee-for service basis by private training organisations. The statistics exclude the activities of higher education institutions and of secondary schools, though data on vocational education and training delivered by schools is separately reported. Some direct Australian government expenditure on VET is also excluded from Table 3 but included in Table 4. 5

8 nearly 20 per cent of training hours. The 40 per cent of persons who are enrolled for Certificate III and IV courses absorb nearly 50 per cent of the hours of training. Current government policy is to increase the student numbers in Diploma and Advanced Diploma courses as a means of deepening the skill levels of the Australian workforce. However student numbers at these levels have not been increasing in recent years. The total numbers of persons enrolled in the VET system grew rapidly in the 1990s but the total remained fairly constant from A major factor in the growth of enrolments in the late 1990s was the relative very fast growth in the number of apprentices and trainees who in number now make up about 20 per cent of all VET student numbers. Apprentices and trainees grew from a little over 10 per cent of all VET students to nearly 25 per cent implying a decline in numbers of VET students not on apprenticeships or traineeships. Apprenticeships are for traditional trade training such as automotive and construction, usually over three or four years involving paid employment and some off-the-job training with a training provider. Traineeships are provided for a wide range of occupations such as retail, business, transport and hospitality. Usually they are of shorter duration than apprenticeships. As will be discussed there were several policy changes underpinning this expansion in apprenticeships and traineeships. The expanded take up of traineeships included many older persons. In 2006 person aged 25 and over made up 50 per cent of the total commencing non-trade courses compared with less than 20 per cent of those commencing traditional trades (NCVER 2007 Table 12). About a third of non-trade commencements were existing workers (employed full-time for more than three months or casual of part-time for 12 months) whereas.only about 10 per cent of traditional trade commencements were existing workers. The last few years have seen stagnation in the total of apprentices and trainees in training but a revival and expansion of persons commencing traditional trades (NCVER 2007 Table 13). And these trades are considered to be in the areas of the greatest skills shortage. From 2002 to 2006 the commencements in traditional trades grew from about 20 per cent of the total of commencements to nearly 30 per cent of all apprenticeships and traineeships. Persons in training as a percentage of persons employed in trades have grown from under 11 per cent to nearly 14 per cent in the last six years (NCVER 2007 Table 6). Even faster relative growth has been achieved in the rapidly expanding construction trades. Table 2 also shows the hours of training delivered by the reported funding source for that training. About 84 per cent of training is supported by national or state government funding though, as considered below, small fees are also charged for these courses. Some 12 per cent of training is in fee-for-service courses (cost recovery courses usually without government support) and 4 per cent is for international students. 6

9 Table 2. Hours of training provided by level of qualification and by funding source, Australia, 2006 By Qualification Share By funding source Share Diploma or higher 19% Commonwealth and state recurrent funding 81% Certificate IV 15% Commonwealth and state specific funding 3% Certificate III 33% Fee-for-service 12% Certificate II 14% Overseas full fee paying 4% Certificate I 5% Secondary education 1% Other 12% Total 100% Total 100% Total annual hours million 372 Total annual hours million 372 Source: NCVER 2007c Funding Table 2 shows the main sources of funding but not the amount. Table 3 shows the revenue for the VET system. The governments share of revenues has fallen a little in recent years but they still provide about 80 per cent of the funds received by the VET providers covered by the statistical collection. The state and national government shares have not changed substantially in this period and minor classification changes could account for some of the apparent change. Student Fees and Charges are tuition fees for government supported programs they raise about 4 per cent of all funds. The nominal fee charged represents about 10 per cent of course costs but the actual fees collected are reduced by a range of concessions for students from low income backgrounds. Fee-for-service revenue is the payment received for the delivery of training which is not financially supported by government funds. Part of fee-for-service is the purchase of specific training by government agencies (additional to their major grants for the delivery of training) and part is from full-fee international students who have been growing rapidly in numbers recently. Some 6 per cent of total revenues is from the private sector in Australia and this includes fees paid by employers as well as by individual students for courses not available with government support. The data indicate some growth in this item. Table 3 also shows that in constant prices the total revenue received in the system has hardly changed in the four years 2002 to The student numbers also have not changed, though the total hours of training delivered has increased by 7 per cent, reflecting an increased proportion of students taking more intensive courses. 7

10 Table 3. Revenue of the VET system, Australia, 2002 and Change 02 to 06 Share Share Per cent Revenue from Government 81% 78% Commonwealth States Fee-for-service 10% 13% Government agencies 2% 3% Other fee-for service 5% 6% Overseas Student Fees 2% 3% Ancillary Trading 2% 1% Student Fees and Charges 4% 4% Other income 3% 4% 100% 100% Total revenue nominal prices S million Composite price index Total revenue at constant 2006 prices $ million Students 000 1,695 1,676-1 Hours of training 000, Source: NCVER 2007b Note: Composite price index comprises 0.7 Wage Price Index for Education and 0.3 Implicit Deflator for the GDP States refers to the six states and two territories in the federation. Table 3 does not cover all the expenditure on the VET sector. There is a substantial but unmeasured private spending made to private training organisations not covered by the statistics in Table 3. Only part of the funding of VET courses taken in secondary schools is included in Table 3. The last 15 years have seen a large increase in the provision of vocational education and training in the senior years in secondary schools much of it at Certificate II level. Nearly 40 per cent of students undertaking senior secondary schooling participated in VET in Schools programs in 2005 (NCVER 2007d) 3. There is a substantial level of structured but non-accredited training funded within industry. The last survey in 2002 indicated that employer expenditure on training could be a as high as the level of government spending on the VET system (ABS 2003) There are various forms of support structures and incentive payments made by governments, both national and state. For apprentices and trainees there are payments, or exemption from some government charges, which can be considered a wage subsidy, though some employers use them to purchase training. Item 7 in Table 4 shows that 3 To the extent that schools themselves teach the VET courses the revenues for such programs are included in school and not VET funding statistics. To the extent that they purchase training from public VET institutions the funding would be included in Table 3. If they purchase training from private providers the funding would not be included in Table 3. 8

11 over $500 million is provided by the Australian government to support employers through the provision of cash incentives payable on the engagement and completion of traineeships and apprenticeships. Item 6 is for apprenticeship centres which facilitate the arrangements for the contracts of employment and training for apprentices and trainees. There is also support from state governments, though the total value is not easily estimated. Item 8 is for living allowances which can be payable to full-time students aged 16 or over who meet certain income criteria at schools, higher education and VET. Only about 10 per cent of all VET students (i.e. around 170,000 persons) are full-time and of those about 45,000 received benefits under these schemes in Table 4. Australian Government Resources for VET ($million) and Actual Budgeted $'000,000 $'000, Total departmental expense Skilling Australia s Workforce 1, Vocational and Technical Education National Programme Australian Apprenticeship Workforce Skills Development and Access Language, Literacy, Numeracy and other Programs Australian Apprenticeship Centre Support for Australian Apprenticeships Student financial assistance: ABSTUDY, Austudy and Youth Allowance Total 2, Source: Department of Education, Science and Training 2007, DEST Budget Statement Outcome 3. Both states and the Commonwealth provide funds for training providers but since the Australian Government commenced funding for VET in 1974 the usual practice was for the Commonwealth funds to be passed to the states for distribution. The main part of these funds passed to the states is under Item 2 in Table 4 (and is included in Table 3 under revenue from governments). However, the additional funds in item 4 do not flow through the state authorities but are passed to employers or workers to be used to pay providers. The Commonwealth s intention was to allow the employer or student to have greater choice. In 2008 there is also greater focus on areas of identified skill shortages. 9

12 4. Reviewing financial and regulatory changes 4.1. Background There have been a number of actual and proposed changes in the financing and organisation of VET which can be reviewed against the objectives for the system, outlined in the introduction. These were the mutual recognition of qualifications in a national system, expanding the VET system with higher level courses for new and existing workers, reducing skill shortages, orienting the system more closely to employer needs and the sharing the costs. Changes are made in a federal system where responsibilities and funding are shared between a national government and the states and a coherence of action is not always achieved. Several changes have promoted the expansion of the apprenticeship and traineeship components, and have aligned them more closely to employer needs. The main changes have been in the introduction of User Choice of the training provider, a system of quality assurance of providers, training packages which specified the industry required competencies to be covered for particular qualifications, and financial incentives to employers Public funds flowing to provider of choice Until about 20 years ago virtually all government funds for VET were allocated to TAFE colleges the public VET institutions. A major change that has occurred in Australia is the provision of a small share of public funds less than 10 per cent to private providers. This has occurred mainly with the funding of apprentices and trainees and for some minor programs. However the objective has been to expand the competitiveness of the system and this included allowing private providers access to government funds and allowing students and employers a choice of provider. User Choice was the name given to the main system of providing public funds to both government and private training organisations introduced in It allowed the employer and apprentice or trainee to choose the provider of publicly funded training. Despite being a nationally agreed policy User Choice was not uniformly introduced across the eight states and territories. The restrictions that vary across the states and territories relate to: the degree of preference for traditional apprenticeships in the trades over traineeships; the extent to which particular occupations are favoured; and the extent to which existing workers were eligible compared with new employees. Evaluations and surveys have consistently found strong support among employers for the flexibilities User Choice offers, as it enables training to be provided that more closely meets needs. Employer associations have expressed dissatisfaction that the full range of choices and flexibilities is not available because of restrictions imposed by states and territories (see Ferrier and Selby Smith 2003a,b). As already mentioned, recent Commonwealth programs have increased the extent to which employers or individuals can exercise choice of the training provider who will receive government funding. States are also considering changes in arrangements. As considered later, the Victorian government (2008) proposed to support an entitlement for all students to 10

13 study for qualifications higher than they currently hold, and the expansion over time in the flow of funds to the provider of choice The quality framework The introduction of User Choice and funds flowing to private providers increased the need for a national system of quality assurance of training providers. Any organisation wishing to deliver nationally recognised training has to become a Registered Training Organisation (RTO) under the rules of the Australian Quality Training Framework (AQTF). RTO s registered in any state and territory can deliver training in any part of the country and the qualifications awarded are similarly recognised. The standards to be met include compliance with legislation and ethical marketing, the qualifications of trainers and the approach to assessment. Providers are audited for compliance with the standards. The quality assurance procedures provided by the arrangements for registration and audit aims to ensure minimum standards are met, though the system is now aimed at quality improvement. On top of this it is expected that choice in the market would provide incentives for better quality provision and more responsive provision (Anderson 2006). Students and employers will seek the better providers, assuming sufficient information is available. However it is also recognized that there is a need for additional incentives to stimulate and develop staff and providers to continuous improvement. There are various ways in which this is pursued including through the audit process under the AQTF, through state and national training awards for high performing students and providers of training. Teacher development is supported in various ways though this is an area seen to be in need of greater support Training packages Part of the strategy to align VET with the needs of industry was the basing of certification on industry determined competency standards. A vocational competency comprises the specification of the knowledge and skill and its application within an occupation or industry to the standard of performance required in employment. A system of national Industry Skills Councils develop and advise on industry standards across occupations covered by VET sector training. These councils involve collaboration of unions and employer groups though there is no concept of social partnership as in, for example, Germany. The providers of training, of which the major ones are the public TAFE Colleges, are not directly represented in this process. From the mid 1990s the competency standards have progressively been assembled into Training Packages. Training Packages include the details of units of competency, assessment procedures, and the qualifications that can be awarded from completion of particular units of competency. The development of training packages stressed the need for the assessment of competency to be undertaken in the workplace or in a simulated workplace. About 60 per cent of the training delivered in the VET sector, perhaps 70 per cent of publicly supported VET and nearly all the training delivered to apprentices and trainees is based on training packages. Where a Training Package does not provide a suitable course to meet a local employment need the AQTF permits states and territories accreditation authorities to accredit other courses to meet that need. A set of nationally-agreed criteria apply to such accreditations. A course accredited in one State or Territory is placed on the national register of accredited courses and becomes available for offer in all States and Territories. 11

14 Criticisms of training packages centre on the neglect of more generic or employability skills and of broader educational outcomes, the flexibility of training packages to be adapted to emerging skills and their appropriateness for all clients of the VET sector including those who wish to progress to higher education. There is the ongoing concern that the providers of training who have the most understanding of the processes of teaching and learning have not been directly part of the process of development and revision of the training packages, and perhaps as a result, that there is patchy understanding of, and commitment to, the training package system by those who have an important role in its delivery. Reform to address several of these issues is underway. Recent analysis of the destinations of VET graduates indicates that many are employed outside the area for which their training appears to be most appropriate yet most feel that their training has work related benefits (Karmel, Mlotkowski &Awodeyi 2008). This draws further attention to the importance of generic and employability elements of VET training. In contrast to the VET sector, education provided in secondary schools and higher education is generally not based on competency standards, except for vocational subjects in the final years of secondary schooling. An ongoing issue is the credit awarded to VET graduates when they seek entry to higher education institutions. Assessment in VET units is intended to lead to a decision on whether the student is competent or not yet competent not to a grade or rank as commonly understood in schools and universities. This has led many VET providers to provide their students with graded results but there is no common system and the issue is unresolved, if beginning to receive attention Incentives for employers and co-financing Cash and concessions for engagement and completion The Australian government and state governments have encouraged arrangements that allow an apprentice/trainee on a training contract to be employed at a reduced wage rate compared with non-apprentice/trainee employee. The lower rate of payment is in recognition of the time the trainee spends in training and the lower initial productivity of the employee. The Australian government and state governments have also provided financial support to employers of apprentices or trainees. This support is reasonably substantial though its value in relation to wage costs varies with the length of course and the level of qualification: a cash payment to an employer by the Australian government on commencement of an apprentice or trainee and a cash payment on completion for Certificate III or IV programs; and state and territory support such as exemptions from state and territory payroll taxes or provision of cash payments. Where a course is taken successfully e.g. for a Certificate III traineeship in eighteen months the various incentives cover a substantial proportion of employee labour costs, possibly more than 30 per cent (Burke et al 2005). Changes in the system of incentives appear to have affected the distribution of traineeships. The majority of traineeships in the 1990s were at Certificate II level and were for an expected duration of one year but the length of the courses taken by trainees increased (NCVER 2007a Table 14). Most of the higher number of trainees in the early 2000s took a Certificate III course which takes longer than a year and attracts a higher Australian government incentive for employers. 12

15 Other encouragement to employers There is a range of other ways of encouraging employers to increase their provision of training some of which have already been mentioned. They include a national qualifications framework, the quality framework and the training packages. There is also a range of support for information for employers and employees including for research on skill needs, job information websites and various support bodies such as Local Community Partnerships for closer links between education providers and employers and Australian Apprenticeship Centres to facilitate the engagement of apprentices and trainees. Co-financing a levy The Australian national government for a few years at the beginning of the 1990s implemented what was called the Training Guarantee Levy. This was a levy-exemption scheme of the sort described by Gasskov (2001). The scheme required employers except for those with very small payrolls to provide evidence of training expenditure to the extent of 1.5 per cent of payroll or to pay a levy to the government. The training expenditure could be for structured non-accredited training or for accredited training. The scheme appeared to have lifted the apparent level of training expenditure among medium sized employers though nearly all employers with more than 100 employees or more appeared to already be at that or higher levels. The scheme was unpopular with employers and abandoned by the mid 1990s. However small levy schemes are used in the building industry in several states and provide collective support for a small part of the training by employers. Co-financing payment of fees or provision of training courses In 2008 the Australian government has proposed a considerable expansion in training places for existing workers. It has suggested that 90 per cent of the costs be shared between the Australian government and the states and that employers make a contribution of 10 per cent of the cost of training existing workers (Australia 2008). It is known that employers often pay tuition fees for their employees but there is no ready way to estimate what proportion of fees this represents. A household survey in 2005 provided an estimate that some 300,000 students taking VET level courses (or less than 20 per cent of VET students) received some support from employers (ABS Table 4) but this does not indicate the extent of the support. It is surprising that the reported figure was not higher than 300,000 given that nearly 400,000 persons were engaged in the apprenticeships or traineeships in Employers would have supported some of their employees on other VET courses too. In many cases employers provide training or arrange for a trainer to deliver structured training for their employees. A survey of employer training expenditure for found that employers in Australia spent $4,000 million on structured training, with government subsidies or other offsets covering less than $400 million, leaving a net expenditure of nearly $3,700 million. This does not include the wages and salaries of employees while they are undertaking their training (ABS 2003). This total estimated expenditure of $3,700 million by employers was not much lower than government expenditure on VET in 2002 of $3,900 million (implied in Table 3 above). Where an external provider of training was used the most common types were TAFE and private providers 4. It appears that much employer expenditure was for non-accredited training. but it 4 The expenditure that was received by TAFEs would be included in the other fee for service in Table 3. 13

16 is not possible to be precise about the share for accredited and non-accredited training. Over recent years, with the use of training packages, the possibility for workers to gain credit toward an accredited qualification for workplace training has grown substantially. Co-financing leveraging private payments TAFE colleges have been encouraged to seek fee-for service funds to supplement the grants received from governments. In some cases they are permitted to provide some public funds to support a course that is largely privately financed. The state of Victoria has a leveraging policy. The policy restricts how and how long public funds can be used in such arrangements. There are examples of very successful arrangements. Chisholm Institute of TAFE developed a partnership with the Toyota Motor Corporation. Both partners made substantial contributions to the development of the program and training was delivered using some public funding, supplemented by funding from Toyota. The arrangement freed some public funds for other training delivered by the institute and the staff developed new skills and capabilities through their participation in the partnership. The institute believes that such arrangements are most appropriate with higher level and specialist training with reasonably stable and profitable firms (Ferrier et al 2008) Individual co-financing: subsidised fees, full-cost fees and income contingent loans Subsidised fees In the publicly funded VET sector for post-secondary education, tuition fees are charged but they are low, representing per cent of course costs (Victoria 2008). There have been recent increases in fees in some states but they still remain quite low compared with university fees. Students from low-income background or other measure of disadvantage are exempt from much of the tuition fees for government supported courses in the VET sector. There is though a limit on the public funds made available for VET and, unlike secondary schools, not all students who wish to enrol have been able to do so in publicly supported training. Public VET institutions and private VET providers also offer programs additional to those supported by public funds but at full cost to students or to employers. The Victorian government (2008) has proposed several measures that bear on this. Firstly they propose what can be called an entitlement that all potential VET students be provided with a publicly supported place so long as they are pursuing a course at a higher level than they already hold. This means that, assuming capacity to deliver the courses is available, there will be no limit on enrolments. This should mean that students will no longer be deterred from undertaking VET by lack of a publicly supported place hence equality of access to further education should be enhanced. The question has been raised as to how effective such a system will be in encouraging training in the areas of skills shortages. It will be important e to ensure adequate information on job prospects and to ensure that other incentives be directed at the skill shortage areas to make sure they are attractive to students entering VET. This Victorian proposal will involve increased expenditure on VET. Part of this will be recovered through a higher rate of tuition fees at least for higher level courses for which likely individual returns are seen to be good (Long and Shah 2008). To ensure that this has minimal 14

17 effect on student demand it is proposed that consideration be given to income contingent loans of the sort available for higher education courses in Australia since Income contingent loans University fees were abolished in 1974 but were reintroduced in the late 1980s. A substantial fee was introduced accompanied by an income contingent loan. There have been several changes to the scheme since then, with the fees tending to increase so that now they range from about 80 per cent of tuition costs for law and commerce down to about 25 per cent for nursing. All undergraduate Australian students in publicly funded courses are liable for the fees and no exemptions are made for low-income background. However, the undergraduate Australian university student does not have to pay the tuition fee while he or she is studying. An income contingent loan is made available by the Australian Government. Some students and their families chose to pay the fees up-front, as there is 20 per cent discount for an upfront payment. Repayment of the loan is not required until the annual income reaches a minimum specified threshold. This level is just under $42,000 in It is somewhat above the minimum but below the average beginning salary of new higher education graduates in full-time work. It means that persons who do not get full-time work or only low paid work do not have to repay their loans. The loans are repaid through the income tax system. The reviews of the scheme, which has been operating since 1989, suggest that very few young persons have been deterred from entering higher education though they may have affected choice of course since 1997 when a range of fees were introduced replacing a single rate charged up to that time. Also some older persons who are already earning above the income threshold for repayment have been deterred from enrolling. The main purpose of the re-introduction of fees in higher education was to reduce government outlays on persons who would go on to earn good incomes. The money saved could be used to expand the overall level of enrolments in higher education and to support other areas of education. Chapman et al (2008) argue that income contingent loans should be available for VET students. The exemptions given for low income students do however suggest that few students would currently be deterred by the current fee structure for publicly funded VET. The case for income contingent loans in VET would be much stronger if fees were increased substantially in VET. The case for higher fee levels in VET is not as strong as it is in higher education. Students in higher education tend to be from higher socio-economic background and go on to earn above average incomes. In VET a large proportion of the students are from low income homes and tend not to earn above average incomes after their courses, though clearly some do. The case for higher fees for more advanced courses may be stronger than for fee increases for VET in general. Student assistance Students have to meet living costs. The national government gives grants for living allowance to full-time students aged 16 and over, subject to a test on the student s and the parents income and assets. Over a quarter of all full-time students receive a grant but the proportion is declining. There is a special scheme for Indigenous Australian many of whom in any case are from low-income background. These forms of assistance are considerable in senior secondary schooling and undergraduate higher education where the large majority of students are fulltime. In the VET sector where most students are part-time about 45,000, about a quarter of 15

18 full-time students, but only about 3 per cent of all students, receive assistance. Expenditure is still considerable at nearly $300 million as shown in Table 4. For adult single persons living at home with their parents the maximum rate of the allowance is less than a quarter of the full-time minimum wage, though the student is permitted a level of earnings from employment. There are ongoing issues of the adequacy of the assistance and the need to extend it to persons in part-time education and training. 5. Conclusion This section offers some assessment of the extent to which the system is meeting its goals as listed in the introduction and the extent to which the financial arrangements have contributed. the development of a national VET system in Australia Over three decades the central objective of various national\state agreements for VET funding have been largely realised. A comprehensive and well distributed public TAFE system has been developed and until the past few years there has been ongoing growth in VET enrolments and participation. Major policy objectives mutual recognition, a consistent quality assurance framework, growth in apprenticeships, development of VET provision in schools and the opening up of the training market have been largely implemented. There are still concerns about the capacity of the regulatory system to ensure that all providers are delivering good quality training. Employers and industry groups are still concerned about inconsistencies in the operation of the national training system between states, for example inconsistent approaches to funding. However while the VET system remain administered at a state level some degree of inconsistency is inevitable. expanding the provision of VET, for new entrants to the workforce and for existing workers, and increasing numbers in higher level courses There was considerable expansion of the system in the late 1990s. In recent years there has been little change in the number of VET students. Public funding has not changed in real terms in recent years After a rapid expansion to the early 2000s the number of older persons enrolled has slightly declined. Older persons' enrolment though is very high relative to higher education and it appears high relative to enrolment by older persons in other countries. There has been a growth in the number of young persons engaged in the last few years. There was relatively fast and continued expansion into the 2000s in apprentice and trainee numbers which seems to be a response to the combined effects of User Choice, Training Packages and Employer Incentives. These also contributed to the relative expansion of level III courses. However higher level enrolments for Diploma and Advanced Diploma courses in publicly supported VET have stagnated in the last few years so the objective of more highly trained VET graduates is not yet being met. On the other hand, the numbers of international students at this level has grown substantially. The proposal in Victoria to provide public funding to support all who wish to do courses up to Advanced Diploma would seem likely to expand the number of Australian students at higher levels. The Commonwealth provided access to employer incentives for a range of Diploma and Advanced Diploma courses from the start of 2007 and it is not clear yet that it has had much effect on numbers. It may be that the employment and career benefits for such courses relative to degree courses will need to be more evident to potential students, though rate of return studies suggest that there is a good payoff to such courses. 16

19 addressing skill shortages Skill shortages remain a driving force in government policy. The extent of skill shortages varies considerably by occupation and by region with the resource boom states such as Western Australia having notably greater difficulties. In some states the evidence for shortages is more limited and in some cases can be seen to be associated with the employment conditions rather than a lack of trained personnel (Shah and Burke 2008). The additional places supported by the Commonwealth government being allocated from 2008 are explicitly directed at areas of skill shortages. The recent expansion of the numbers undertaking traditional trade apprenticeships suggests that the VET system has been quite responsive in a number of areas and the financial arrangements underpinning apprenticeships and traineeships reasonably successful. orienting the system more efficiently to industry needs From the early 1990s the system has become increasingly industry led e.g. in the development of Training Packages. Public funding has become accessible by private providers for a range of courses (mainly apprenticeships and traineeships) though most public funding is still allocated to public provider. The degree of contestability for funds remains moderate in most states and territories. A review by Anderson (2006) indicated that the more competitive market that had developed with User Choice was seen to have increased responsiveness though it also involved increased costs of marketing and management compared with a less competitive system. The level of public funding per student or per hour of training is somewhat lower than it was in the 1990s which could be taken as a sign of increased productivity or as an indication of inadequate levels of funding. Measure of employer and student satisfaction with the public and private providers in the VET system do not seem to change notably over time. Changes proposed in 2008 at both national and state level to the allocation of finance seem likely to expand VET enrolments and to increase contestability among providers of training. sharing the costs of the expansion among national and state governments and employers or students The changes in financing over the last decade have seen a relatively small increase in private financing of VET delivery and an increase in government support for employers of apprentices and trainees. There has been little change in the level of individual contributions, unlike the position in higher education where higher fees, supported by income contingent loans, have seen a continuing increase in private funding. Changes proposed may see some increase in employer contributions to funding and an increase in individual payments, perhaps supported by income contingent loans. improving equity in education and training The VET sector in Australia caters for a higher proportion of students from lower socioeconomic background than the higher education sector. Indigenous persons are disproportionately highly represented in VET though they tend to undertake mainly lower level courses. VET offers the most opportunities for older persons to participate, as evidenced by the high proportion of older persons engaged. 17

20 The recent expansion in the numbers of young persons engaged in VET is probably a response to policies in some states to guarantee funding for all young people to have access to a qualification equivalent to that of completing secondary school. In some cases extra funding has been provided to support TAFE institutes in the delivery of courses to young persons. The recent proposal in Victoria to provide publicly supported places for all persons wishing to lift their level of VET qualifications (up to Advanced Diploma) would seem to address the lack of places that in the past has deprived some persons of access. However it will be important to supplement such a policy with additional financial support and mentoring for those who in the past have not been successful in the formal education system. References Anderson, D 2006, Trading places: the impact and outcomes of market reform in VET, National Centre for Vocational Education Research, Adelaide. ABS 2003, Employer training expenditure and practices Australia, (6362.0). ABS 2006, Education and Training Experience, Australia 2005 (6278.0). Australian Government 2008, Skilling Australia for the Future, Discussion Paper Burke, G, Ferrier F, Long M and Shah C 2005, Impact of policy on demand for publicly funded VET, Report prepared for the Dep t of Education, Science and Training. Burke, G & Selby Smith, C 2008 in press, 'Economic perspectives on technical and vocational education and training' in Maclean, R & Wilson, D, (Eds) International Handbook of Technical and Vocational Education and Training, Springer, Dordrecht. Chapman B, Rodrigues, M and Ryan C 2008, An Analysis of FEE-HELP in the Vocational Education and Training Sector, Australian National University Centre for Economic Policy Research, Discussion Paper No Gasskov, V 2001, Government interventions in private financing of training, International Labour Organisation. Ferrier, F, Dumbrell, T and Burke, G 2008 in press, VET Providers in the Competitive Training Market, An exploration of experiences and initiatives in 3 areas, National Centre for Vocational Education Research Ferrier, F & Selby Smith, C 2003a, An investigation of ACCI s User Choice Proposals, CEET Working Paper series, no. 47, Monash University. Ferrier, F & Selby Smith, C 2003b, The User Choice Experience of Australian firms: A Further Investigation, CEET Working Paper series, no. 49, Monash University. Kangan, M (Chair) 1974, TAFE in Australia, Report of the Australian Committee on Technical and Further Education, Canberra. Karmel, T, Peter Mlotkowski & P Awodeyi, T 2008, Is VET vocational? The relevance of training to the occupations of vocational education and training graduates, NCVER, Adelaide. Long, M and Shah, C 2008 in press, Private returns to vocational education and training qualifications, NCVER. National Centre for Vocational Education Research (NCVER) 2007a, Australian Vocational Education and Training Statistics, Apprentices and Trainees 2006 Annual. NCVER 2007b, Australian Vocational Education and Training Statistics, Financial Data NCVER 2007c, Australian Vocational Education and Training Statistics, Students and Courses NCVER 2007d, Australian vocational education and training statistics: VET in Schools OECD 2007a, Education at a Glance 2007, Paris. OECD 2007b, Science Competencies for Tomorrow s World, PISA 2006 Paris. 18

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