Explanatory Memorandum
(Circulated by the authority of the Minister for Skills and Training, the Hon Brendan O'Connor MP)Executive Summary
The training and qualifications gained through Australian Apprenticeships are vital to developing the highly skilled workers that are essential to the future of the Australian labour force. Australian Government investment in the apprenticeships sector for both employers and apprentices is needed to support the uptake of apprenticeships and to support completions.
This Regulation Impact Statement (RIS) provides policy options for Australian Government action to improve the Australian Apprenticeships system. It focuses on how the Department implements the Australian Government's commitment to ensure there is a pipeline of skilled apprentices and trainees in priority occupations to support and grow the economy.
Prior to the introduction of COVID-19 response measures to support the apprenticeships system, the number of Australian Apprentices commencing and completing an apprenticeship or traineeship had been in decline. This contributed to persistent skills shortages in priority occupations across the economy. Key issues with the pre-COVID-19 apprenticeship incentives system (the Australian Apprenticeships Incentives Program (AAIP)) included:
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- Incentives were not targeted to meet skill shortages;
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- Costs remained high and were increasing for both the employer and the apprentice;
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- Incentives did not focus on the decision maker;
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- Incentives were difficult to navigate and understand; and
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- Non-financial support was needed for apprentices.
The COVID-19 response measures, particularly the Boosting Apprenticeship Commencements (BAC) wage subsidy, were effective in turning the decline in apprenticeship commencements around. However, the BAC measure came at a very substantial cost to the Australian Government.
There is a need to reset the Apprenticeship Incentives system to a more fiscally sustainable model, that better targets investment to support priority commencements and completions.
The most effective policy option - a reformed Australian Apprenticeships Incentive System (AAIS) - targets government investment to the skills in demand. To provide time to assess the impact of implementation and how the market reacts to changes in the system, the RIS recommends the AAIS is delivered in two phases. The two phased approach will provide support to priority and non-priority occupations during the COVID-19 recovery from 1 July 2022 to 30 June 2024, before targeting investment to priority occupations only from 1 July 2024. This will prioritise the development of in-demand skills while providing a manageable step down in support from the BAC program, transitioning to a more fiscally sustainable model.
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- The first phase of this option (1 July 2022 to 30 June 2024) features a wage subsidy for employers of apprentices in priority occupations, a hiring incentive for employers of apprentices in non-priority occupations, and a direct training support payment to apprentices in priority occupations.
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- In the second phase (from 1 July 2024 onwards), financial support will be stabilised around 2019 levels and will only be available for apprentices in priority occupations and their employers. The wage subsidy will be replaced with a hiring incentive and the direct training support payment will be reduced. The hiring incentive for non-priority apprentices will be removed.
The RIS assesses three options:
Option 1: Implement the Incentives for Australian Apprenticeships (IAA) program formally agreed in the 2019-20 Budget but not yet implemented. This would streamline the existing system but would not achieve any additional commencements or completions in priority occupations recognised as in skills need, due to minimal funding for priority apprentices (no regulatory cost).
Option 2: Modernise and simplify the current program to respond to emerging economic conditions, reduce administrative burden and provide additional support to young Australian Apprentices. Funding would be directed to priority occupations but there would be no support for non-priority occupations (minor annual regulatory cost savings of $3.6 million).
Option 3: A phased model - modernising and simplifying the current program in two phases focusing on supporting employers and apprentices in priority occupations, with support for non-priority occupations tapering over time (annual regulatory cost burden of $14.6 million).
Option 3 is identified as the most cost-effective mechanism to transform the Australian Apprenticeships system by focusing investment to areas of priority based on the Australian Apprenticeships Priority List (Priority List) to ensure a pipeline of Australian Apprentices to support Australia's economic recovery.
This RIS has been developed in accordance with the Australian Government Guide to Regulatory Impact Analysis and in consultation with the Department of the Prime Minister and Cabinet's Office of Best Practice Regulation (OBPR).