House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Skills and Training, the Hon Brendan O'Connor MP)

Chapter Four: Policy Options

Incentive programs are designed to improve the attractiveness of apprenticeships, particularly for employers, to address skills shortages in many occupations that depend on apprenticeships as the main pathway to training and support the development of a highly skilled Australian workforce. Removing incentives is therefore not being considered as an option as it would have an adverse impact on Australia's pipeline of skilled workers and employers in key industries.

Numerous policy options have been explored to address the issues with the current incentives system. The key policy parameters considered are that:

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Incentives should be targeted to address skill shortages;

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Incentives should lower the costs to employers;

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Incentives should focus on the decision maker;

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Incentives should be simpler to navigate and understand; and

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Employers and apprentices should have access to more non-financial support.

Learnings from apprenticeships COVID-19 economic response measures such as the Boosting Apprenticeship Commencements (BAC), Supporting Apprentice and Trainees (SAT) and Completing Apprenticeship Commencements (CAC) measures, have also been taken into account.

Table 4 briefly outlines the three options explored in this RIS. These include:

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An option to make no further reform which will result in the Incentives for Australian Apprenticeships (IAA) program coming into effect from 1 July 2022;

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A targeted option that refocuses the existing program to invest in priority occupations only from 1 July 2022; and

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A phased option with higher support until 1 July 2024, following by a reduction in support that stabilises at 2019 levels.

Cost and the role of government intervention

A further consideration in the design of the policy options is the total cost of the intervention, with a need to ensure fiscal sustainability in the longer term. As a result of this consideration, the Department is not proposing the introduction of a long term wage subsidy package - covering both priority (for example carpenters, electricians and childcare workers) and non-priority occupations (for example office managers, general clerks and sales assistants.

The BAC, a broad policy measure open to all employers of apprentices and trainees, both trade and non-trade, was introduced as a key COVID-19 pandemic response measure. It was designed to address the steep decline in Australian Apprenticeship commencements in mid-2020 (around 20 per cent). This measure was further supported by the introduction of the CAC in 2021 which focused on providing ongoing support to apprentices and trainees engaged through the BAC and stabilising the broader Australian Apprenticeships system.

The BAC was never intended to become a permanent feature of the system; it was delivered as a short-term boost to support employers as the economy recovered.

The BAC wage subsidy lifted the total number of apprentices and trainees in-training, increasing from 264,585 in September 2020 (National Centre for Vocational Education Research (NCVER)) to 360,000 in September 2021 (Departmental program data). As at 10 March , 71,600 businesses have been supported by the BAC.

The BAC and CAC however are high cost, with around $5.8 billion provided over the forwards.

This style of measure would not be fiscally sustainable as it would build a long-term employer dependence on Australian Government intervention and significant financial support to take on an apprentice. Given that the benefits from apprenticeships are shared with employers and industry more widely, governments should not be expected to cover a substantial portion of the costs involved with the apprenticeship. ^[51] Employers reap the benefits from the skilled labour the apprentice provides, and as such should expect to pay most of the apprentice's wages and costs. Accordingly, the introduction of a new incentives model to stimulate commencements and completions by providing a high value wage subsidy for all occupations irrespective of the needs of industry and the economy similar to the BAC and CAC is not proposed.

Systems are not designed to be set and forget. They require regular monitoring, review and evaluation to enable them to shift to the changing needs of the economy. Continuing to direct significant investment towards non-priority occupations without any review or tapering would divert valuable resource from areas of skills need. Effectively this model would see the government supplementing the wages for positions that businesses would traditionally have filled themselves without the need for government intervention.

A package of this nature would result in a significant increase in Australian Government ongoing spending in apprenticeships. As such, the introduction of a long-term high cost wage subsidy has not been included in this RIS.

Table 4: Policy options under consideration

4.1 Option 1: Introduce the Incentives for Australian Apprenticeships (no further reform)

Features of this option

The IAA would include a simplified payment structure with reduced payment types and streamlined eligibility requirements to make it easier for employers to understand and claim incentives. The IAA includes payments to employers, primarily on commencement and completion of an apprenticeship, and additional payments for key cohorts such as apprentices with a disability or priority occupations. This option would come into effect on 1 July 2022.

Simplified payment structure

The IAA would have a simplified payment structure comprising 15 payment types (reduced from over 30 under the Australian Apprenticeships Incentives Program (AAIP)) with streamlined eligibility requirements, making it easier for eligible employers to understand and claim incentives.

For the employer

Standard incentives

The IAA maintains pre-COVID-19 incentive levels for most employers. These are:

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Payment upon commencement of the apprenticeship: $1,500

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Payment upon completion of the apprenticeship: $2,500

For employers of apprentices with a disability, the current wage subsidy would also continue at $104.30 per week.

Targeted incentives

In addition to the standard incentives available, eligible employers would be able to access additional incentives if they hire an apprentice from target groups related to age, work location, level of education and existing worker status. These targeted incentives would provide $750 on commencement and between $750-$1,500 upon completion. Incentives would be available to all employers, regardless of business size, to minimise complexity and make the system more attractive and easier to understand for employers.

Under the IAA, the Additional Identified Skills Shortage (AISS) payment would continue, providing $2,000 on commencement and $2,000 on completion to employers who hire an apprentice in an occupation experiencing national skills shortage.

For the apprentice or trainee

Under the IAA, Living Away From Home Allowance (LAFHA) would continue to provide support to apprentices over three years who relocate to undertake their apprenticeship:

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$77.17 per week in the first year;

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$38.59 per week in the second year; and

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$25.00 per week in the third year.

In addition to payments to the employer, the Additional Identified Skills Shortage (AISS) payment would provide $1,000 after the first year and $1,000 on completion to the apprentice in an occupation experiencing national skills shortage.

Implementation of this option

Program guidelines

The implementation of the IAA would be supported by Program Guidelines, published on the Department's website and GrantConnect. The Program Guidelines would provide details on incentives including eligibility requirements and how to apply.

Grandfathering arrangements

All existing employers and apprentices on the Australian Apprenticeships Incentives Program (AAIP) that commenced prior to 1 July 2022 would be grandfathered under existing arrangements.

AASN provider contracts

Implementing the IAA would require a variation to the Australian Apprenticeship Support Network (AASN) provider contract which commenced 1 February 2020. In addition to delivering the new IAA, AASN providers would continue to deliver the AAIP program, as employers would still be eligible to claim AAIP incentives for an Australian Apprentice who commenced prior to 1 July 2022.

Information technology

The current IT system that underpins Australian Apprenticeships - the Training and Youth Internet Management System (TYIMS) - was set up in 1999 and is at the end of its capability. TYIMS collects all apprenticeships data and supports service provision to employers and apprentices including incentive payments. A new system is under development - the Apprenticeships Data Management System (ADMS). The new incentives framework will be delivered through the new ADMS, however the TYIMS will continue to support existing incentives until the new system is fully operational. ADMS will provide a better user experience, with a strong self-service component for apprentices and employers when lodging claims.

4.2 Option 2: Employer hiring incentive (priority occupations)

Features of this option

This option targets apprenticeships in priority occupations only and would come into effect from 1 July 2022. This sends a clear message to apprentices to take up an apprenticeship in an occupation that will lead to qualifications in a skill in a priority occupation. Specific features of this option include:

Main features:

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Introduction of the Priority List

Employer Package:

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Employer hiring incentive for priority occupations only

Apprentice Package:

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New Australian Apprentice Training Support Payment (Support Payment) for priority occupations only

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Expanded access to TSL for priority occupations only

Youth Support:

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Targeted youth apprenticeship support for eligible Australian apprentices aged 15 to 20 to provide additional In-Training Support (ITS) places for young Australian Apprentices and follow-up phone calls three months after commencement

Administrative Changes:

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Simplify eligibility criteria to remove previous and concurrent qualification restrictions

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Cease the Additional Identified Skills Shortage (AISS) payment and formally close Australian Apprenticeship Wage Subsidy program

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Keep the Living Away From Home Allowance (LAFHA)

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Keep In-Training Support (ITS) places for apprentices

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Keep the Disability Australian Apprenticeship Wage Support (DAAWS)

The Priority List will be used to target investment to occupations in skills shortages

A new Apprenticeships Priority List (the Priority List) will be used to identify occupations with a primary apprenticeship pathway that are in current or projected future demand. The Priority List is based on National Skills Commission (NSC) analysis of the occupations in current shortage and future demand over the next five years. The Priority List will consolidate and supersede other occupation lists that have been used for different Australian Apprenticeship programs in the past including the NSNL, the Priority Occupations List, and the Additional Identified Skills Shortage Payment List. The current Priority List is available at Attachment D. Importantly, the Priority List will be reviewed and updated every year, based on the NSC's updated analysis.

Under this option, the level of support an employer or apprentice receives will depend on whether the occupation in which the apprenticeship is undertaken is on the Priority List at the time the apprentice commences. If the occupation is on the Priority List at the time of commencement, the employer and apprentice will remain eligible for support for the duration of the apprenticeship, regardless of whether the occupation is subsequently removed from the Priority List.

Employer hiring incentive for priority occupations

A hiring incentive would be provided to employers who hire an apprentice in an occupation on the Priority List. These employers would receive $4,000, which would be paid in instalments of $1,000 (paid at six months) and $3,000 paid at 12 months after commencement.

Apprentice Package

Australian Apprentice Training Support Payment (priority occupations)

From 1 July 2022, eligible apprentices commencing a Certificate III level qualification or above on the Priority List, would receive $750 every six months over two years (a total of $3,000).

The payment would be a regular taxable Support Payment, indexed annually to changes in the Consumer Price Index (CPI) to support apprentices to remain in training and to meet the cost of work and training in the early years of the apprenticeship. The Support Payment will only be available to newly commencing apprentices in occupations on the Priority List. Apprentices who commenced prior to 1 July 2022 will not be eligible.

The purpose of the payment will be to provide apprentices with a financial incentive to remain in training and complete their apprenticeship, at a time when their wages are low and they may be able to secure a higher wage in an unskilled job.

Expand Trade Support Loans - Australian Apprenticeship Support Loans

The TSL program will be altered to reduce administrative burden and increase support for apprentices in priority occupations, including non-trade Australian Apprentices such as in aged care and childcare. Changes include:

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Align eligibility to offer support for all apprentices on the Priority List, including expansion to non-trade priority occupations;

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Rename the scheme Australian Apprenticeship Support Loans to align with new eligibility for non-trade occupations; and

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AASNs will be allowed greater administrative flexibility to backdate TSL payments to provide immediate support to recipients. This will allow a payment to be backdated to:

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the date the first application and all future opt ins were made;

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the date of a missed payment due to an administrative error.

Youth Support

To support young Australians undertaking an apprenticeship in priority occupations, targeted youth apprenticeship support would be introduced for Australian Apprentices aged 15 to 20. This support would include 2,500 additional ITS places for young Australian Apprentices (currently approximately 30,000 places are available each year for all Australian Apprentices) and the introduction of a three month follow up call after commencement to provide an opportunity for apprentices to seek advice or request further support.

Administrative Changes

Simplified Prior and Concurrent Qualifications eligibility criteria

The Prior and Concurrent Qualifications eligibility criteria would be removed to support individuals with previous qualifications to undertake an apprenticeship and encourage lifelong learning. These changes will remove current disincentives for employers to hire experienced candidates with a prior qualification and will also allow experienced apprentices to accelerate their apprenticeship. This will give employers quicker access to qualified workers and facilitate the re-skilling of workers in occupations in high demand.

Ceasing of AISS payment and formal closure of AAWS

The AAWS trial encouraged employers to hire regional and rural apprentices in priority occupations, consistent with the NSNL. Formally closing the AAWS will remove the need for employers to track multiple lists and payments, reducing complexity within the apprenticeship system. Similarly, from 1 July 2022, the AISS payment will be closed to new participants to allow for introduction of a new incentives system.

Implementation of this option

Legislation

New primary legislation is recommended for any new incentives system to improve and simplify administration of the program and protect apprentices through strengthened accountability. Additionally, changes to the TSL will need to be reflected in the TSL Act and Rules.

New legislation will not be in place until after 1 July 2022. In the interim, legislative authority and operation of the new program (excluding TSL) will rest on items in the Financial Framework (Supplementary Powers) Schedule 1AB (FFSP) and robust Program Guidelines, similar to the operation of the current program.

Changes to TSL will be implemented once proposed changes to the enabling legislation are made. TSL is governed by the Trade Support Loans Act 2014 and two legislative instruments: the Trade Support Loans Rules 2014 and Trade Support Loans Priority List 2014. It is anticipated that legislation will be introduced in the Spring 2022 sittings.

Program Guidelines

The implementation of the AAIS would be supported by new Program Guidelines, published on the Department's website and GrantConnect. The Program Guidelines would provide details on incentives including eligibility requirements and how to apply.

Grandfathering arrangements

All existing employers and apprentices on the current program that commenced prior to 1 July 2022 would be grandfathered under existing arrangements.

AASN provider contracts

Implementing the new incentives model would require a variation to the AASN provider contract which commenced on 1 February 2020.

In addition to delivering the new model, AASN providers would also continue to deliver the current program, as employers claiming incentives for an Australian Apprentice prior to 1 July 2022 would continue to receive payments under the AAIP payment structure for that apprentice.

Information technology

ADMS will continue to be rolled out incrementally as an agile IT project from October 2020 through to 30 June 2024. TYIMS will continue to support existing incentives while ADMS is being developed and program elements are transferred from TYIMS. New incentives and arrangements will be supported on ADMS.

Stakeholder engagement

As part of implementation, consultation with key stakeholders (including the AASN) would be undertaken. Additionally, the Priority List will be carefully communicated to ensure stakeholders understand how the Priority List is updated and where to find current information.

4.3 Option 3: A phased option of the Australian Apprenticeships Incentive System with the flexibility to respond to economic conditions

Under Option 3, the Australian Government would introduce a reformed Australian Apprenticeships Incentive System over two separate phases, to provide support to priority and non-priority occupations during the COVID-19 recovery from 1 July 2022 to 30 June 2024, before targeting investment only 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.

The first phase of this option would feature a wage subsidy for employers of apprentices in priority occupations, hiring incentives for employers of apprentices in non-priority occupations, and a direct payment to priority apprentices to help them meet the costs of living while training. This phase would begin on 1 July 2022 and would conclude on 30 June 2024.

From 1 July 2024 the second phase would begin, which would match Option 2. Financial support would stabilise around 2019 levels and will only be available for priority apprentices and their employers to ensure that it is targeting the skills in demand across the economy. The wage subsidy will be replaced with a hiring incentive and the direct payment will be reduced. The hiring incentive for non-priority apprentices will be removed.

Features of this option (phase one)

Phase one between 1 July 2022 and 30 June 2024:

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Wage subsidy for employers in priority occupations;

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Employer hiring incentive for employers of apprentices in non-priority occupations;

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Apprentice payment (same as Option 2, but with a higher payment amount);

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Introduction of the new Priority List (same as per Option 2);

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Youth support (same as per Option 2); and

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Administrative changes (same as per Option 2).

Wage subsidy for the employer of an apprentice in a priority occupation

Under this option an employer of an apprentice in a priority occupation would be paid a wage subsidy as set out below:

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10 per cent of wages paid in the first year, up to a maximum of $1,500 per quarter per apprentice;

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10 per cent of wages paid in the second year, up to a maximum of $1,500 per quarter per apprentice; and

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5 per cent of wages paid in the third year, up to a maximum of $750 per quarter per apprentice.

The maximum an employer could claim over the life of an apprenticeship is $15,000.

Employer hiring incentive for employers of apprentices in non-priority occupations:

The hiring incentive would provide employers of apprentices in non-priority occupations a $3,500 incentive payment paid in two instalments. An instalment of $1,750 would be payable at six and 12 months after hiring an apprentice in a non-priority occupation. These payments would act as encouragement for employers to invest in and support a highly skilled Australian workforce.

After this, the program will progress to phase two with a reduced level of government investment comparable to 2019 levels, equal to Option 2.

Apprentice package

Australian Apprentice Training Support Payment (priority occupations)

The Apprentice Training Support Payment arrangements for Option 3 are the same as Option 2, but with a higher payment amount. From 1 July 2022, eligible apprentices commencing a Certificate III level qualification or above on the Priority List, would receive $1,250 every six months over two years (a total of $5,000).

Features of this option (phase two)

Hiring incentives for employers in priority occupations only

During phase two, Australian Government support would only be available for apprentices training in priority occupations listed on the Priority List. This is to maximise Australian Government support towards those training in demand skills, and to incentivise apprentices towards these priority areas. The employer wage subsidy from phase one would be replaced by a hiring incentive of $4,000 for employers of apprentices training in priority occupations to encourage employers to take on further apprentices.

No support for employers in non-priority occupations

In phase two there would be no incentives for employers of apprentices in a non-priority occupation or for apprentices commencing in non-priority occupations. This sends a clear message to apprentices to take up an apprenticeship in an occupation that will lead to qualifications in a skill in demand.

Apprentice package

Australian Apprentice Training Support Payment (priority occupations)

From 1 July 2024, the Apprentice Training Support Payment arrangements for Option 3 would be the same as Option 2. Eligible apprentices commencing a Certificate III level qualification or above on the Priority List would receive $750 every six months over two years (a total of $3,000).

Implementation of this option

As in Option 2, implementation of Option 3 would require new legislation, developing new program guidelines and updated contracts with the AASN. Grandfathering arrangements would also be the same for employers and apprentices already in receipt of incentives and priority occupations will be determined by the Priority List as in Option 2.

Stakeholder management and careful communication will be necessary to ensure AASNs, employers and apprentices are aware of the change in support after 1 July 2024.

The IT requirements will also require a staged approach to accommodate both sets of changes. The rollout of the ADMS will support the AASNs through streamlined IT processes and enable system changes between the two phases to be implemented.