Explanatory Memorandum
(Circulated by the authority of the Minister for Skills and Training, the Hon Brendan O'Connor MP)Chapter Three: Need for Australian Government action
A highly skilled labour force is fundamental to Australia's future. Australian Apprenticeships are essential in providing workers with the skills and qualifications to deliver the goods and services that underpin Australia's economy. Addressing the barriers to uptake and completion of apprenticeships is an important role for the Australian Government. Australian Government reform of the apprenticeship incentives system needs to target investment effectively to address the barriers faced by employers and apprentices. The system also needs to be financially sustainable to provide ongoing support. Broader reforms to the training system through the National Skills Agreement (NSA) are also key, noting apprenticeships are the only area of the Vocational Education and Training (VET) system where employers determine the number of people in training. [49]
The economic rationale for incentives in the apprenticeships sector is to offset the high costs to employers to increase the number of training places offered in priority occupations. Additionally, incentives paid to apprentices seek to address low wages, costs associated with training and to make apprenticeships more financially appealing compared to competing industries. Research shows employer wage subsidies and apprentice payments can influence behaviour and have a positive effect on commencement and completion rates. [50] Given this, offsetting costs to employers and providing financial incentives for apprentices are good policy options that will upskill the Australian workforce and fill jobs in the occupations Australia needs.
The Australian Government shares responsibility for the VET system in Australia with state and territory governments. Recent measures, such as the Supporting Apprentices and Trainees (SAT), Boosting Apprenticeship Commencements (BAC) and Completing Apprenticeship Commencements (CAC) fundamentally transformed the apprenticeship system and demonstrated the positive impact Australian Government incentives can have on Australian Apprenticeship outcomes. A new approach to the apprenticeship incentives system will build on this success in the longer-term. This will contribute to meeting broader Australian Government objectives to reduce regulation and boost the scale and flexibility of the skilled domestic workforce.
3.1 The Incentives for Australian Apprenticeships will help but more can be done
The Incentives for Australian Apprenticeships (IAA) program was announced in the 2019-20 Budget to simplify and streamline Australian Apprenticeship incentives when compared with the current Australian Apprenticeships Incentives Program (AAIP) specifically reducing the number of incentives from over 30 to 15. However, the IAA only effectively addressed some, not all, barriers to employers and apprentices. Since the IAA was announced, multiple incentives and subsidies have been introduced that provide more insight into what works and will be effective in the long-term.
Further, since the announcement of the IAA, several reviews and research findings on the Australian Apprenticeships system have been released including:
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- Review of Senior Secondary Pathways led by Professor Peter Shergold AC (June 2020); and
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- Productivity Commission review of the National Agreement for Skills and Workforce Development (NASWD) (December 2020).
Based on the lessons learnt, changes in the economy from the COVID-19 pandemic and new evidence from reviews of the system, it is clear the IAA will no longer be fit for purpose and is not the best option to increase uptake and completion of apprenticeships.
3.2 Economic conditions
The Reserve Bank of Australia (RBA) forecasts a strong economic recovery as Australia rebounds from the economic effects of COVID-19. Notably, the unemployment rate is forecast to decline to 3 and 3/4 per cent by the end of 2023, which is lower than pre-pandemic unemployment rates.
This will have major implications for the apprenticeships ecosystem, as low unemployment rates are likely to increase workforce demand and decrease supply. These changes may exacerbate existing skills shortages, particularly in lower paid positions like apprenticeships. Shortages in supply are also likely to significantly increase competition for labour in the short term. Without Australian Government action, this will have adverse effects on commencement and completion rates as potential apprentices take up more attractive employment opportunities.
Australian Government intervention is needed to ensure Australian Apprenticeships are an attractive career path for prospective apprentices in order to limit supply issues. Additionally, employers need greater certainty and support to continue offering apprenticeship positions in areas that will address skill shortages throughout Australia.
3.3 What happens if we do nothing?
Without further reform, it is reasonable to predict that barriers to participating in and completing an Australian Apprenticeship will persist. This will have a negative impact on the availability of skilled labour and hinder Australia's economic recovery. The significant gains from the investment made by the Australian Government through the successful SAT, BAC and CAC measures during the COVID-19 pandemic will be lost if the effort is not made now.
With no policy changes, annual commencements of Australian Apprentices are expected to significantly decline below pre-COVID-19 levels. This potential decline risks undermining the legitimacy of Australian Apprenticeships as a viable, long-term employment pathway. It is critical the Australian Government's investment is maximised, by ensuring recent commencements translate into completions and new hiring continues to be stimulated, focusing on the skills we need now and into the future.