House of Representatives

Explanatory Memorandum

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

Chapter Five: Net Benefit of the Options

The following section presents an analysis of the potential benefits and costs of the policy options explored in this Regulatory Impact Statement (RIS). Potential regulatory, social and economic impacts are considered for Australian Apprentices, employers, Australian Apprenticeship Support Network (AASN) providers, the Australian Government and the broader community.

5.1 Option 1: Implement the IAA as announced (no further reform)

Who would this option impact?

Those directly impacted by this option include:

•

Individuals considering taking up an Australian Apprenticeship (approximately 151,000 apprentices commenced in 2019 prior to the introduction of the Boosting Apprenticeship Commencements (BAC) program);

•

Employers and prospective employers of Australian Apprentices; and

•

The seven AASN providers who provide advice and support to employers and apprentices including on incentives.

Overall impact - how does it address the problem?

The Incentives for Australian Apprenticeships (IAA) program will only address two out of five options identified in Chapter Two. The IAA will simplify the incentives system for apprentices and employers and continue to provide non-financial support to apprentices. As a result, apprentices and employers will be unequipped to address rising costs, incentives will continue to focus on the employer instead of apprentices and the program will have minimal impact on reducing skill shortages.

Does not address - Incentives should be targeted to address skill shortages

This option is unlikely to prevent commencements from continuing to decline below pre-COVID-19 levels and increasing low completion rates for Australian Apprenticeships as it does not address most of the barriers to establishing a successful apprenticeship system (outlined in Chapter Two).

This option does not direct support to priority occupations and will not assist in building Australia's pipeline of skilled workers, in areas of critical need.

Does not address - Incentives should respond to high and increasing costs

Under the IAA, current incentive levels (pre-COVID) would be maintained for most employers. The Productivity Commission and others highlight how employer incentives under the current program are too modest and have little effect on decision-making by employers of trade apprentices particularly. Employers of apprentices and trainees have benefited from increased levels of support in response to the impact of COVID-19 through the BAC and Completing Apprenticeship Commencements (CAC) measures. While these measures were designed to be short term, the nature of incentives under the IAA does not provide for a gradual reduction in support for these employers and thus the modest nature of IAA incentives is magnified.

Does not address - Incentives should focus on the decision maker

The Productivity Commission recently found to increase the overall stock of apprentices, policy design should aim to increase both commencements and completions. ^[52] This is supported by research and analysis undertaken over the previous decade indicating incentives are best directed at the party responsible for decision-making.

While employers are critical to the supply of apprentices, the apprentice is responsible for both the decision to undertake an apprenticeship and then to complete it. Implementing the IAA without providing sufficient support to apprentices would see retention and completion rates return to pre-COVID-19 levels, and potentially decline further.

Failure to increase support for retention would undermine employers' confidence in the apprenticeship system and jeopardise the supply of qualified workers into critical sectors that rely on apprenticeships to enter the workforce, such as technicians and trade workers - which include electricians, carpenters, chefs, fitters and motor mechanics.

Addresses - Incentives should be easy to navigate and understand

The implementation of the IAA as announced would simplify incentives for Australian Apprenticeships, improving access for all stakeholders, reducing over 30 payment types to around 15. This would positively impact all stakeholders by reducing the time required to sift through large volumes of information to determine eligibility for incentives. While this approach responds to some of the concerns from employers and apprentices regarding the complexity of the existing current program, further simplification is needed to ensure complexity in incentives is not a barrier to participation for employers and apprentices.

While the proposed option would decrease the number of incentives available, the IAA does not differ from the current program significantly as it is still made up of a category of incentives paid upon commencement or completion of an apprenticeship. Apprentices would also continue to receive similar assistance under the IAA compared to the current program. As such, the information and necessary documentation that employers and Australian Apprentices are required to provide at sign-up and when claiming a payment would not change. Given these arrangements, employers and apprentices are not expected to experience a material change in their compliance costs.

Addresses - Non-financial support should be provided

The IAA will continue to provide apprentices with non-financial support including retaining the In-Training Support for all apprentices and tutorial, mentoring and interpreter services for apprentices with a disability. This support is important to ensure apprentices are supported through to completion.

Impacts on apprentices

This option does not provide additional support to apprentices. Implementing the IAA without any additional financial support to apprentices would see the retention and completion rates remain stagnant, and potentially decline further. Given completion rates sit at 56.1 per cent (for those commencing in 2016), ^[53] failure to increase support for retention would continue to negatively impact on the return on investment in the apprenticeship system and the supply of qualified workers into the economy.

Impacts on employers

Under the IAA, current incentive levels (those prior to COVID-19 measures) will be maintained for most employers, and employers claiming incentives for an Australian Apprentice prior to 1 July 2022 would continue to receive payments under the current program payment structure.

The IAA will not significantly change the timing of when incentives are paid to employers. Payment of commencement incentives would still occur at six months after commencement and after three months for recommencement. Research has found delayed incentive payments have a negative impact on commencement rates for small and medium sized businesses.

Incentives targeted at particular cohorts would remain. Employers of apprentices and trainees in rural and regional areas will still receive additional support through the Rural and Regional component of the Target Groups incentives. Employers of apprentices aged 21 years or older would still be eligible for the Support for Adult Australian Apprentices incentive. However, cohorts like young Australians would not receive any additional support and would be disadvantaged under this model (relative to the other options).

Removing the difference in eligibility between full-time and part-time workers would encourage employers to offer more flexible working arrangements. This will give employers more flexibility to match apprentices with their business needs and is likely to particularly benefit women or older workers who want to do an apprenticeship or traineeship but are not able to work full-time.

Changing the Australian School-based Apprenticeship (ASbA) retention incentive to a completion incentive would encourage employers to retain apprentices beyond the 12 weeks required to claim this incentive. This may result in improved employment outcomes for the apprentice. This change simplifies the incentives payment structure by removing the last remaining retention incentive.

Impacts on AASNs

AASN providers are engaged under a fee-for service arrangement with the Australian Government, which are excluded under the Regulatory Burden Measurement Framework. However, AASN providers would have a period of additional burden as they become familiar with the new incentive structure. Following this change period, AASN providers should find the delivery of their services to employers and apprentices less time consuming due to the reduced number of payment types and eligibility requirements to navigate and advise on. However, whilst the transition to a modern apprenticeship technology platform occurs, there would be additional administrative burden on the AASN providers as manual workarounds are required and grandfathering arrangements are in place.

Impact on commencements and completions

Implementing the IAA is expected to result in annual Australian Apprentice commencements returning to pre-COVID-19 levels of around 151,000 from 1 July 2022. There is not expected to be any material impact on the proportion of Australian Apprentices who complete their apprenticeship.

The level of financial and non-financial support provided to Australian Apprentices with a disability would be maintained at the current level, with no reduction in the expected number of Australian Apprentices with a disability.

The number of Australian Apprentice commencements who identify with specific cohorts, such as women in non-traditional trade and Indigenous Australians, is expected to return to an average level from pre-COVID-19.

Regulatory costs

The regulatory cost of Option 1 is neutral. The introduction of the IAA has already been agreed and will come into effect if no action is taken. Therefore, implementing the IAA is the baseline option.

Table 5: Regulatory costs of Option 1 (baseline)

5.2 Option 2: New incentives program that targets priority skills - Employer hiring incentive for priority occupations

Who would this option impact?

Those directly impacted by this option include:

•

Individuals considering taking up an Australian Apprenticeship (approximately 151,000 apprentices commenced in 2019 prior to the introduction of BAC);

•

Employers and prospective employers of Australian Apprentices; and

•

The seven AASN providers who provide advice and support to employers and apprentices including on incentives.

Overall impact - how does it address the problem?

The overall impact of this option would be a decline of around 24,500 in total Australian Apprenticeship commencements and a related decline in completions from pre-COVID-19 levels.

This option addresses three out of five policy issues identified in Chapter Two. This option addresses the financial barriers for employers and apprentices in priority occupations undertaking an apprenticeship. Targeting incentives towards priority skills areas and key industries reduces expenditure and focuses on qualifications where there is the greatest need to ensure an appropriate level of investment is made into a future skilled workforce.

Addresses - Incentives should be targeted to address skill shortages

Australia is experiencing major workforce skills shortages which apprentices can fill. There are significant skills shortages across Australia in a number of key industries and occupations, with 38 per cent of skills shortages in occupations with a vocational pathway, including construction, manufacturing and aged care. Promoting apprenticeships in priority occupations as a rewarding pathway is important to encourage individuals to take-up opportunities in the jobs Australia needs to secure the skilled workforce of today and tomorrow.

This option targets incentives towards priority skills areas and key industries. In turn, this reduces expenditure and focuses on qualifications where there is the greatest need to ensure an appropriate level of investment is made into a future skilled workforce.

The Priority List ensures incentives provide support to priority skills occupations, including anticipated areas of skills needs. Through targeting, this package is expected to lead to a slight increase in commencements and completions in priority occupations. It is also expected to lead to an increase in the supply of apprenticeship opportunities in key industries.

Does not address - Incentives should respond to high and increasing costs

This option will provide greater financial support to apprentices in priority occupations and recognises the limitations of current apprentice wage structures. The Australian Apprenticeship Training Support Payment will increase the attractiveness of an apprenticeship in areas of critical skills shortage. It will also benefit their employers, as this approach mimics a wage increase without putting the burden on the employer to cover the costs.

However, under this option, employers of apprentices in non-priority occupations will go from attracting on average around $3,500 in employer incentive payments under the pre-COVID-19 AAIP to no longer attracting any government support. This will result in a decrease in non-priority commencements and completions as employers opt for a different employment model, including for example more casual and part time employees.

Even for employers in priority occupations, the $4,000 hiring incentive for employers of apprentices in a priority occupation could be a step down for employers who may have been able to access additional incentive payments if the apprentice met other eligibility criteria under the AAIP. Overall, this option does not address high costs associated with rising wages and up-front hiring costs.

Partly addresses - Incentives should focus on the decision maker

The Apprentice Support Payment and Trade Support Loans (TSL) help address the costs for apprentices in priority occupations. Mitigating these initial upfront costs, such as a loan to buy necessary tools or equipment, is expected to help attract and retain apprentices in areas with skill shortages.

Addresses - Incentives should be easy to navigate and understand

This option will simplify the payment structure of the incentives system to improve access for all stakeholders by reducing over 30 payment types to around five.

This option would not change the structure of the Australian Apprenticeship system. States and territories will continue to have a role in approving Training Contracts and AASN providers would continue to be contracted by the Australian Government to deliver Apprenticeship Support services, such as providing advice to employers on eligibility for incentives and managing payment claims.

Several administrative changes will also help stakeholders navigate the system. The recognition of previous and concurrent qualification criteria and their application are regarded by stakeholders as complex and slowing the sign-up of Australian Apprentices. Simplifying the criteria for recognising prior and concurrent qualifications is expected to reduce regulatory burden for potential Australian Apprentices and employers during the sign-up process at commencement.

Addresses - Non-financial support should be provided

Almost half of Australian Apprentices never complete their apprenticeship - further diminishing the return on investment in the Australian Apprenticeship system. Program data shows Australian Apprentices who received ITS, as opposed to those who did not, were 8.7 per cent more likely to complete; 10.7 per cent less likely to cancel or withdraw from their apprenticeship; 9.8 per cent more likely to be retained by their employer; and 42.3 per cent more likely to resume from suspension as at 28 February 2022. ^[54]

Under this option, AASN providers will continue to provide apprentices and employers with a range of non-financial supports, from general universal support services from sign up to completion through to more intensive ITS, which offers personalised support to those at risk of not completing. Additionally, young apprentices will receive additional support through the youth support - including dedicated ITS places and additional support from their AASN provider.

Impacts on apprentices

The estimated impact on commencements and completions due to the changed incentives under this option, including specific cohorts such as women, are detailed in the Impact on Commencements and Completions section.

Priority occupations

Apprentices in priority occupations will receive the same non-financial support as Option 1 through the apprentice package youth support (See 5.1).

Under this option, apprentices in priority occupations will receive a $4,000 Support Payment which will support apprentices to complete their apprenticeships. However, this is less financial support than under Option 1.

Non-priority occupations

Under this option, apprentices in non-priority occupations will not receive any targeted support, which may deter them from taking up or continuing an apprenticeship in a non-priority occupation. This seeks to encourage individuals to take up an apprenticeship in an area of skills need.

Women

Option 2 is expected to impact the number of commencements for women, as currently women tend to be employed in non-priority apprenticeships and traineeships such as retail and hospitality.

By targeting incentives to priority occupations, this option is expected to encourage more women to consider careers in growing sectors, particularly those with high skills shortages, which ultimately tend to be higher paying. Accordingly, it is expected that some of the impact of this option on the commencement numbers for women will be offset by women more often choosing priority occupations. No modelling is available to quantify this 'switching' impact.

Apprentices with disability

Using the National Skills Commission's (NSC) current Skills Priority List (SPL) and National Centre for Vocational Education Research (NCVER) in-training data, 5,100 apprentices with a disability would be eligible for the current Priority List. ^[55]

Younger Australians (under 20)

Youth Support targets young Australians, aged 20 or under, in priority occupations. Data from the Australian Institute of Health and Welfare's Australia's Youth report released in June 2021, shows that compared to older age groups, young people experienced higher rates of psychological distress, job loss and educational disruption due to the COVID-19 pandemic. While the economy has begun to recover from the impacts of COVID-19, youth unemployment remains high. The latest Australian Bureau of Statistics (ABS) data from February 2022 shows the youth unemployment rate is double that of the overall population, at 9.3 per cent compared to 4.0 per cent. ^[56] Extended periods of unemployment and disengagement from the labour market can have lasting effects that negatively impact individuals and the economy more broadly. It can lead to skill losses and reduce the lifetime earnings potential of individuals. It can also force young people into unstable work at a lower pay.

Increasing the supports available to young people will ensure the apprenticeship system is well placed to service and support young Australian apprentices. This support will help young apprentices overcome challenges associated with entering the workforce and help them to remain attached to the labour market.

Regional and rural Australians

Low apprenticeship wages and rising basic living costs have an even greater effect for those living in regional and rural communities. Regional apprentices in priority occupations will benefit from increased access to financial support over the life of their apprenticeship. Regional apprentices in priority and non-priority occupations will continue to benefit through the provision of a Support Payment and ability to access the Living Away From Home Allowance (LAFHA). Retaining the LAFHA will ensure regional and rural Australians are supported to meet the costs associated with moving away from home.

Regional apprentices undertaking an apprenticeship will also benefit from changes to TSL which will increase the attractiveness of an apprenticeship in areas of critical skills shortage. Rural and regional eligibility for TSL will also be aligned with the current program to ensure apprentices receive adequate support to carry them through to completion.

This option's targeting to skills in demand is designed to encourage regional apprentices to train in priority occupations in the future. Using the NSC's current SPL and NCVER in-training data, 74,678 apprentices in regional and rural Australia are in occupations on the current Priority List. ^[57]

Impacts on employers

Priority occupations

Wage costs and other expenses associated with running a business have grown substantially over the past two decades, however the total standard incentives available to an eligible employer of an Australian Apprentice have remained unchanged at $4,000 since 1998.

The BAC measure has demonstrated the market is responsive to effective policy changes. The $4,000 hiring incentive available to employers in priority occupations is comparable with the current standard incentive amount available under the AAIP.

Employers of apprentices in non-priority occupations will no longer receive government support

Employers of apprentices in non-priority occupations will receive no financial support. This is due to the Government returning to a fiscally sustainable setting that targets government support to the skills most in demand with a clear apprenticeship pathway.

Small and medium businesses

Employers identify the cost of hiring an apprentice or trainee, particularly the initial upfront costs, as a key barrier to engaging employees on an apprenticeship pathway. This includes the initial cost of recruitment, ongoing costs of wages, supervising and training an apprentice and the real or perceived lack of productivity in the early years of an apprenticeship when supervision costs are high and productivity is low. These imposts are greater for small businesses who have to be more rigid with their business models and costs.

The hiring incentive, which provides greater financial support in the first years of an apprenticeship, is expected to support some small sized businesses in priority areas to take on and retain apprentices. Small employers, compared to medium and large employers, are more highly represented in priority occupations than non-priority occupations.

Impact on commencements and completions

Implementing Option Two is expected to result in an increase in annual Australian Apprentice commencements in priority occupations of around 5,500 compared to pre-COVID-19 levels.

Due to the lack of support for Australian Apprentices in non-priority occupations, research indicates that there may be a reduction of around 30,500 in annual non-priority Australian Apprenticeship commencements.

This option is expected to increase the proportion of Australian Apprentices who complete their priority apprenticeship by 4.2 per cent.

The level of financial and non-financial support provided to Australian Apprentices with a disability would be maintained at the current level with no reduction in number of Australian Apprentices with a disability expected.

With no targeted support for specific cohorts, Australian Apprentice commencements who identify with specific cohorts are expected to make up a similar proportion of commencements to the pre-COVID-19 average. However, this assessment does not take into account the expected change in occupation preferences that the new incentives model is intended to encourage and as a result should be treated with caution.

Due to a higher proportion of women represented in non-priority occupations, a reduction of female traineeships of around 14,000 per annum is expected. However, the inclusion of major caring professional occupations on the new skills list and expansion of the TSL program to include traineeships in the care sector is expected to primarily benefit female apprentices and trainees.

Indigenous Australians have historically been over-represented in non-priority traineeships. Under Option Two around 2,000 (-27 per cent) fewer annual commencements from Indigenous Australians are estimated, with expected annual commencement of 8,500. However, this figure assumes no change in the occupations that Indigenous Australians choose to study in. It is expected that the new incentives scheme - particularly the Support Payment - will influence occupation choice and direct more Indigenous Australians to priority occupations, with strong employment and wage prospects.

A reduction in estimated apprentice and trainee commencements does not necessarily equate to a reduction in jobs. For non-priority occupations - where an apprenticeship may not be a primary pathway - a reduction in apprentice commencements is likely to be due to employers engaging workers directly and not through the training system. This is not a loss of jobs for the non-priority sectors; it is a change in the terms and conditions under which an individual is employed.

Regulatory impact

The proposed option would not change the structure of the Australian Apprenticeship system. States and territories will continue to have a role in approving Training Contracts and AASN providers would continue to be contracted by the Australian Government to deliver Apprenticeship Support services, such as providing advice to employers on eligibility for incentives and managing payment claims.

Regulatory costs

Regulatory costs associated with Option 2 are provided in Table 6 and are based on the Regulatory Burden Measurement Framework, program data and expected changes in commencements and claim requirements

The regulatory costs associated with Option 2 are administrative costs with claiming for incentives under the option and establishing an apprenticeship. The regulatory impact and cost of this option is due to the changed number of individuals and employers accessing the apprenticeship system, change in time and effort to claim, and a transitional cost for employers to familiarise themselves with the new system.

Employer time cost is assumed to be $73.05 an hour, while an apprentice is assumed to be $32.00 per hour.

Under Option 2, it is expected that around 77,500 apprentices will attract an employer and apprentice incentive. For employers, claims are expected to be simpler than the current system (10 minutes of effort saved) while this would be a new claim for apprentices and therefore require an additional 40 minutes of effort. Around 47,500 apprentices are estimated to no longer attract an incentive for their employer (non-priority occupations) which would reduce effort cost by 20 minutes for each employer.

Administrative cost savings are expected for employers of around 30,500 individuals who no longer engage their non-priority employee as an apprentice or trainee. It is expected this would reduce time effort by 120 minutes per individual.

Based on program data it is expected that around 62,000 employers will need on average 60 minutes to familiarise themselves with the changed incentive system.

Table 6: Regulatory costs of Option 2

5.3 Option 3: New incentives model - Phased

Who would this option impact?

Those directly impacted by this option include:

•

Individuals considering taking up an Australian Apprenticeship (approximately 151,000 apprentices commenced in 2019 prior to the introduction of BAC);

•

Employers and prospective employers of Australian Apprentices; and

•

The seven AASN providers who are required to deliver, navigate, understand and advise on incentives.

Overall impact - how does it address the problem?

This phased model will address all five problems with current apprenticeship incentives identified in Chapter Two, particularly in the first two years. It will prioritise support towards areas with skill shortages and will provide increased financial support to minimise rising costs. The model will also simplify the apprenticeship incentive system to reduce administrative burden and will maintain non-financial support for apprentices.

This proposal would introduce a new apprenticeships incentive system in two stages to provide a manageable step down in support from the BAC program for 2022-23 and 2023-24, before further reducing to pre-COVID-19 levels from 1 July 2024.

This approach would strengthen the targeting of Australian Government investment to priority occupations, withdrawing funding from non-priority occupations in phases. It would also enable a higher level of investment in the apprenticeship incentives system during the economic recovery, before reducing to a pre-COVID-19 level of investment once post-pandemic economic conditions stabilise.

This package's first phase between 1 July 2022 and 30 June 2024 provides support to a broader cohort of apprentices and higher levels of support for priority occupations. The hiring incentive for non-priority occupations, coupled with the wage subsidy for priority occupations, ensures all employers are provided with some level of financial support.

This package's second phase, from 1 July 2024 and following a checkpoint to confirm economic conditions have stabilised, responds to changing economic conditions. It targets incentives towards priority occupations and key industries, which will reduce expenditure and focus on qualifications where there is the greatest need to ensure an appropriate level of investment is targeted to the future workforce.

Addresses - Incentives should be targeted to address skill shortages

The ongoing shortage of priority skills in Australia is a key economic problem that apprentices are uniquely suited to fill. Ensuring that apprenticeships fill these shortages is an important element of the vocational pipeline and will ensure Australia has a highly skilled workforce in the future.

This option will focus most support towards apprentices training in priority occupations, in both phases one and two.

During phase two, there would be no financial support for employers of apprentices in non-priority occupations. Because of this, commencements and completions in non-priority occupations are expected to decline from 1 July 2024. However, this option is projected to increase commencements and completions in priority areas and should incentivise apprentices towards choosing a skill in-demand, supporting the upskilling of the Australian workforce.

Addresses - Costs remain high and are increasing

Employer incentives under the current system are too modest to encourage employers to take up apprentices and have not matched rising costs of taking on an apprentice, particularly in the first two years of an apprenticeship. COVID-19 levels of support under the BAC and CAC have been successful at meeting these higher costs but were only designed as temporary measures.

Under this phased model, financial support will be increased for employers in priority occupations compared to pre-COVID-19. The wage subsidy during phase one will subsidise employers during their highest level of financial burden (the first and second years of the apprenticeship), while the higher hiring incentive during phase two will continue to make a financial contribution to the costs of onboarding an apprentice. Employers of apprentices in non-priority occupations will also receive financial support during phase one through a hiring incentive, ensuring that support is maintained during the economic recovery.

Addresses - Incentives do not focus on the decision maker

Research demonstrates that the apprentice, not the employer, is the key decision maker influencing the initial decision to commence an apprenticeship, the occupation in which they choose to study and whether to continue through to completion. Current incentives are generally not targeted to the apprentices and do not provide enough financial support to encourage retention. Both phases of this model direct financial support to the apprentice in priority occupations to incentivise them to start and continue their apprenticeship through to completion.

Addresses - Incentives are difficult to navigate and understand

The current apprenticeships incentive system has been criticised for being too complex, with 30 separate payment types available for employers and apprentices. This complexity adds an administrative burden to the system, discouraging employers from wanting to take on an apprentice and making it difficult for apprentices to understand their entitlements.

Under this phased model, this system would be significantly simplified, with payment types reduced to five, consistent with recommendations made by the Joyce Review. In addition, further administrative changes to the system would help reduce complexity. The phased system would recognise prior and concurrent qualifications, which has been a frequent frustration expressed by stakeholders during the sign-up process. This should minimise the regulatory burden of the system. However, this option is more complex than other options presented in this RIS as it involves changing the incentives structure after two years.

Addresses - Non-financial support is needed

This phased model will continue the non-financial support that currently exists under the AAIP, including ITS. In addition, further non-financial support will be introduced for young apprentices, including allocating specific ITS places for youth in priority occupations and introducing further support from their AASN provider through a phone call at three months after commencement.

Apprentices who have received non-financial support under the AAIP have been more likely to complete their apprenticeship. ^[58]

Impacts on apprentices

The estimated impact on commencements and completions due to the changed incentives under this option, including specific cohorts such as women, are detailed in the Impact on Commencements and Completions section.

Financial support for priority occupations

Apprentices training in priority occupations will receive direct financial support under the phased option.

Continued non-financial support

Both priority and non-priority apprentices will receive non-financial support focused on addressing barriers to completion under this model, which will be retained from the AAIP.

Less complexity in the system

The reduction in the number of payment options as well as changes to eligibility requirements for recognition of prior and concurrent qualifications will make the system easier for apprentices to navigate.

Non-priority occupations

Under all options, apprentices in non-priority occupations will not attract any incentives. Employers of apprentices in priority occupations receiving funding are also likely to impact the number of commencements in non-priority occupations. Employers of non-priority apprentices will continue to be supported for the first two years (between 1 July 2022 and 30 June 2024), encouraging employers across the labour market to appropriately train and educate their workforce, providing greater workforce mobility for the future.

Impact on specific cohorts

Younger Australians (under 20)

Younger Australians were particularly affected by COVID-19 experiencing a higher proportion of unemployment. The latest ABS data from February 2022 shows the youth unemployment rate is double that of the overall population, at 9.3 per cent compared to 4.0 per cent. ^[59]

Younger Australians are the largest cohort in the AAIP, meaning they have the greatest impact on commencements and completions. The youth support provides increased non-financial support which will help improve the completion rate for this cohort. The youth support will be available during both phases of this option.

1 July 2022- 30 June 2024

The priority wage subsidy will have a positive impact on commencements for younger Australians. Using NCVER in-training data, 95,640 young apprentices would be eligible for the current Priority List. ^[60]

From 1 July 2024 onwards

As the economy rebounds from the uncertain and volatile conditions engendered by COVID-19, the level of support for employers of young apprentices will reduce to meet stable economic conditions. As a result, the second phase will result in a reduction in commencements for young apprentices. The rate of completion for this cohort is anticipated to remain elevated during this phase due to the youth support.

Regional and rural Australians

The take-up of the LAHFA payment is highest amongst regional and rural apprentices. Retaining this measure, coupled with the Apprentice Support Payment and ITS, will help improve completions for regional and rural Australians. Additionally, the Apprentice Support Payment will help apprentices in priority occupations address one of the key barriers of increasing costs in the Apprenticeship system.

1 July 2022- 30 June 2024

During the first phase of support, commencements are anticipated to increase for regional and rural apprentices compared to pre-COVID-19 levels.

From 1 July 2024 onwards

As the economy stabilises from the uncertain and volatile conditions engendered by COVID-19, the level of support for employers of regional and rural apprentices will reduce to meet stable economic conditions. As a result, the second phase will result in a reduction in regional and rural apprenticeship commencements. However, by directing investment towards skills in demand, this option will encourage more regional apprentices to train in priority occupations.

Indigenous Australians

By continuing support for ITS, Indigenous Australian apprentices will continue to be supported by AASNs through mentoring, career support and referral pathways. In addition, the increase in financial support towards priority apprentices will help Indigenous Australian apprentices studying in demand areas of the economy.

1 July 2022- 30 June 2024

During the first phase of support, commencements are anticipated to increase for Indigenous Australians.

From 1 July 2024 onwards

As support levels for employers drop, commencements are anticipated to drop as the economy recovers from the impacts of COVID-19. In phase two, Indigenous Australian apprentices will be encouraged to train in priority occupations which are more likely to provide secure employment in the future.

Impacts on employers

Employers of apprentices in non-priority occupations will receive support comparable to pre-COVID-19 levels until 1 July 2024.

Under this phased option employers of apprentices in non-priority occupations will receive financial support comparable to the current standard incentive amount available under the AAIP in phase one.

Between 1 July 2022 and 30 June 2024 this option continues to provide a base level of support with a hiring incentive of $3,500 paid in two instalments at six and 12 months from commencement to encourage employers to upskill their workforce providing greater labour mobility and broader economic benefits.

Continuing some support for non-priority occupations for two years encourages employers across the labour market to formerly train and educate their workforce, providing greater workforce mobility for the future. This contributes to broader economic benefits such as higher wages and better job and career opportunities. It also ensures some support for sectors that have been adversely impacted by COVID-19, for example tourism and hospitality.

After 1 July 2024, employers of apprentices in non-priority occupations will not be eligible for any government support. This ensures that in the longer term Government support prioritises skills in demand and reduces the financial costs of the system.

Increase in support for priority occupations

Hiring apprentices can be a financial risk for employers, particularly in the early years of the program. To assist with this, the phased program will initially provide a wage subsidy for employers of priority apprentices. This will subsidise 10 per cent of costs for first year apprentices (up to $1,500 per quarter), 10 per cent for second year apprentices (up to $1,500 per quarter), and 5 per cent for third year apprentices (up to $750 per quarter).

During phase two this will reduce to an hiring incentive of $4,000 for taking on an apprentice in a priority occupation.

In addition, continued non-financial support through ITS will support apprentices through to completion and ensure issues between employers and apprentices are addressed early.

Impacts on AASNs

Just as in Options 1 and 2, AASNs will continue to play a central role in the delivery of the new program. While grandfathering arrangements are in place, AASNs will need to deliver two separate models. The increased workload will be mitigated over time by a winding down of COVID-19 economic response measures, namely the BAC measure.

Impact on commencements and completions

Implementing Option 3 is expected to result in an increase in annual Australian Apprentice commencements in priority occupations initially by around 11,500 per year (for each of the first two years) and then around 5,500 per year (each year ongoing) compared to pre-COVID-19 levels. The number of apprentices supported in non-priority occupations is expected to be maintained at pre-COVID-19 levels before reducing as per Option 2 from July 2024. This option is expected to increase the proportion of Australian Apprentices who complete their priority apprenticeship by 7.4 per cent.

The level of financial and non-financial support provided to Australian Apprentices with a disability would be maintained at the current level with no reduction in the expected number of Australian Apprentices with a disability.

For the purpose of this impact assessment, Australian Apprentice commencements who identify with specific cohorts are assumed to make up a similar proportion of commencements to the pre-COVID-19 average. Under this option there is expected to be an initial slight increase in specific cohort commencements (+3 per cent women, +5 per cent Indigenous Australians and +9 per cent youth) between 1 July 2022 and 30 June 2024 compared to pre-COVID-19 levels, before reducing to the level of Option 2. However, this assessment does not take into account the expected change in occupation preferences that the new incentives model is intended to encourage and as a result should be treated with caution.

The inclusion of major caring professional occupations on the new skills list and expansion of the TSL program is expected to primarily benefit women apprentices and trainees.

Regulatory impact

The proposed option would not change the structure of the Australian Apprenticeship system. States and territories will continue to have a role in approving Training Contracts, and AASN providers would continue to be contracted by the Australian Government to deliver Apprenticeship Support services, such as providing advice to employers on eligibility for incentives and managing payment claims.

Regulatory costs

Regulatory costs associated with Option 3 are provided in Table 7.1 and 7.2 and are based on the Regulatory Burden Measurement Framework, program data and expected changes in commencements and claim requirements. Regulatory costs are provided separately for the first phase (wage subsidy and non-priority support) and the second phase to demonstrate the changing regulatory costs.

The regulatory costs associated with Option 3 are administrative costs with claiming for incentives under the option and establishing an apprenticeship. The regulatory impact and cost of this option is due to the changed number of individuals and employers accessing the apprenticeship system, change in time and effort to claim, and a transitional cost for employers to familiarise themselves with the new system.

Employer time cost is assumed to be $73.05 an hour, while an apprentice is assumed to be $32.00 per hour.

Phase one

It is expected that around 161,000 apprentices will attract an employer or apprentice incentive. Based on the average number of claims required it is expected it would take an additional 59 minutes on average over the life of the apprenticeship for an employer to claim incentives, and an additional 21 minutes on average per apprentice.

Based on program data it is expected that around 62,000 employers will need on average 60 minutes to familiarise themselves with the changed incentive system.

Phase two

Assumptions for phase two are as per Option 2.

Table 7.1: Regulatory costs of Option 3

(1 July 2022 - 30 June 2024)

Table 7.2: Regulatory costs of Option 3

(From 1 July 2024 onwards)