Vocational education and training

Budget Review 2020–21 Index

Dr Hazel Ferguson, Carol Ey and Andrew Maslaris

Funding trends

Australian Government funding for vocational education and training (VET) is provided through a combination of payments to states and territories to support VET delivery, and the Australian Government’s own programs. The Australian Government’s programs are largely concerned with supporting and administering the national training system, foundation skills for adults, and support for apprenticeships through programs such as the Australian Apprenticeships Incentives Program (AAIP) and Trade Support Loans.

According to Budget Strategy and Outlook Budget Paper No. 1: 2020–21 (pp. 6–17), expenditure on vocational education programs is expected to increase by 29.5 per cent in real terms from 2019–20 to 2020–21, and then decrease by 30.7 per cent from 2020–21 to 2023–24. The single year increase is attributed to the Government’s $500.0 million contribution to the establishment of the JobTrainer Fund, announced as part of the COVID-19 Response Package in the July 2020 Economic and Fiscal Update (the July Update, pp. 117–118). The cessation of the National Partnership on the Skilling Australians Fund on 30 June 2022 contributes to the decline in funding from 2022–23. If a new National Partnership Agreement replaces the Skilling Australians Fund from 1 July 2022, funding from 2022–23 will be above what is projected.

Vocational and industry training, which largely comprises the apprenticeships components of the Budget, follows a similar, if more pronounced trajectory, with funding expected to increase by 268.3 per cent in real terms from 2019–20 to 2020–21, before decreasing by 70.8 per cent from 2020–21 to 2023–24 (Budget Paper No. 1, pp. 6–39). This fluctuation is largely attributable to the temporary nature of the Supporting Apprentices and Trainees (SAT) wage subsidy introduced in the July Update (pp. 119–120), which subsidises the wages of apprentices and trainees currently employed in small and medium businesses, as well as a new Boosting Apprenticeship Commencements wage subsidy, discussed below, announced on 4 October and included in this Budget.

Parliamentary Library analysis, shown in Figure 1 below, suggests that once the temporary 2020–21 funding measures cease, total real VET funding from the Australian Government is projected to continue the downward trajectory that can be observed from around 2012–13.

Figure 1: total Australian Government estimated expenditure on vocational and industry training and vocational and other education, 2006–07 to 2023–24 ($ million)

Source: Parliamentary Library, based on: Australian Government, Budget strategy and outlook: budget paper no. 1:
2020–21 and Australian Government, Final budget outcome, various years.

Note: real funding has been calculated by the Parliamentary Library by deflating the nominal expenditure figure by the June quarter CPI. This methodology may differ to that presented in the Budget papers. Figures are in 2019–20 dollars, the last available year of actual figures.

JobMaker Plan—boosting apprenticeships wage subsidy

The centrepiece of this year’s Budget for VET is the Boosting Apprenticeship Commencements measure, a wage subsidy for new apprentices or trainees, at a cost of $1.2 billion over the forward estimates (Budget Measures: Budget Paper No. 2: 2020–21, p. 77). The stated purpose of the subsidy is ‘to encourage employers of any size or industry, Australia-wide to take on apprentices and trainees’.

The subsidy will apply from 5 October 2020 to 30 September 2021, and will be available for any business that takes on a new apprentice or trainee in that period. Wages will be reimbursed at a rate of 50 per cent, up to a maximum of $7,000 per quarter, capped at 100,000 places. Employers will also be able to continue accessing the current AAIP, which provides a range of payments to employers for apprenticeship hiring, retention and completion, as this program is now being extended until 1 July 2021.

There has been criticism of this measure on the grounds that apprenticeships and traineeships are predominantly taken up by young men, while women and older workers have been particularly impacted by COVID-19 related job losses. Men aged under 25 years represented 43.7 per cent of apprenticeship commencements in 2018–19, compared with women aged under 25 years at 24.0 per cent.

Another question is the extent to which the subsidy will encourage employers to take on new recruits where they would not have otherwise done so. There are two key elements to this issue.

Firstly, because of the scale of apprenticeship activity, the 100,000 places could be fully taken up by employers who were already intending to take on new recruits, even if commencements continue to fall. The latest apprenticeship data shows there were 145,105 commencements in the 12 months to 31 March 2020, representing a decrease in apprenticeship commencements of 7.1 per cent compared with the 12 months to March 2019. While the full impact of COVID-19 is not yet evident in this data (with a clearer picture of the impact of the pandemic expected in the June quarter release), the decline is more pronounced in the quarterly training activity, which shows 49,015 commencements in the March quarter, a decrease of 11.0 per cent compared to the March 2019 quarter. Even so, the 100,000 places could be fully subscribed even if commencements continue to fall to just above two-thirds of the 12 months to March 2020 figure.

Secondly, because there are no restrictions on the kinds of employers that can access the subsidy, beneficiaries of the program may be those employers that have been less affected by COVID-19. Parliamentary Library estimates based on March 2020 apprenticeship statistics show that firms with over 200 employees recruited nearly 40 per cent of the apprentices and trainees who commenced in 2019. According to Australian Bureau of Statistics (ABS) payroll data as at 19 September 2020, businesses with more than 200 employees have suffered only a 1.3 per cent decline in jobs since March, compared to a loss of around 7 per cent for smaller companies. While the SAT takes this issue into consideration by restricting eligibility to small and medium sized businesses (except large businesses re-engaging an apprentice displaced from an eligible small or medium business), the Boosting Apprenticeship Commencements wage subsidy does not.

It is also worth noting that several of the industries hardest hit by job losses, such as arts and recreation services; agriculture, forestry and fishing; and information media and telecommunications; are not significant employers of apprentices and trainees, representing less than 4 per cent of 2019 commencements. The sectors that have lost significant employment and have traditionally hired apprentices and trainees (representing some 26.1 per cent of 2019 commencements) include food and beverage; personal care (in particular, hairdressing and beauty salons); and administrative services (which includes areas such as employment services and travel agencies). For these industries it is likely that recruitment decisions will be driven more by increasing consumer demand than the prospect of subsidised wages.

It has also been reported that the subsidy will be available for existing workers (pp. 3–4), providing the worker moves from non-apprenticeship employment to an apprenticeship contract with the employer during the relevant period. There are complexities to this issue, with some genuine training benefits for existing worker apprenticeships. However, existing worker apprenticeship incentives is an area that has been subject to abuse in the past, with the lifting of limits on existing workers in the 1990s (pp. 5–6) having been associated with some employers moving existing employees into in-house training programs of ‘questionable duration and quality’ in order to access incentive payments. The $1,500 existing worker commencement payment was discontinued in the 2012–13 Budget.

Wage subsidies are also discussed in the employment services section of this Budget Review, which covers the JobMaker Hiring Credit.

JobMaker Plan—Skills Reform Package

A number of smaller measures are included in a Skills Reform Package (Budget Paper No. 2, pp. 80–81). These commitments largely consist of funding for administration, including:

$75.9 million over the forward estimates for the Department of Education, Skills and Employment (DESE)
$91.6 million over the forward estimates for a new Apprenticeships Data Management System
$29.6 million over the forward estimates for the newly created National Careers Institute and
$1.7 million over the forward estimates for a new National Skills Priority List for Apprenticeships.

The Skills Reform Package also includes $52.3 million over three years from 2020–21 for additional places in the Skills for Education and Employment (SEE) program, which provides up to 650 hours of language, literacy and numeracy training for eligible job seekers, and a scoping study to inform the development of a new national framework for foundation skills. The current National Foundation Skills Strategy for Adults targets run to 2022.

Funding of $11.9 million over three years from 2020–21 has also been provided to continue the VET FEE-HELP Redress measures, which would otherwise conclude at the end of 2020. These measures allow the Secretary of DESE to cancel VET FEE-HELP debt incurred through inappropriate conduct of VET providers. Background to the measures is available in the Bills Digest to the Higher Education Support Amendment (VET FEE-HELP Student Protection) Bill 2018.

Tax incentives for reskilling

The Budget also contains two announcements, which are not part of the VET funding discussed above, to support reskilling through the taxation system.

Partial FBT exemption for reskilling

The Budget announced the Government’s intention to create an exemption from Fringe Benefits Tax (FBT) for employers that provide retraining and reskilling benefits to redundant or soon-to-be redundant employees (Budget Paper No. 2, p. 15). The purpose of FBT is to ‘ensure that all forms of remuneration paid to employees bear a fair measure of tax’.

Broadly, where an employee is provided with a fringe benefit, the employer will be required to pay FBT, which applies at a rate of 47 per cent. As pointed out by Ernst and Young in its submission to the Select Committee on Financial Technology and Regulatory Technology, this can create a significant barrier to businesses offering retraining or reskilling for redundant, or soon-to-be redundant, employees.

According to the Budget papers:

the retraining and reskilling does not have to be related to an employee’s current employment
the exemption will not extend to Commonwealth supported places at universities or repayment of Commonwealth student loans and
salary packaging arrangements will not be included in the exemption.

The Budget estimated this will cost $7.0 million over the forward estimates, which suggests that the new FBT exemption may only have a limited application.

General tax deductibility of education and training where not connected to employment

The Budget also announced the Government’s intention to consult on allowing an ‘individual to deduct education and training expenses they incur themselves where the expense is not related to their current employment’ (Budget Paper No. 2, p. 15).

Presently, an individual is only able to claim a tax deduction for education and training where it is connected to generating or producing assessable income. For example, if a builder undertakes training to become a barista, this training will not be tax deductible, as the individual has incurred the training expense prior to earning income as a barista (see for example, Federal Commissioner of Taxation v Maddalena (1971), 71 ATC 4161 at 4163, per Menzies J).

Although this is a long-standing and accepted legal principle, the Budget announcement stated that this rule ‘may act as a disincentive for Australians to retrain and reskill to support their future employment and career’. Importantly, the Budget announcement does not commit to changing the law, but rather to ‘consult on potential changes to the current arrangements to determine whether deductions should also be targeted to future employment and skills needs’.

Stakeholder response and concluding comments

The relatively limited skills reform coverage in the Budget is in part a reflection of the skills focus in the COVID-19 package in the July Update, the need to bed down the 2019–20 Budget VET package, and ongoing skills reform work with states and territories, which are responsible for VET delivery.

However, key questions about the VET system remain, with anticipated changes to processes for developing and approving training packages, which provide the occupational standards for most VET qualifications, a key priority for some. Elsewhere, VET policy experts at the Mitchell Institute and Mackenzie Research Institute argue that more investment in VET will be required if governments are to avert a labour market crisis for young people triggered by the COVID-19 recession, with those not in education, employment or training in particular need of further support.

The response to the Budget from key VET interest groups has been relatively muted. The National Apprentice Employment Network welcomed the apprenticeship commencement wage subsidy, but cautioned that ‘there must be careful management and oversight to ensure that the wage subsidy is targeted at areas of genuine skills need’. TAFE Directors Australia also outlined concerns that some employers may move ‘existing employees into unsuitable or low quality training in order to attract the subsidy, taking a large share of the 100,000 available places’. The Independent Tertiary Education Council Australia focused its response on funding for the National Skills Commission and the removal of FBT on employer-provided training and reskilling.

It is also not clear that all employers will necessarily embrace the VET budget measures as intended, with the head of the Council of Small Business Organisations Australia quoted as saying that the wage subsidies introduced in the Budget are ‘not to be sneezed at, but the business person is still going to say I'm only going to employ someone if I can use them’.

Some commentators have pointed out that although around $5.0 billion has been allocated to training since the beginning of the pandemic, the sector needs ‘more than money’, to effectively support a recovery, with ‘many channels’ of appropriately targeted support for skills needed to rebuild the economy.

All online articles accessed October 2020

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