Budget Review 2020–21 Index
Dr Hazel Ferguson, Carol Ey and Andrew Maslaris
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
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 $500.0 million contribution to the establishment of the JobTrainer Fund, announced
as part of the COVID-19 Response Package in the July 2020 Economic
and Fiscal Update (the July Update, pp. 117–118). The cessation of
Partnership on the Skilling Australians Fund on 30 June 2022
contributes to the decline in funding from 2022–23. If a new National
Partnership Agreement replaces the Skilling Australians Fund from 1 July 2022,
funding from 2022–23 will be above what is projected.
Vocational and industry training, which largely comprises
the apprenticeships components of the Budget, follows a similar, if more
pronounced trajectory, with funding expected to increase by 268.3 per cent
in real terms from 2019–20 to 2020–21, before decreasing by 70.8 per cent
from 2020–21 to 2023–24 (Budget
Paper No. 1, pp. 6–39). This fluctuation is largely attributable
to the temporary nature of the Supporting
Apprentices and Trainees (SAT) wage subsidy introduced in the July Update
(pp. 119–120), which subsidises the wages of apprentices and trainees
currently employed in small and medium businesses, as well as a new Boosting
Apprenticeship Commencements wage subsidy, discussed below, announced on 4 October
and included in this Budget.
Parliamentary Library analysis, shown in Figure 1
below, suggests that once the temporary 2020–21 funding measures cease, total real
VET funding from the Australian Government is projected to continue the
downward trajectory that can be observed from around 2012–13.
Figure 1: total Australian Government estimated expenditure on vocational
and industry training and vocational and other education, 2006–07 to 2023–24 ($ million)
Source: Parliamentary Library, based on: Australian
Government, Budget strategy and outlook: budget paper
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.
apprenticeships wage subsidy
The centrepiece of this year’s Budget for VET is the Boosting Apprenticeship Commencements measure,
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.
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
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
- $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
Partial FBT exemption for
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,
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
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
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
Commissioner of Taxation v Maddalena (1971), 71 ATC 4161 at 4163, per Menzies
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
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
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
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
than money’, to effectively support a recovery, with ‘many
channels’ of appropriately targeted support for skills needed to rebuild
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