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Text of letter from Ai Group Chief Executive, Innes Willox, to the Prime Minister and State and Territory leaders ahead of the 9 August Council of Australian Governments Meeting in Cairns

I wish to express to you the importance and urgency of the opportunity at the upcoming COAG meeting to genuinely tackle reform issues for Australia’s training system.

The national training system has an incredibly important job before it.  Our economy and our communities are undergoing significant transformations, triggered by digital disruption, structural adjustment and demographic shifts.  Consequently, this has contributed to a dynamic, shifting and accelerating requirement for skills and employment.  However, the skill requirements for the labour market of the future are not the same as those of today. 

It is our view that the VET system is in a less than optimal state to deliver on this national imperative.  

The training system has endured a number of problematic years. The VET FEE-HELP debacle inflicted reputational damage from which the system has not yet fully emerged.    From an employer and individual perspective our training system is further bedevilled by inconsistency in both its multiple funding regimes, declining levels of funding and varying qualification arrangements.   Disappointing apprenticeship commencement and completion rates further add to the complex and confusing situation.  Industry leadership has been eroded and the pivotal alignment of public expenditure to economic imperative and productivity improvements has been severely diluted.  Confidence needs to be restored to the VET system.

Recent research by Ai Group reveals the growing intensity of skill shortages and skill gaps. Our most recent Workforce Development Needs (2018) survey highlights 75% of employers experiencing difficulty in recruiting suitably qualified or skilled people into vacancies.   The occupations most frequently reported in shortage were from the Technicians and Trades Workers occupational group, followed by Professionals, all in STEM fields.  Employers listing occupations experiencing skills shortages for the first time included those with skills in business automation, big data and artificial intelligence solutions.

These survey findings need to be considered in the context of the emergence of complex ‘mega projects’.  To be able to successfully deliver on the current pipeline, a new and more focussed approach to skill development is required.  The unprecedented pipeline of public investment across transport and social infrastructure will place significant pressure on government and industry to respond and also creates the opportunity for a skills legacy.  Such a large program of work increases pressures on capability and capacity in both the private and public sectors.  Accommodating a pipeline of this magnitude at a time when skill shortages are already acute in some areas and are growing more acute requires new thinking, processes and partnerships to deliver successfully.  Skills demand is being further aggravated by a combination of renewed employment demand in the mining sector competing with historically high levels of infrastructure investments by governments across the country.

This infrastructure work is necessary to stimulate our softening economy and lift domestic productivity and amenity but it also carries with it pressures on particular skills which are in high demand because they are the same skills required elsewhere in the economy – such as in the mining sector.  While the bulk of the infrastructure pipeline is city-based, the mining work is of course largely regional.  This adds to the difficulties for regional-based operations who need to compete with the cities for a dwindling supply of skilled labour.

The two charts below highlight the skills challenge we are currently facing due to the peak in infrastructure activity and the renewed increased work requirements in the mining sector.  They demonstrate that the infrastructure pipeline over the next few years is in fact larger than the mining boom which peaked between 2012-2015 and which carried with it high levels of skills demand.

Chart 1: Historical and Projected

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Chart 2: Historical and Projected

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This expanded demand for skilled workers is coming at a time when the impacts of our ageing society are also intensifying.  Our own analysis of data related to the manufacturing sector shows that as of May 2019 there were 38,600 people aged 65+ who are working in manufacturing (4.2% of the workforce). This has doubled from 21,100 (2.1%) one decade earlier in May 2009.  While the increased labour force participation is positive, people in this age group are heading for retirement in the near future without the same level of skilled workers to replace them.  It is a similar story for the economy overall.  As of June 2019, 610,676 people aged 65+ are working (4.7% of the workforce) and this is up from 300,107 (2.8%) one decade earlier in June 2009.

This further chart below projects to 2028 and covers major transport projects valued at greater than $2 billion and major rail projects valued at more than $1 billion.

Chart 3: Historical and Projected Major Transport Projects

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Chart 4: Historical and Projected Major Rail Projects

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The state of apprenticeships and traineeships in Australia is illustrative.  We find ourselves dealing with 259,385 in apprentices & trainees in training in 2018 compared with 387,100 a decade ago and a high of 446,000 in 2012.  This is the lowest for a decade. This drop in volume can be directly linked to a series of policy adjustments including the removal or reduction of many employer incentives.   Apprenticeship systems, where they work well around the world, enjoy strong support from both government and employers. This support acknowledges that the core principle of an apprenticeship is the employment relationship between the employer and the apprentice.   Policy reforms of the apprenticeship system have let decision-making and funding drift progressively to training providers and support services. 

For us to return our apprenticeship system to be the most effective trade skill development pathway undertaken whilst in employment we would need to restore employer incentives, ensure national consistency of product and build strong, flexible and quality provision.   The apprenticeship system should be defined as an employment-based learning pathway, function across the economy and at many AQF levels, as is the model internationally.   Higher Apprenticeships should become a flagship of this reform.  We are unlikely to achieve a step change in our apprenticeship system without a significantly improved approach.  This approach must be national.  There is no need for jurisdictional difference in national apprenticeship arrangements.   However, focusing upon the apprenticeship system is only part of the issue.

The training system as a whole needs urgent and serious attention.  The establishment of the National Skills Commission provides a rare opportunity for the Commonwealth and States & Territories to develop new, transparent and fit-for-purpose partnership arrangements.  These arrangements should drive national approaches to qualifications development, apprenticeship reform, labour market mobility and establishment of price that will enable improved and transparent funding mechanisms.    Of course, a number of issues sit within this.  For example, the problems of speed-to-market for qualification development remain unacceptably slow and industry also needs to embrace an improved model.

It is timely to consider some bolder and more decisive reforms to genuinely lift the quality and confidence of the training system whilst simultaneously achieving a more efficient and effective spend of available public funding.  A step change is required.  This will involve strengthening industry leadership at the most senior levels of the training system.  Industry has not had any determinative decision-making capacity in the system including at the governance level for the past decade.   Industry needs to, and is prepared to, work with the most senior levels of government across the country to drive agreed and sustainable reforms. 

Direct and formal engagement of the key industry and government stakeholders in the system will enable the right level of ‘buy in’ to drive improved outcomes.  A significant consideration is to address the excessively complex and duplicative Commonwealth and State/Territory roles and responsibilities in the training system.  The National Skills Commission is an important first step for all parties to engage with. Commitment to a roadmap for reform should be a key outcome of the current COAG process. A genuinely national training system that meets the needs of economy may finally be possible. 

Ai Group urges COAG to commit to addressing improvements necessary for Australia to have a training system that meets both current and future needs.

Yours sincerely,

Innes Willox
Chief Executive
Australian Industry Group