The NASWD Review – Interim Report from the Productivity Commission
Firstly a note that, given my role as a non-executive director of apprenticeship services provider, MEGT, while I have provided details on all key aspects of the Commission’s Interim Report, I have confined my comments and analysis to those sections related to ‘non-apprenticeship’ VET.
The full report is available on the Productivity Commission’s website and they are seeking written submissions by 17 July 2020.
- The Commission has done an excellent job of identifying the problems with VET funding. They are myriad and I suspect that the Commission would have found more if all jurisdictions had fully cooperated with the Review.
- I agree with a number of the Commission’s proposed solutions. Some I disagree with and in other areas I think there are problems identified by the Commission which do not seem to have specific proposals to address them (eg the significant decline in completion rates for learners in remote and very remote areas over the last decade).
- The report puts the focus of the VET sector on the student. I strongly support this shift. I value the important role industry plays in shaping the content of the skills training learners undertake but employers use the system to make sure their staff have productive skills – they are not the learners. In higher education we educate engineers, doctors, accountants etc and these industry sectors (and others like them) have direct input into the design of higher education courses – but it is the students which are at the heart of the higher education system. Having the same understanding in VET would clarify roles and responsibilities. VET and higher education only work if they produce employable graduates – and unfortunately in VET the ambiguity in the system has delivered a decrease in graduate employability rates in the last decade.
- The Commission has a strong, positive view of the benefits of competition and the role of the private sector in the delivery of government services. It notes that while there were examples of poor quality delivery (and I would add some fraud) in the demand driven student entitlement schemes in Victoria and South Australia (the VTG and Skills for All) – they had a beneficial impact in many ways and were wound back principally because of the amounts governments were spending. The Commission also recognises that some providers abused the VET FEE-HELP scheme this was a result of the design and implementation of the scheme and not with loan schemes as a funding alternative.
- Equity is identified by the Commission as one of the principles which the next VET funding agreement should be focussed on (and which was central in the last agreement). It then goes through hundreds of pages pointing out the inequities in the current funding arrangements and confirms the higher education sector offers all publicly funded students the same fee and loan arrangements for the same course regardless of which jurisdiction you live in.
- An increase in VET participation leads to less crime and saves governments money. For example in Victoria under the Victorian Training Guarantee led to 4.5 per cent, 11.3 per cent and 12.8 per cent reductions in person, property and drug crime rates respectively (Jha and Polidano 2016). Given the costs of crime, the study estimated that every dollar of additional VET spending actually ended up saving the government 18 cents. All those involved in VET should be aware of this study and make better use of it.
- Private providers deliver lots of ‘subject only’ enrolments. They are also a significant provider of ‘national training programs’ (defined by the NCVER as training package qualifications, skill sets and accredited courses). The report helps crystalise in my mind some errors in thinking in parts of the VET sector – that is there is a view that the size of the private sector is due to it ‘out-competing’ TAFE for government funding. While private providers have received an increased share of government funding in some States in fact the size of the private sector is due primarily to the significant scale of its fee-for-service activity. Very few people have understood the size and scale of private VET provision because until 2015 there was a lack of nationally consistent data. We undertook surveys during my time at ACPET and had an informed understanding of the sector – but until the NCVER collected and reported Total VET Activity data no-one in the sector understood that the number of fee-for-service qualification completions at private providers since 2015 has been about equal to that of all government funded qualification completions.
- It is unclear if it would have changed any of the Commission’s interim findings, recommendations or options – but the lack of detail on the funding that TAFEs receive and the purposes for which it is given appears to have hampered the Commission’s understanding of the TAFE sector and how it differs from other providers (in an evidence-based way). There may be a number of reasons for the decisions by States and Territories not to share this information, but it is not helped by the lack of a clear purpose statement for TAFEs in most jurisdictions. I am aware of only one State (NSW) which has attempted to define the purpose of its TAFE system. As I have said previously I think there is merit in considering the role of TAFE through the lens of public institutions “delivering public value”. While the concept of public value still requires public sector managers to use resources efficiently it recognises a broader purpose for public institutions and would likely lead the Commission to a different set of recommendations for TAFE.
- Employer satisfaction has fallen in the last decade and the proportion of graduates getting an improvement in their employment status after finishing a VET qualification has also decreased BUT student satisfaction rates have remained high. I would suggest that is a sign that most teachers and providers are doing a great job in difficult circumstances and employer satisfaction is mostly down because of all the added complexity which has been introduced into Training Packages in the last decade, which means they are not getting graduates with the necessary skills.
- The Commission thinks the VSL scheme needs to be made more flexible and its coverage extended. They go as far as saying it could cover the student fee for all VET qualifications at any level (despite also pointing out that a modest student fee makes consumers more aware and probably reduces the likelihood of poor quality training delivery). They also suggest one way for the Commonwealth to increase its share of funding might be to replace funding grants with an expanded student loan scheme. I consider that suggestion to be dangerous for two reasons (a) I think many lower level courses should be fully or almost fully subsidised particularly for disadvantaged learners and this funding approach would act against that – in theory if not in reality and (b) most worryingly as we saw, and the Commission recognises, when the VET FEE-HELP scheme was initially expanded some States withdrew funding for Diploma-level courses – making students more reliant on loans than previous government subsidies. There is no discussion in the report as to whether the Commission thinks this would happen again with a ‘loans in place of grants’ funding model.
- The Commission provides a lot of commentary on the merits (or otherwise of the industry advisory arrangements) and appears to be influenced by key actors in the current arrangements putting forward arguments to retain the status quo and not pursue the Joyce Review reforms (exemplified in the pilots of new Skills Organisations). The Commission does not seem to be aware that the current arrangements are not dissimilar to the previous arrangements in terms of the overarching bureaucracy to determine what students are taught. They do not appear to be cognisant that the combined systems have resulted in three times as many national training programs (qualifications, accredited courses and skill sets) as there are occupations in the entire Australian economy. Given the decline in employer satisfaction and in the employability of VET graduates in Australia in the past decade, I believe it would be worth the Commission examining evidence on the performance of the New Zealand ITO model (which forms the basis for the SO model Australia is piloting) if the Commission intend making further recommendations on these issues in their Final Report. The New Zealand system is well regarded by employers and training providers. It has not led to the proliferation of training ‘products’ which has beset the Australian system, and it has been a remarkably stable system for approximately 20 years. The only area where it struggles, as the Australian system does, is in identifying and funding areas or new and emerging skill needs.
- The Commission is to be applauded for its attempt to think through the potentially disruptive impact of the global EdTech sector on the formal VET sector. Regrettably very few senior leaders in the Australian VET sector have grasped the magnitude of what is happening in the non-accredited EdTech sector. COVID-19 has turbocharged a shift that was already underway and has the potential to change where and how learners who already hold a post-school qualification acquire additional skills. The Commission considers that one way for governments to respond is to introduce assessment-only services where learners can get their skills formally certified irrespective of how they acquire them. The report’s authors do not seem familiar with the longstanding practice and requirement for Recognition of Prior Learningin VET. I am uncertain if learners who have gained valuable industry-relevant skills through a non-accredited provider will want to pay more to get these skills certified in the VET sector but if they do then the current RPL arrangements provide for this. I do consider that there is room for independent assessment services to be included in the VET sector and that (if done properly) they could strengthen quality and allow RTOs to spend more of their time focussed on student engagement and innovation in training delivery. It would be good to see reports from the trials of independent assessment which are currently underway.
Commission’s Interim Findings, Recommendations and Options
Given that this is only an interim report, the system is highly complex and the Commission did not receive data from some jurisdictions it has only made interim findings and recommendations. In some places of policy it does not even feel confident to go that far and instead offers Options for consideration.
I have provided a simple visual response to the various findings, recommendations and options.
Those where I have concerns (and have included comments) are signified accordingly and my comments are included in italics.
|✅||INTERIM FINDING 2.1 — NASWD PERFORMANCE FRAMEWORK
Governments’ targets on skills formation will not be met. Progress against other performance measures, such as employer satisfaction and improvements in employment and education status, is mixed.
|✅||INTERIM FINDING 2.2 — GOVERNMENT-FUNDED VET PARTICIPATION
Key reforms under the NASWD — the national training entitlement and expansion of student loans (VET FEE-HELP) — initially increased participation but incentives were later wound back because of escalating costs and rorting. Overall participation rates are now at or below pre-NASWD levels.
|✅||INTERIM FINDING 2.3 — VET MARKET COMPETITION AND EFFICIENT TRAINING DELIVERY
Early efforts to promote a ‘more open and competitive training market’ have stalled. Improving the efficiency of training markets is no longer an explicit priority for most governments.
Further work is required by governments on the policy settings that best facilitate a responsive and efficient training market. This includes a more clearly defined role for public providers.
|⚠️||INTERIM FINDING 2.4 — THE NASWD NEEDS REPLACEMENT
The NASWD is overdue for replacement. Governments have stepped back from several key policy aspirations. The performance framework has limited value for assessing the functioning of the VET system. Its targets have not been met and some performance indicators have proved to be deficient.
Some principles of the NASWD remain pertinent for a future intergovernmental agreement, including equitable access to training and contestability. Reforms are still needed to give students better information, increase user choice, improve quality assurance, and create a more interconnected education and training system.
Many of the principles in the Intergovernmental Agreement on Federal Financial Relations, including recognising the Australian Government’s interest in areas traditionally the responsibility of State and Territory governments, clarifying all governments’ roles, and allowing State and Territory governments flexibility in the use of grants, are a sound basis for negotiating any new agreement.
I agreement that the NASWD needs replacement but I disagree that the level of flexibility in the use of the existing grants is a sound basis for the next agreement. This level of flexibility acts against the principle of equity for individual students. See below for how I think this can be managed and still allow sufficient flexibility in a future nationally consistent agreement in my comments in response to Option 6.1.
|✅||INTERIM FINDING 3.1 — PUBLIC AND PRIVATE RETURNS TO VET
There are significant private and public economic returns to VET, with returns larger for Diploma and Advanced Diploma VET courses.
There are also indirect benefits — such as reduced crime and intergenerational economic mobility — which may be greatest for lower-level VET qualifications.
|✅||INTERIM FINDING 3.2 — ALIGNED TREATMENT OF VET AND HIGHER EDUCATION
The use of subsidies in the university system provides a robust efficiency and equity rationale for subsidies in the VET system.
However, given the public benefits and aims of the VET and higher education systems differ, subsidy rates do not need to be identical in the two sectors for all occupations and fields.
|✅||INTERIM FINDING 4.1 — DATA UNDERPINNING SUBSIDY RATES
Data used to estimate course costs (which inform subsidy rates) are dated in most States and Territories and are not a sound basis for setting subsidies.
|⚠️||INTERIM FINDING 4.2 — PRICE CONTROLS ARE INEFFICIENT
Fixing student fees can stifle competition, inhibit allocative efficiency and reduce incentives to improve the quality of training.
There are more direct instruments to address issues of quality management, information asymmetries and budget control.
I agree that student fee levels do not need to be mandated but I am equally concerned at the approach in some jurisdictions whereby funded providers (TAFES and privates) can set their fee at $0. This issue is identified in the Interim Report and the Commission does not appear to be in favour but does not address this matter in any further findings or options.
|⚠️||INTERIM FINDING 4.3 — JURISDICTIONS’ APPROACHES TO SUBSIDISING COURSES
State and Territory governments share the same goal that subsidies should increase participation in training, particularly by students facing disadvantage and in skill areas in short supply or with other public benefits. All take the same key steps in setting subsidies and managing subsidised services.
However, there is significant variation in policy priorities and the approaches used to determine which courses receive subsidies, and in overseeing course costs and student fees. Consequently, subsidies and student fees for the same courses can vary widely across Australia.
The effects of different settings on the behaviour of students and training providers are poorly understood.
While I strongly agree with this finding I note that the finding is silent on the inequities students in different jurisdictions face as a result of these inconsistencies.
|✅||INTERIM FINDING 4.4 — LACK OF TRANSPARENCY IN SUBSIDY SETTING
There is a general lack of transparency on subsidy- setting processes and the rationales for subsidies. There is also a lack of transparency on course costs faced by students.
This transparency deficit adversely affects the ability of students and training providers to make informed decisions on investment in training.
|✅||INTERIM FINDING 6.1 — WELL-DESIGNED VET STUDENT LOANS IMPROVE AFFORDABILITY
Poor design, rather than poor policy justification, was the source of the rorting of VET FEE-HELP. A well-designed VET student loan scheme can improve affordability and access to VET courses with few fiscal risks to government.
|INTERIM FINDING 7.1 — STREAMLINING APPRENTICESHIPS
Governments have made progress in harmonising and streamlining the apprenticeship system but there is scope to further simplify arrangements for student support and system administration.
|✅||INTERIM RECOMMENDATION 2.1 — INFORMATION ON VET SYSTEM PERFORMANCE
Australian, State and Territory governments should develop improved performance measures to provide a more complete picture of system performance. Any future sector-wide performance framework should better measure:
· total VET activity
· the contribution of VET to developing the foundation skills of Australians
· skills obtained through the VET system when students do not complete a course
· students’ longer-term labour market outcomes.
|✅||INTERIM RECOMMENDATION 2.2 — A NEW PRINCIPLES-BASED AGREEMENT
Australian, State and Territory governments should negotiate a new, principles-based intergovernmental agreement. Such an agreement should commit governments to developing an efficient, competitive market driven by the informed choices of students and employers. The agreement’s principles should include:
· centring policy on the consumer, including information provision for informed choice
· equitable access
· recognition of fiscal sustainability and the stability of funding
· transparency about where funding is allocated, including detailed information on course subsidies, costs and the size and nature of funding to public providers
· efficient pricing and delivery
· designing incentives to increase the likelihood of eliciting training
· competitive neutrality between public and private provision
· neutral, but not equivalent, treatment of the VET and higher education sectors.
|✅||INTERIM RECOMMENDATION 6.1 — COMMON METHODS FOR COSTING
State and Territory governments should use common methods to measure costs and determine loadings.
|❌||INTERIM RECOMMENDATION 6.2 — PRICE CONTROLS SHOULD BE REMOVED
Governments should not cap the prices of VET courses.
I disagree with this recommendation. Firstly to be clear governments do not and should not set price caps on any fee-for-service activity. When it comes to government funded-activity, the Interim Report makes clear that there is an immature regulatory system in VET and a lack of clear information to learners to allow them to make informed decisions on courses or providers. Hard caps like those imposed in the VET Student Loans scheme are inequitable but some government regulation on pricing for courses they are subsidising is appropriate.
|⚠️||INTERIM RECOMMENDATION 6.3 — IMPROVING INVESTMENT IN PUBLIC PROVISION
In making payments to publicly-owned VET providers, State and Territory governments should:
· adopt the principle of transparent disclosure in interim recommendation 2.2
· ensure compliance with competitive neutrality principles
· assess the efficiency and effectiveness of existing investments
· undertake market testing or other options to increase the contestability of existing obligations.
I agree that States and Territories should be more transparent about their funding for TAFE and their expectations of their TAFE systems. Government funding should also be properly accounted for and efficiency is an important element of that. I consider that determining TAFEs’ funding in relation to its role in delivering public value would be better, rather than the ‘pure’ market efficiency/contestability elements of this recommendation.
|✅||INTERIM RECOMMENDATION 7.1 — TRAINING PACKAGE UPDATE AND APPROVAL PROCESSES
Reforms planned or underway to streamline the development and updating of training content should address most stakeholder concerns. To further improve the timeliness of the process, the COAG Skills Council should consider delegating to Industry Reference Committees the power to:
· commission updates to training packages where there is an industry-agreed change to work standards or a new technology
· approve straightforward, non-controversial or minor changes to training packages.
|✅||INTERIM RECOMMENDATION 7.2 — QUALITY REGULATION
The Victorian and Western Australian Governments should ultimately follow other State and Territory governments in referring regulation of training organisations to the Australian Skills Quality Authority (ASQA).
In the first instance, ASQA, the Victorian Registration and Qualification Authority and the Training Accreditation Council in Western Australia should seek to address stakeholders’ concerns about inconsistencies and overlap in requirements between regulators, including different interpretations of regulatory standards.
|✅||INTERIM RECOMMENDATION 7.3 — IMPROVING THE PROVISION OF VET INFORMATION
The National Careers Institute should extend its work on information provision to fill significant information gaps in course prices, subsidies and RTO quality, and test that information is salient to students, trusted, used and interpreted correctly.
Australian, State and Territory governments should work together to establish the Institute as a central information hub.
|NEW FUNDING OPTIONS|
|✅||OPTION 6.1 — SCOPE FOR MORE NATIONALLY-CONSISTENT COURSE SUBSIDIES
Australian, State and Territory governments should consider:
1. adopting a nationally consistent set of course subsidies, based on the efficient cost of delivery for groups of similar courses, with loadings to address higher delivery costs in some locations and to some student groups (as in the Joyce Review); or
2. simplifying the large number of different subsidy rates for courses but otherwise leaving jurisdictions to set their own subsidy rates and their allocation.
I strongly support the first option as the most appropriate for the future of the VET sector. Considering the myriad issues the Commission identifies in the current funding arrangements and some of the principles identified by the Commission as important for a future agreement (ie centring policy on the consumer, equitable access, recognition of fiscal sustainability and the stability of funding, efficient pricing and delivery, and neutral, but not equivalent, treatment of the VET and higher education sectors) there is a much greater need and argument for Option 1 than Option 2.
By contrast, letting States do as they wish albeit with some simplification (Option 2) does not centre the next funding agreement on equitable access, does not contribute to stability of funding, does not deliver efficient pricing, and does not provide for equivalent treatment with higher education. In higher education all learners who wish to take up a government-funded place pay the same amount for their course and are eligible for the same loan arrangements irrespective of which jurisdiction they live in or which institution they study with. VET students deserve the same.
I accept that there is a need for States to manage their priorities and some specific local labour market issues (although I note that they do not feel a need to intervene in a similar way in the higher education sector). We trust the higher education sector to produce enough degree-qualified graduates in fields like Accounting, Engineering ICT, and Nursing (along with all the others in the higher education sector) but feel a need for every government to interfere to some degree in the supply of diploma qualified graduates in exactly the same fields.
Despite this substantial inconsistency, I accept that States and Territories will not wish to have a nationally planned approach imposed upon them and the Commonwealth lacks the requisite skills to manage one even if it were feasible and desirable.
Therefore I consider that national subsidy methods and levels should be agreed and States and Territories could then determine how many places they wished to fund in the various courses. A portion of funding could be set aside in each jurisdiction to then allow for a tailored approach to their specific circumstances/labour market conditions.
Given the significant disparities in the number of courses which currently receive funding across jurisdictions, States and Territories should not be under any compunction to fund any courses – but where they choose to they should follow nationally agreed subsidy arrangements – unless specific local circumstances apply and they wish to use the portion of funding I consider they could set aside for specific purposes. I accept that this is not a neat solution but the VET sector is not neat. I consider that it would be a significant step forward for students and providers, would still deliver the graduates employers want, and allow States and Territories considerable flexibility.
|✅||OPTION 6.2 — CONSISTENT METHODS FOR ASSESSING SKILLS SHORTAGES
Australian, State and Territory governments could consider adopting consistent approaches to the determination of skills shortages, while taking account of variations in local labour markets, with this task undertaken by the National Skills Commission.
|❌||OPTION 6.3 — SWITCHING FROM SUPPLIER TO CUSTOMER SUBSIDIES
State and Territory governments could consider re-configuring subsidies paid to RTOs as student vouchers, with the voucher value depending on the method used to calculate subsidies as specified in option 6.1.
Given the myriad problems the Commission identifies in the VET sector at present and the proposals it is considering recommending to government to change how the sector is funded, all at a time when the national quality regulator, ASQA is bedding down major changes in its regulatory approach I do not consider that a case can be made for the introduction of vouchers. Students lack the information needed to make informed choices. Providers, governments and the regulator will all be adapting to new funding and subsidy arrangements. Vouchers with their deliberate lack of certainty would not be a good policy option for VET.
|OPTION 6.4 — A LARGER ROLE FOR INCOME CONTINGENT LOANS
Income contingent loans have significant advantages. Governments should consider making VET Student Loans available for a wider range of qualifications. Current restrictions — by AQF level or inclusion on a skill/priority list — could be relaxed to support greater user choice and participation, as could loan caps.
The degree to which restrictions should be relaxed should be based on risks, costs and administrative complexity.
Widening access to loans should largely maintain the existing strong regulations that reduce risks associated with loans, but could also include the adoption of a ‘black list’ that identifies courses ineligible for loan support, setting a transition path to a less-restrictive system, testing risk as caps and course restrictions are lifted, and reducing the income thresholds for loan repayment.
I concur with the recommendation to immediately extend the VET Student Loan scheme to all courses at Diploma level and above and to remove the loan caps. The Commonwealth will need to monitor the new arrangements carefully and can manage risk (as they do currently) by imposing limits on overall funding to providers. In turn this limit should be able to be increased where a provider can demonstrate additional demand and is achieving strong outcomes.
I disagree entirely with the notion of a list of courses which (because of some ill-defined concerns) will never be eligible for an income contingent loan. That is grossly inequitable for prospective students. As above, restrictions on provider level funding allocations mitigates the risks which emerged with the former VET FEE-HELP scheme. Furthermore the income threshold for loan repayments is already low enough and should not be lowered further.
|OPTION 6.5 — SUPPORTING TRADE APPRENTICESHIPS
Given the apparently poor effectiveness of employer incentives, the Australian and State and Territory governments could consider:
· addressing barriers to hiring apprentices, including their foundational skills, work readiness and the minimum wages or other award conditions set by the Fair Work Commission
· reintroducing (better-designed) industry levies.
Consideration of these options should take into account the effectiveness of any measures to strengthen pastoral, mentoring and other support services for VET students in general (options 6.6 and 7.3).
|OPTION 6.6 — PASTORAL, MENTORING AND UPFRONT ASSESSMENT SERVICES
Australian State and Territory governments could expand mentoring and pastoral services for VET students, including those undertaking apprenticeships.
Governments should also consider the wider uptake of tools for the upfront assessment of student needs — as used by the South Australian Government — to determine students’ suitability for their chosen course and their need for any supports.
|APPRENTICESHIP SUPPORT OPTIONS|
|OPTION 7.1 — BETTER COORDINATING AND STREAMLINING INFORMATION ON APPRENTICESHIP INCENTIVES
To better coordinate and streamline information on their multiple apprenticeship incentives, Australian, State and Territory governments could implement one or more of the following options:
· task the Australian Apprenticeship Support Network to assist employers in determining their eligibility for benefits offered by both the Australian and relevant State or Territory governments
· publish clearer information on all incentive payments that employers in each jurisdiction may be eligible for
· strictly delineate the roles and responsibilities for managing apprenticeship supports
|OPTION 7.2 — STREAMLINING TRADE APPRENTICESHIP INCENTIVES
In considering how to streamline trade apprenticeship incentives, the Australian Government could consider extending eligibility for trade apprenticeship incentives to all workers, regardless of their tenure with the employer.
|OPTION 7.3 — IMPROVING THE AUSTRALIAN APPRENTICESHIP SUPPORT NETWORK
The Australian Government could improve apprenticeship support services by:
· publishing more information on the scope of services that Australian Apprenticeship Support Network (AASN) providers are contracted to deliver
· evaluating the AASN contracts to assess how recently-revised arrangements have affected the efficiency of service provision and outcomes for users
· cooperating with State and Territory governments to jointly contract AASN providers to better align services with local needs, as is the practice in the Northern Territory.
 I first came across the concept of ‘delivering public value’ in the Executive Masters of Public Administration I undertook through the Australia and New Zealand School of Government (ANZSOG) in the mid-2000s. In the more than a decade since I have found it more than a little depressing that a concept, agreed by all Australian governments as critical for all future leaders in the public service to understand and deploy, appears so poorly used within the same governments – at ;east with respect to their VET systems.