Few areas of Australian public policy have undergone such rapid change as vocational education and training (VET) in recent years. The introduction of private provision, known as ‘contestability’, has radically reshaped the VET sector. Contestability was first embraced in Victoria in 2009 in response to a widespread skills shortage, with other states since following suit. The objectives of contestability were to increase the supply of qualified trainees, while attracting greater private investment and improving quality through competition.
In a 2008 paper, Per Capita called for a new market design in vocational training based on contestability (Cooney, 2008). Now, five years on, we evaluate the experience of contestability in Victoria against its original objectives. We find that it has succeeded in one of its primary goals: dramatically lifting the supply of new trainees. However, there have been unexpected and damaging consequences elsewhere.
The ‘uncapping’ of the market has led to a bubble which has resulted in a $300m p.a. blow-out in public spending on VET. This type of bubble is common in sectors where public funds are newly made available to private providers – employment services and household solar energy systems are two recent examples. A related feature of such bubbles is that new entrants offer variable quality. In the case of VET, employer groups report falling confidence in the quality of skills delivered by the training system.
The response of the Victorian Government to the blow-out has been to cut back annual spending by around $300m; these cuts have fallen largely on TAFEs, the traditional public training providers. We believe this is a detrimental step as it undermines TAFEs’ ability to deliver their statutory community service obligations which assist disadvantaged and disabled students. In addition, it weakens the financial viability of TAFEs, which is particularly concerning in thin regional markets poorly serviced by private training providers.
Taken together, this is an unacceptable state of affairs. For the economic and social health of Australia, it is critical that we get this system of human capital investment right. While it is commendable that supply has increased and government has reined in overspending, Australia cannot afford to settle for declining quality in its training sector and the dilution of the distinctive community services offered by TAFEs.
To address this situation, this report proposes four principles that should underpin the next stage in the market design of the VET sector in Victoria.
First, we recommend the retention of uncapped public subsidies in skills shortage areas only. Capping should be returned in other areas.
Secondly, we call for a streamlined subsidy structure which removes the extraordinary complexity of the current regime and delivers the highest subsidy to skills shortage areas courses.
Thirdly, we demand the reinstatement of dedicated public funding to TAFEs to allow them to deliver their community service obligations. This could be paid for by tightening eligibility for Recognition of Prior Learning programs and foundational courses.
Finally, we call for an independent Ombudsman to oversee the regulation of the sector. This role would replace the current undesirable structure in which government acts as purchaser, provider and regulator.
We are confident these principles offer a sustainable, high quality future for the VET sector, both in Victoria and in the other states currently redesigning their training provision. Australian trainees and their employers deserve nothing less.