Leader of the Government in the Senate Minister for Tertiary Education, Skills, Science and Research

CEDA State of the Nation Conference 2012: Australia Unbound Canberra 18 June 2012 E&OE Thanks for the introduction. I understand you’ve heard from my colleague Penny Wong this morning. She will have explained to you why I can’t afford do anything for you, so expectations will have been lowered. Actually, she started calling me the protected one because I was about the only portfolio that continued to grow strongly, but I’ll come to that in a minute. I thought I’d talk to you today about the skills challenge, as most of that falls within my portfolio, and the Government’s responses to that challenge and where we see things going. In terms of setting the scene, I know Penny spoke to you about the underlying strength of the economy, where we are with growth and importantly with unemployment, with unemployment hovering around the five per cent mark. I know economists argue about what full employment is but we’re obviously in a very strong position despite the serious changes that are occurring in the economy. The structural change that is occurring in the economy is very significant and as you know, it is having huge positive impacts in areas like mining and mining services, but it’s causing huge difficulties in areas such as manufacturing, international education, tourism, all those areas that have been impacted by the high Australian dollar. It is very much a multispeed economy. We have some people being put out of work and businesses closing, while we have other people doing very well and seeing strong growth. That’s obviously—both politically and economically—very difficult to manage, and you’ve seen much of that in the current debate. Bottom line for us in terms of skills is that we’re going to have more jobs than people in coming years.

I regard that as a great challenge. I keep reading in the papers that it’s a crisis. Well, I’d like to introduce you to any of the employment and training ministers in other countries. They’ve got crises. We’ve got a challenge. They’ve got nine, 10, 15, 20 per cent unemployment. Our problem is actually making sure that we can fill the jobs available in the economy—so it’s a good problem to have but, nevertheless, it is a challenge. That challenge is geographically based, it’s skills based, it has a whole range of dimensions. The first thing, I suppose, to say about it—and it’s not just because I’m a West Australian—but the truth is that strong jobs growth is in the north and west, and that’s a challenge for people in the south east corner in terms of employment creation. It’s also the case that we have very poor labour mobility in Australia and that’s a challenge. In Western Australia, we’ve traditionally had to attract our workforce from overseas, be that British, South African, Indian and currently Irish. If you come to Perth at the moment you’d think you’re in Dublin—there’s a lot of Irish accents around. As their economy tanked, we’ve been able to attract some very skilled workers and professionals. But the reality is that the job growth is on one side of the country, and the pressure’s on the south east corner, so it’s a geographical issue as well as a structural adjustment issue. The other point that I always stress to people is that the new jobs emerging in the economy are higher skilled jobs. There are very few unskilled jobs emerging in the economy. We know that roughly a third of our workforce in coming years will require a Bachelor’s degree or higher. All the focus is on skills and training, and I’ll come to that, but the reality is we need an increasingly professional workforce. That’s a challenge for us, but again, it is a good challenge to have. Unfortunately it’s easier for politicians to have a photo with a bloke in a Velcro vest and a big truck or digger, and it’s far less interesting having a shot with someone standing out the front of a university. But much of the skills challenge and the innovation challenge in the Australian economy is in the higher education space.

The other aspect of that challenge though is that we’re going to see about 40 per cent of the workforce require a qualification somewhere between a Certificate III and Associate Diploma, so higher technical skills. It is a real restructuring occurring in the skills needs of the economy and while we know mining is sucking up skills, and will continue to do so because miners can and do pay, there are enormous skills needs in other sectors of the economy which can’t get the same focus, be it aged care or be it other services industries. The other point I make in setting the scene is the literacy and numeracy challenge. It’s not often talked about in Australia but I know many employers understand this— we have about four million Australians who find operating successfully in the workplace a challenge because of their literacy and numeracy skills. The point to remember when we are talking about the skills challenge, as always, is that we’ve got about 11 and a half million people in the workforce and 200,000 coming out of school each year. Our workforce planning can’t just be about the 200,000 coming out of school—it’s got to be about the existing 11 and a half million and others that are working aged and available to work. So when we are talking about upskilling, it has got to be a conversation about the 11 and a half million not just about school leavers. Now, from the Government’s point of view, this challenge and these things that are occurring in the economy, have to be met a number of ways. 1. Increasing the size of the workforce. 2. Upskilling and education that will help us drive the workforce flexibility skills we need and obviously drive innovation. 3. Skilled migration, and 4. Improved planning capacity in our economy and in the area of skills. I just want to speak briefly about each of the four. And I won’t take you through all of the rats and stats; I’ll try to give you a sense of what the focus is. In terms of the size of the workforce, clearly with an ageing workforce and a culture which sees people retire too early, we have a challenge in terms of participation rates. They are at historically quite high levels because of the improved participation of women in the workforce but the blokes are still pretty focused on getting out early and going fishing! That’s why a lot of the focus has to be on attitudes.

I used to be involved with the Firefighters—and their mentality was, you don’t work a day past 55; and that’s the way the super scheme was set up and that’s partly because it was such physically challenging work. It is very much a mentality that we are going to have to change in Australia. The Government can only do so much. Those attitudinal issues are really important. So, we’ve got an ageing population; we’ve got a retirement culture that sees people go too early; and we obviously have other sectors of the workforce that aren’t fully engaged. Workforce participation is a key. That’s why in the 2011 Budget, the Building Australia’s Future Workforce was a large part of that Budget. It was about trying to increase participation of a whole range of groups—mature age workers, parents, people with disability and the long-term unemployed. We’ve actually got a resource in Australia, in terms of the workforce, that has been untapped. Many of them are prevented from entering the workforce because of skills issues, or language and literacy issues, so we are driving programs to try to support them with the training and the language and literacy skills they need to enter the workforce. Obviously there is a social justice issue—the reality is when people are in work they have better outcomes, and their kids have better outcomes. But the Building Australia’s Future Workforce strategy which has been rolling out for the last year and a half is actually starting to deliver some dividends in terms of participation. And there were further changes in this year’s Budget—which some people regard as controversial—which is moving people off parenting payments when their children are at younger ages. But we’ve got to drive that connection with the workforce. And what we find is that when people are on income support measures for a longer period of time, they are less likely to stay connected to the workforce and are less likely to rejoin the workforce. So we’ve got in place a whole range of training and other support mechanisms but we have got to keep trying to connect those people to the workforce. Participation is a key part of the Government’s response and it is reflected in that range of initiatives aimed at those groups who have traditionally been cut out from full participation in the workforce and in society.

It is an equity and an economic measure—and one of the key measures there is the change in the tax free threshold, lifting it to $18,000. That does make work, part-time work, much more attractive to a whole range of those groups. Effectively, you don’t pay tax on the first $18,000 which, for many people, is around 15 to 20 hours work a week. It makes that reconnection with the workforce very attractive. I think that will be one of the single biggest drivers of helping reconnect a whole range of people to part-time work. So the size of workforce participation has been a major focus for the Government in the last couple of budgets and is hugely important in increasing the size of the workforce. Skills and education is obviously also a major focus for us—investment in our human capital. It’s been a major focus for this Government since we came to office. People will remember the Building the Education Revolution and the schools buildings programs, deliberately designed as a stimulus package to give us better quality schools but also to invest in education. We get a double bang for our buck in these projects in that they are delivering better facilities for our education system throughout the tiers. There has been a huge investment in TAFEs and universities as well. But effectively Australia’s future is as a high skills, high wage economy. We can’t compete on a low wage basis so in the end our future, both during and after the mining boom, is driven by the capacity and talents of our people. We’ve got to make sure we have invested in those skills, in their flexibility and in their capacity to innovate, that’s where the future of the country is. That’s why in successive budgets we have made record investments in higher education, skills and science and research—because that’s the investment that will eventually drive strong productivity growth and leave Australia well placed. Our economic potential will be driven by the capabilities of our people. One of the things that doesn’t get enough recognition is that already this Government has got 150,000 more people in university. In a couple of years time it will be 770,000 at university, compared with just over 400,000 when we came to office. Why? Because the jobs of the future are graduates jobs.

We’ve got to meet workforce needs and we know those jobs will require people with degrees or higher. We already see that. I think there’s people better qualified from the mining industry and oil and gas industry around the room. But when I talk to someone like Chevron, they talk of 500 jobs long term on the Wheatstone and Gorgon projects offshore and 2500 in Perth. Two and a half thousand are engineers, geologists, human resource people, planners, the whole gamut of professions. The mining industry and the oil and gas industry are creating professional jobs now in large numbers but that will grow, particularly when we move to a more maintenance side once the big construction activity is completed. We’ve almost doubled our investment in higher education and that’s reflecting that need to drive the improved capacity of our workforce. It’s the same in the skills area. As I said earlier, we know the jobs emerging in the economy are high skill jobs. We’ve got more people in training than we had before the global financial crisis. It’s come off a bit in the last few months, as a result of the softness in areas like construction where we traditionally employ a lot of apprentices, but it’s still very strong compared to what it was before the GFC. There are however, some serious challenges in the skills area. We have some poor outcomes, we have very poor completion rates in much of the VET sector and there are challenges there where the VET sector needs to be able to lift its performance. We are regarded worldwide as having one of the best vocational training systems in the world but in my view it’s a bit creaky. It’s creaking under the pressure of having to produce a large number of skilled workers quickly and it’s also creaking under the weight of history and the changing needs of employers and the economy. It’s one of the reasons why the Commonwealth has initiated a reform partnership with the states. The last deal was signed off a couple of months ago which was designed to reward the states for lifting quality, lifting outcomes and making sure we’re actually providing more skilled workers for the economy and giving more people a chance to lift their skills. Again, it’s not just about school leavers. It’s about upskilling the current workforce. That’s one of the reasons why we’ve introduced the National Workforce Development Fund.

It builds on the critical skills investment part of that, which is designed to partner with employers to upskill and to skill new employees to meet the emerging skills need in the economy. Quite frankly, the VET system is supply driven. Students choose a course and often they come out with a qualification, be that origami or whatever, which is not necessarily what the economy needs. What we’re trying to do with the National Workforce Development Fund is change it to a demand-driven model where we partner with employers to train the skills that are emerging in the economy. That’s going very well. We’ve got huge demand. We’re able to invest the Government’s contribution into those skills that are emerging in the economy. Obviously that’s mining, but it’s also areas like aged care and health services where there’s huge demand for workforce. That sort of the employer-led partnership, which is driven by demand not supply, is starting to make a difference and obviously getting the states and the VET systems more in tune with that philosophy has proved to be important in meeting the skills demand. The third aspect of building the workforce and skills demand is the skilled migration programs. We’ve put a lot of work in, and I did as Immigration Minister, into reforming those. As you know, the skilled migration program was driven by overseas student enrolments seeking permanent residency. Many of them weren’t actually then moving into skilled work because they didn’t have the right skills or weren’t able to get a job in their chosen field. So we’ve reformed the system to have much stronger links to skills demand in the economy. And that’s starting to bear fruit and change in the mix and we’re prioritising those skills in demand and making sure that people are employable. One of the major changes is the increase in the use of the 457 scheme which is, again, employer driven and, interestingly, much of the permanent migration now is driven by 457s converting to permanency. Some people complain about that but I always make the point that you can’t get a better migrant than someone who has been here four years, has been in work, likes the place and the employer still wants to employ them. That’s a 100 per cent outcome from a migrant point of view. So 457s converting to permanency is, in my view, the ultimate migration program in terms of its outcome. So I think the reforms there have worked and have started to drive the skills we need in the economy.

We’ve set a strong permanent program and obviously the temporary programs are also allowing us to meet peak demand. Now we’ve had this debate in the last few weeks about the EMAs and essentially it’s the debate about how you use skilled migration to meet the peak. The peak is not in the mining sector, the peak is in the construction. Many of the jobs are in civil construction—building the mines, building the ports, building the railways. The ongoing mining workforce will increase, but it won’t increase to the sort of peak levels of employment that are now being generated and will be generated in the next couple of years. So the challenge for Australia is to meet the peak. You don’t necessarily want to train to the peak because a lot of that will be construction workforce and they will have difficulty adjusting as we come down the other side of the peak. We’ve got to make the balance right in the sense of lifting our training effort, lifting our skills, to meet the mining workforce needs and the other needs in the economy. But in managing that peak workforce there is a huge role for both permanent and temporary skilled migration. The point I want to make today, to employers in the room, is the EMA debate opened up the same debate that we had before the last election about population. This is a very difficult debate politically in Australia. It brings out strong emotions in the community and employers have to understand the social contract that’s involved here; people will support migration provided they think their children, and they, are getting the first opportunity at the jobs available in the economy. It’s a contract. They want to know that employers are training, that governments are supporting training and that Australians are getting the first opportunities to the jobs that are emerging in the economy. And quite frankly, that’s absolutely fair enough. That’s what the Government’s policy is. I think it’s what all thinking Australians policy is—that is you give the first opportunity to the residents of country, and the citizens of the country, to the benefits of economic growth.

But if you’re going to manage migration to meet those needs that training can’t meet you’ve got to have your credentials strongly in place; and you’ve got to have training programs that convince the Australian public you doing all that’s necessary. And the performance by employers is patchy. Many stopped training in the 80s, many trained very well. I actually think small businesses often make a bigger investment than larger businesses. Some do it really well, some do it really poorly. But if you’re going to win the debate about the need for skill migration in this country, and I’m a strong supporter of that, you’ve actually got to prove that you’ve honoured your part of the social contract. And that is, that you have a huge investment in training, you seek to employ Australians and give them the opportunities that are available—and that you use the skill migration as the top-up, if you like, for that training effort. Lastly, I’ll just mention planning capacity because the National Workforce Development Agency starts up on the first of July. We’ve taken Skills Australia and grown its function. This will be a very important agency in trying to meet these huge issues that are emerging in the economy and skills space. How do we better plan? How do we link employer demand with what’s going on in the education sector? How do we anticipate the sorts of issues, skills issues, emerging in the economy? The National Workforce Development Agency, which is led by industry people, is designed to try and meet that need. And in a planned economy it’d be a lot easier. Democracy can be a bit difficult at times. I can’t tell people they’ve got to move to WA to take a $200,000 job. I can’t tell employers how many people to train, even though I wouldn’t mind having that capacity on occasions. So it is difficult and challenging. We’re a democracy —people can move according to their own desires and train in the skills they want.

But we can, I think, do much better than we have in the past about trying to provide information and education and better link employers to what’s going on in the training and education markets. Anyway, it’s a huge skills challenge but, as I say, a great challenge to have. Similar discussion in any other country in the world is about what you do with rising unemployment and often discussions about unskilled jobs in the economy. Ours is a question about rising demand for skills, rising demand for labour, and meeting that challenge. There are a whole range of issues we’re going to have to tackle in addition to the ones I’ve mentioned. Labour mobility and flexibility in the workplace. We’ve got to make it more attractive for older workers, for women, for people with disabilities, for a whole range of people to re-enter the workforce to tap into their skills. But that’s a speech for another day. I’ll conclude on the message that our skills challenge is one that we can meet. It is a good problem to have. But it is one we all have to make a commitment to. It’s not something governments can fix alone. And a lot of this will rely on employers committing to training. As I say, some do a fantastic job, others need to lift their performance and the Government, and the community, will be looking to ensure that all are making a contribution to this challenge. Thank you very much. ENDS.

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