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Thursday, 3 February 1994
Page: 385

Mr STEPHEN SMITH (8.15 p.m.) —I rise to support the Training Guarantee (Administration) Amendment Bill. The Minister for Schools, Vocational Education and Training (Mr Free) in his second reading speech described the training guarantee scheme as follows, and I think it is an appropriate summary:

The training guarantee scheme was established by legislation introduced into this House on 18 May 1990, and it came into effect on 1 July 1990. It requires employers to spend a minimum amount on training. The scheme was introduced as part of the government's policy over the last several years to develop the appropriate environment in which Australian industry can become more competitive internationally. A fundamental step in this process is the development of a highly skilled work force which can adapt quickly to major changes in the economy.

  The scheme is an additional mechanism to stimulate industry's commitment to training. As the signs of economic recovery strengthen, we must be prepared for an increase in demand for skilled people.

Honourable members would be aware that the latest figures in respect of demand for skilled people are the highest in three years. The rationale that the minister has outlined focuses upon two very important aspects: firstly, the skilling of our work force to ensure that Australia becomes internationally competitive; and, secondly, using skilling to ensure that, as economic recovery occurs and jobs are created, people will have the necessary skills to take up those jobs.

  Prior to the introduction of the Training Guarantee Act in 1989, the Australian Bureau of Statistics confirmed some earlier assessments that a high proportion of employers did little or no training. At that time, it was estimated that the average expenditure on training for all employees was about 2 per cent of annual payroll. It was also estimated that nearly 60 per cent of private sector employers with an annual payroll of $200,000 or more spent nothing on structured training. At the same time, average expenditure on training by small firms with up to 20 employees was less than one per cent. Over 80 per cent of those firms did not incur training expenditure. There was clearly a need prior to the introduction of the act to ensure that as a nation we increased the training of our work force. The amendments before the House were again summarised succinctly by the minister in his second reading speech as follows:

This bill amends the principal act to give effect to two amendments promised by the government in the election context and also includes other amendments to minimise compliance costs and give greater flexibility to the scheme. In line with election commitments, the bill provides employers with enhanced flexibility to plan training expenditure over a longer period by allowing excess eligible expenditure incurred in one year to be carried forward to the next year . . . this . . . will assist those employers who have a need to train extensively within a short time frame, but whose training needs may not be so great in the following year.

  At the same time . . . provision is made for employers who have a training expenditure shortfall in one year to make it up through additional training expenditure in the following year.

The second election commitment implemented by this bill is to remove the need for employers to deduct training subsidies provided by government bodies for apprentices and trainees when calculating their net eligible training expenditure. That has the effect of doubling the minimum allowable apprentice or trainee amount, which is officially known as the `deemed amount', to $2,260.

  The other amendments which the minister describes as providing efforts to minimise compliance costs and give greater flexibility to the scheme are described in the explanatory memorandum as removing the aid restriction on student work experience; updating and widening access to the grouping provisions of the act; clarifying the meaning of eligible training program; expanding the meaning of eligible training expenditure; and updating the provisions in relation to liquidators to recognise administrators appointed under the Corporations Law. The minister, in his second reading speech, articulates the philosophy behind those approaches as follows:

. . . this bill encompasses a number of measures to make the legislation more business-friendly, especially for the small business sector. These amendments offer significant benefits to business and their retrospectivity to 1 July 1993 will ensure their immediate use on receiving assent.

I would like to draw the attention of honourable members to an interview which Minister Free did on the Lateline program hosted by the ABC's Kerry O'Brien on 10 June 1993. Again, I think the minister, in his capacity as an interviewee, brings to bear some important aspects so far as the need to increase the training of our work force is concerned. The minister was joined on that occasion by Mr Ian Spicer, who would be well known to honourable members as the Chief Executive of the Australian Chamber of Commerce and Industry. In the course of that interview, Minister Free said that the training expenditure survey—surveys which are done regularly—conducted in 1989 before the introduction of the levy:

. . . reported that 58 percent of respondents engaged in no structured training at all. Now the survey by the Australian Tax Office in the financial year `90-91, the first year of the operation of the levy, found as you mentioned in your introduction, 97 percent compliance. Looking at the small business sector, those firms with payrolls between $220,000 and $500,000 reported 94 percent compliance. The money is certainly being spent. As you say, there is a more extensive survey to look at the quality of the training that is being offered, as well.

Mr Spicer said, in part:

. . . I think what we have is a levy which is just totally inflexible and to that extent, it really doesn't meet the variety of needs which individual companies have. For instance, it has an assumption that training is going to be at the same level of expenditure every year. What do you do with a company that might want to spend a lot of money this year, but not a great deal of money next year or the year after. It is just inflexible in that sense, and also, I think it probably doesn't really provide a focus for the training. What the levy is saying is just spend, spend on anything, so long as it meets the criteria, without really looking at the quality, as you indicated out the outset.

The minister replied:

Ian described an inflexible system. It happens not to be the Government system. Ian is apparently unaware that prior to the election, the Government undertook to allow two-year averaging of expenditure under the levy, for example, to meet that very concern which Ian is talking about.

. . . . . . . . .

. . . to make it more flexible. And in a very real sense, it is quite open for business to be the driver under the current arrangements. I mean, if one considers two firms, one of which indulges in creative spending—seminars in resorts and that kind of thing—and one of its competitors that spends the money on genuine training, I know which firm I would rather be working for, and I know which firm has a better chance of survival. Because the bottom line in all of this as shown by work of the Bureau of Industry Economics is that small business which does not train when surveyed, experienced a 65 percent failure rate; small business which does involve itself in training, even at the management level, has a 90-odd chance of success.

I have quoted at length because I think those quotes accurately portray, so far as the minister is concerned, the philosophy behind the training legislation and the philosophy behind trying to ensure that we raise the previously very poor status of training in our country to ensure that we have an internationally competitive skilled work force. It is the case that the Training Guarantee (Administration) Act is the subject of ongoing evaluation. That has occurred in the past and it is ongoing. I think it is important to look at the training guarantee arrangements in the context of the white paper on employment opportunities and the question of long-term unemployment in our country.

  There have been a number of criticisms from the other side of the House—they are reflected in the opposition amendment proposing that the scheme terminate on 1 July this year. But those with standing in the area of training in this country have a much more open mind about the concept. The Australian Financial Review of 30 July last year reported:

  But the training industry itself has been more reluctant to call the training levy a complete failure.

  The director of the Adelaide-based National Centre for Vocational Education Research, Dr Bill Hall, said that it was not yet possible to gauge whether the levy had been successful in achieving the aims of its creators.

  "Training actually now gets into the headlines of The Australian Financial Review. That would never have occurred before.

So, not having strenuously searched all of the newspapers or periodicals for wholesale endorsement, that is saying that here is a scheme which has been introduced by the government which has dragged up the very poor levels of training in this country to a stage where we are now in a position of looking forward to being much more internationally competitive so far as a skilled work force is concerned. But, given the clear focus by the government this financial year on long-term employment creation, we have the opportunity to reflect on the effectiveness and some of the alleged difficulties which the training guarantee scheme causes.

  Honourable members on this side of the House, and perhaps some honourable members opposite, may be aware that I had the good fortune to be a member of a caucus committee chaired by my colleagues the honourable member for Port Adelaide (Mr Sawford) and the honourable member for Lilley (Mr Swan). The report of that committee was entitled `Growth plus' equals the employment challenge. We hear a lot from the other side that small business is burdened by on-costs and administrative burdens. In the course of the report, which took the form of a submission to the Expert Committee on the Future of Employment and Unemployment preparing a green paper which was released in December 1993, my colleagues on this side of the House recommended as follows:

There is some evidence to indicate that on-costs can function as a disincentive to the employment of additional labour in some circumstances. The Government should develop a broad strategy to minimise the employment deterrent consequences of non-wage imposts attached to company payrolls. The Expert Committee should further examine policy options in this area.

I refer honourable members to some of the reasons behind that recommendation. We reported as follows:

The introduction in recent years of levies based on company payrolls, such as the superannuation guarantee, which shores up retirement income, and the training guarantee, which encourages in-company training, are necessary ingredients of government policies. They are both designed to serve long term goals of improving national savings and enhancing our skills base . . .

We need to be sure that the imposition of these imposts does not create perceptions in business of rising costs that would act as an impediment to further recruitment . . . The Government needs to assess the effects of such perceptions and take active steps to minimise any deterrent effects.

The Government should pay particular attention to the effects on small businesses. Throughout the late 1980's this sector posted the strongest employment growth, increasing at an average annual rate of 2.1 per cent between 1986 and 1991 as against 1.4 per cent for large businesses over the same period. Similarly the small business sector has proven stronger in the recovery growing at 3.8 per cent throughout 1991/92 as against a fall of 12.2 per cent in employment in the large business sector.

Industry surveys also show that the small business sector is more optimistic about business conditions than other sectors. It is therefore essential that the possible impediments to increased employment, such as on-costs, are thoroughly assessed and where possible removed.

It was a clear suggestion to the expert committee chaired by Dr Michael Keating of the Prime Minister's department to look squarely at the question of employment impediments by way of on-costs and administrative burdens. Honourable members opposite seem to assume that that automatically occurs so far as the training guarantee, the superannuation guarantee or other measures are concerned. It often bemuses me that, in the course of the election campaign, opposition members were themselves articulating the greatest possible burden that could have been placed by way of compliance measures on small business, that is, the GST.

  The expert committee, which reported and released its green paper in December 1993, deals quite extensively with these issues, although in only a couple of pages, and comes right to the heart of the issues which now confront us. I want to quote from the section entitled `Non-wage labour costs' found on pages 55 and 56 of the green paper Restoring full employment. Hopefully, by doing so I will alleviate some of the entrenched misconceptions honourable members opposite have in this area. The section states:

Employers often argue that non-wage labour costs in Australia restrict the capacity and willingness of employers to expand their firms and to recruit additional staff. These costs include charges such as superannuation, payroll tax and workers compensation . . .

The next paragraph states:

Compared with other OECD countries, Australia has very low levels of on-costs. A recent study ranked Australia fourth lowest in terms of on-costs amongst OECD countries.

In considering policy options in this area, it is also important to understand that reductions in on-costs would not necessarily result in correspondingly lower labour costs in total.

Page 56 of the paper goes on to state:

Nonetheless, there are some aspects of Australia's system of on-costs which do appear to warrant further consideration as part of a comprehensive approach to employment policy.

The committee then refers to the administrative complexities arising from the superannuation guarantee and to workers compensation and concludes by stating:

Employer groups also argue that the administrative burden associated with various forms of taxation and business regulation can be as much of a concern as the direct costs of the measures themselves. For example, the Training Guarantee Levy now requires employers to document the training provided to members of staff, although for those employers spending considerably more than the one per cent minimum this should not be too onerous.

On balance, the Committee is not persuaded that these issues have a significant impact on aggregate levels of employment and unemployment. Nonetheless, it is clear that they can have an adverse effect in specific circumstances and that there may be opportunities for policy improvements to obviate these problems. It appears that a review of the employment impact of non-wage labour costs is justified, with particular reference to the interaction of different forms of taxation, the effect of on-costs at the threshold points, and the administrative implications for small and medium sized enterprises.

This throws the issues up squarely for the government in the course of consideration and production of its white paper. I think the report of the expert committee is a balanced assessment and it puts the training guarantee levy in context.

  We on this side of the House take the view that the most pressing social and economic problem we have in Australia is long-term unemployment. It is clear that, as the recovery occurs, more than growth will be required to ensure that those who are long-term unemployed will be taken up into the work force. It is also obvious to anyone who has looked at the available evidence that those who are more likely to enter into the work force as the recovery ensues are those who have skills. It is therefore incumbent upon us to ensure that we have structures in place to ensure that our work force is as skilled as possible. That will do two things: ensure that we are, as a skilled work force, internationally competitive; and ensure that in the course of the recovery, which I note the opposition continues to decry but which all the evidence states is here and growing stronger every day, jobs will become available to the long-term unemployed.

  It is generally recognised that the policies which need to be adopted in this area can best be described as growth plus. Growth by itself will not be enough to take up the long-term unemployed. There need to be additional measures. Some of the additional measures we need to focus on include a careful assessment of the training of our work force, a careful assessment of the training opportunities available to the long-term unemployed and, as the discussion paper makes clear, a very careful assessment, not in the way often put by honourable members opposite, of the extent to which, if at all, administrative burdens and on-costs are an inhibitor to additional employment.

  I have outlined the provisions of the amendment bill and indicate to the House that I support the amendments. They will, as the minister made clear in his second reading speech, make the scheme more flexible, further relieve small business of administrative burdens and ensure that the training mechanisms we have in place will raise the previous appalling standards of training which we had in Australia.