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Skills for all Australians PDF Versions

Global and domestic pressures are causing accelerated structural change in the Australian economy. The rise of Asia, the terms of trade boom; ageing of the population and increasing demand for health and social services; rapidly advancing technology; and the shift to a clean energy economy as a result of climate change are all changing the face of business in Australia.

A resilient Australian economy – well prepared for the challenges ahead

The Australian economy is the envy of the developed world.

We have had a stunning 20 years of continuous economic growth. Our economy is nearly six per cent larger today than it was in March 2008 before the global financial crisis, while many developed economies have not yet returned to pre crisis levels of output.

Many economies continue to face significant difficulties, with weak growth and unsustainable fiscal positions. Mass unemployment is blighting millions of European lives. More than 23 million men and women are unemployed in the European Union, 5.5 million people under the age of 25. In Spain, the unemployment rate is over 20 per cent. Australia’s unemployment rate is around half that of the euro zone, and significantly less than the United States of America and United Kingdom (Figure 1).

Australian net debt is forecast to peak at 8.9 per cent of GDP in 2011-12. By comparison, the average net debt of the major advanced economies (G7) is projected to reach 92.9 per cent of GDP in 2016, more than 10 times higher than the expected peak in Australia’s net debt (Figure 2).

Figure 1: Unemployment rates selected economies

Unemployment rates selected economies

Source: OECD harmonised unemployment rates

Figure 2: General Government net debt selected economies

General Government net debt selected

Source: IMF projections, MYEFO AUST

It is well known that Asia’s demand for our mining output – together with the domestic investment to expand our mineral capacity – has lifted the demand for our currency, with its value up almost 60 per cent against the US dollar since 2009. It is a striking development in our economic history that, in a period of global uncertainty, the Australian currency is holding its value. There is growing evidence that the best explanation for this is confidence.

This confidence is based on the government’s commitment to return the budget to surplus, to maintain our AAA credit rating, and to provide a safe and strong environment for investment in the future of the Australian economy.

The Asian century

In 20 years, China and India have almost trebled their share of the global economy. These shifts are fuelling strong demand for Australian resource commodities, pushing their prices to record levels. High commodity prices have helped drive the dollar to post-float highs.

The re-emergence of Asia has already had a strong impact on the Australian economy. A decade ago, Australia’s most important trading partners were largely in the developed world, although much of our merchandise trade was already oriented towards Asia. Today, China, Japan, the Republic of Korea, India and our Association of Southeast Asian Nations neighbours absorb around three quarters of our merchandise exports and supply half our imports. Similarly, nine of the top ten source countries for international students in Australia and over half of the top 15 visitor countries to Australia in 2010–11 were from the Asian region.

Australia’s ability to benefit from the increased prosperity of Asia is due to a number of factors – our proximity, our natural resource endowments, and our strong institutions. The same factors will underpin Australia’s relationship with Asia well into the future.

These global forces are likely to be long-lasting, with Asia expected fundamentally to transform the international economic and geopolitical landscape. Although emerging Asia’s share of global GDP has increased dramatically, there remains considerable potential for catch-up in GDP per capita compared to advanced economies.

As Asian countries continue to develop and build large middle classes, global spending patterns will change. Australia is well placed to access growing markets for food, energy, education, tourism and other high value added goods and services.

Figure 3: Projections of middle class people in the Asia Pacific

Projections of middle class people

Source: Kharas, H (2010), The Emerging Middle Class in Developing Countries, OECD Development Centre Working Paper No. 285

The new Australian economy

Structural change

Strong Asian growth is already driving changes in Australian industries and regions, creating opportunities and challenges.

As higher commodity prices and incomes flow through the economy, opportunities are created across different industries and regions. Many jobs are being created in mining, construction and related sectors and, for example mining employment has grown by 10 per cent on average since
2001–02. Shareholders of mining and related companies have also seen higher share prices, increasing their wealth.

At the same time, the strong dollar is placing pressure on businesses that face international competition and who are not connected to the resources sector. Some sectors are doing it tough. The level of the dollar – and the pace of its rise – has broken some business models and forced economic restructuring. It is already been behind some firm closures and job losses.

But we should remember that it is Australia’s success that is driving the appreciation of the dollar. In turn, the strength of the dollar is driving change. This change is making our economy leaner and stronger, is it forcing Australian businesses to move more of their effort – more money, more equipment, more people – into the sectors of our economy where the greatest returns are generated. Sometimes this will see jobs swapped for new technology and more sophisticated capital equipment. Some workers will need to have the courage to work with change and take new opportunities to acquire new skills.

Tax reform

Modernising the tax system is one way that the government is helping to spread the benefits of strong growth in Asia, to smooth the effects of structural change and to create the incentives to invest for future growth. Our changes to the tax system have been endorsed by the International Monetary Fund, which last year welcomed the progress already made in tax reform, including reducing the company tax rate, taxing some mineral resource rents, reducing effective marginal tax rates and reducing the complexity of the tax system.

The government will use revenues from the minerals resource rent tax to spread the benefits of the mining boom across the country. Mining profits have trebled in the past six years; our mineral resources are finite and owned by all Australians. The mining tax will ensure all Australians get a fair share of the proceeds of the mining boom including through investment in much needed infrastructure. The mining tax will provide tax breaks to promote new investment in Australia’s 2.7 million small businesses and will improve small business cash flows by enabling them to immediately write-off assets they purchase for their business, rather than depreciating these assets over time. In addition, the government will use these revenues to boost the retirement savings of 8.4 million workers. Workers will also benefit when their tax-free thresholds rise from $6,000 to $18,200 from 1 July 2012.

The internet’s contribution to the Australian economy will grow by some seven per cent per annum to reach $7 billion by 2016, double the rate of growth for the economy as a whole.

Deloitte Access Economics 2011

Morgan Stanley predicts that the online share of total sales will increase by almost 80 per cent between 2011 and 2015, to be worth some $25 billion.

Productivity Commission 2011

In addition to the minerals resource rent tax, and following on from the October 2011 Tax Forum, the government is reviewing business taxation to see how to best reward innovation and help our businesses adapt, change and seize new opportunities. This includes looking at the tax treatment of losses, to give more help to businesses that are struggling in our two speed economy. Through the research and development (R&D) Tax Incentive the government is supporting business innovation and encouraging industry to conduct research and development in the technologies for tomorrow’s economy.

At the Tax Forum last year the government committed to continue its work to modernise the Australian tax system. Reform of State taxes will assist the Australian economy by reducing barriers to labour mobility and housing affordability. Improved governance of the tax system, through a Tax System Advisory Board, will also ensure that the Australian economy continues to be supported by a world leading tax system. The government also continues its commitment to reducing complexity for small businesses and will identify further ways to streamline small business interaction with the tax system.

New technology

Technology and its supporting infrastructure will also continue to drive innovation and economic growth. Over the past decade we have seen significant growth in internet usage and the emergence of the rapidly growing global digital economy. Cisco predicts that global online traffic will grow at a compound annual growth rate of 32 per cent from 2010 to 2015.

Outdated infrastructure would choke opportunities for our economy and would leave us lagging behind the rest of the world. We need to have the infrastructure for a modern economy.

To ensure Australia is positioned to meet the demands of the future and take advantage of the opportunities of the digital economy, the government is investing $27.5 billion in the National Broadband Network, which will deliver high-speed broadband to Australian homes, schools and businesses.

This will support businesses to drive productivity improvements, expand their customer base and support jobs growth. In an economy like ours, one more broadband line per 100 people raises productivity by 0.1 per cent.

By investing in the National Broadband Network, the government is putting in place the essential underlying infrastructure that positions Australia to take advantage of the digital economy.

We are yet to realise the full potential of high speed broadband. We know there are significant benefits right now to a fibre network, but we are also setting the foundations in Australia for a time when the technology takes off, bringing opportunities and benefits that we cannot fully appreciate now.

Clean growth

The government’s Clean Energy Future plan creates a generational change in the way our economy operates, again creating vast new opportunities.

Under the Clean Energy Future plan, renewable energy will grow from 10 per cent of generation capacity today to 40 per cent in 2050. The plan will drive innovation across the economy while reducing pollution. From 1 July 2012, around 500 of the biggest polluting companies in Australia will be required to pay for their pollution through a carbon price. The resulting transformation of the energy sector will drive around $100 billion in investments in the renewables sector over the period to 2050, during which its economic output is anticipated to grow by 25 times.

To boost renewable and other clean energy generation, under the Clean Energy Future plan the government will assist the commercialisation and deployment of clean technologies through the $10 billion Clean Energy Finance Corporation; research, development and commercialisation of renewable energy through the $3.2 billion Australian Renewable Energy Agency; and research and development of clean technologies through the $200 million Clean Technology Innovation Program.

Skills and training drivers: the electro-technology communications and energy utilities sector.

An environmental scan by the energy utilities Industry Skills Council identifies there are five key influences shaping workforce development and training needs in this sector:

  • New technologies and work practices
  • Energy infrastructure development and maintenance
  • System integration
  • Demand for technical knowledge and skills
  • Technical and safety regulation.

The new jobs coming from clean energy, retrofitting, the National Broadband Network and smart systems bring with them the need for high level skills and qualifications.

In addition to trades and professional occupations, skills shortages are reported in 37 technical occupations across the sector.

ElectroComms 2011

Photo by Jessica Meek, supplied courtesy of the Australian Government Department of Education, Employment and Workplace Relations

Photo by Jessica Meek, supplied courtesy of the Australian Government Department of Education, Employment and Workplace Relations

The government’s Renewable Energy Target will ensure that 20 per cent of Australia’s electricity supply will come from renewable sources by 2020. In terms of economic output, the renewable energy sector, excluding hydroelectricity, is modelled to be 25 times larger in 2050 than in 2010. Renewable energy will grow from 10 per cent of generation capacity today to 40 per cent in 2050 (Figure 4).

Figure 4: Sources of electricity generation in a clean energy future scenario

Sources of electricity generat ion in a clean

Source: Treasury

A high quality, high tech, clean and innovative new economy

The Australian economy is facing major, generational change driven by the Asian century, new technology, and the shift to a low carbon economy.

But change is not new. Each year, 300,000 businesses close down and 300,000 new ones start up. And each year, around a million workers change jobs, a quarter of these workers also change industries. The modern Australian economy is continually adapting to change. This is why flexibility is valued so highly – because we can never predict exactly what the global economy or some new technology will deliver next. The challenge is to manage the transition and to include all Australians in the opportunities which change can create.

The resilience and strength of Australian industry will depend on the ability of firms to adapt quickly to change and to meet new challenges and capture emerging opportunities.

Australian businesses will need increasingly to compete on quality rather than just on price. This means that Australian industry needs to move higher up the value chain. Successful firms in the future will be producing high value-added, low volume products, and bundling products and services to sell solutions, rather than simply tangible products.

Australian businesses will need the capacity to embrace technological and business process innovations to provide competitive advantage in a global market place. They will need to have ready access to knowledge and world class capabilities that support rapid adaption to changing market needs, tapping into innovative practices and building sustainable and profitable partnerships both domestically and globally. Firms will need continually to improve efficiency and productivity, optimising the use of capital. A 2009 report by Access Economics estimated that the adoption of smart technologies in electricity, irrigation, health, transport and broadband could add more than 70 000 jobs to the economy by 2014 and increase GDP by 1.5 per cent over the next decade.

From a strong base, the government will continue to play a role in the transformation into a new economy. There is a key role for government in managing the transformation process and maximising the opportunities for all Australians to participate in meaningful and productive work. The best way for government to respond to the changing Australian economy is to create the conditions, and help build the capabilities, for business to succeed. We must do this by improving productivity and firm competitiveness to help business make the most of change.

The government’s strategy is to ensure the new economy is prosperous and fair, creative and skilled; where mining and manufacturing industries flourish and services continue to innovate and grow.

The government is taking actions on a range of fronts to help build flexibility and strengthen the capabilities of firms, as well as facilitate access to new markets and opportunities. We are fostering innovation, creating new technology opportunities through the National Broadband Network, promoting new clean production processes and products and changing the tax system to support our new economy.

To build on the solid foundation created since the 2009 announcement of the government’s Powering Ideas ten year innovation agenda, the government:

  • created a Taskforce, chaired by the Prime Minister, on the future of the manufacturing industry, which will map out a shared vision for the future of Australia’s manufacturing sector and help firms move up the value chain by innovating and building skills;
  • consolidated a range of programs under the Buy Australian at Home and Abroad initiative to improve coordination of policies which support industry access to major projects;
  • further strengthened the successful Commercialisation Australia program; and
  • is helping to develop linkages and networks between business, the research community and government through initiatives such as the Australian Research Council Industrial Transformation Scheme, which will leverage private and international investment in key industries.

High-skill jobs are a key feature of the new economy

If we are to make the most of the opportunities created by changes in Asian societies and economies, technological change and the greening of the Australian economy, we need to have the skills for the jobs of the future. Jobs will be created which do not exist now and existing jobs will require new skills.

Australian businesses are turning in increasing numbers to highly qualified workers to expand their businesses. A skilled workforce enables them to compete on quality and move higher up the value chain, to develop innovative products and services, and embrace the latest technological and business process innovations. They recognise that skills are fundamental to lift their productivity and compete in a global market place.

In the short term, the occupations expected to provide the largest number of new jobs are electricians, registered nurses, carers of the aged and disabled, general clerks and child care workers. The opportunities to work in these fields without qualifications and skills in new technologies are shrinking. Despite the traditional job titles, the technical demands and skill requirements of these jobs have changed dramatically.

In the medium and longer term, competitive pressures – as employers navigate a complex mix of supply costs and market opportunities – will mean that all employees will be subjected to the demands of new systems and technologies. The need to combine new operational skills with communication, teamwork and decision-making skills will intensify. The flexibility and resilience to change jobs, apply skills in different contexts and go on learning will be essential.

Figure 5: The changing need for skills in the Australian labour market – skill levels of jobs held by employed Australians

The changing need for skills in the Australian labour market - skill levels of jobs held by employed Australians

Data source: ABS Labour Force, Australia, Detailed, Quarterly (cat. no. 6291.0.55.003) Nov 2011, occupations recoded to ANZSCO skill levels.

The need to innovate and improve productivity will be felt in all parts of our economy, pushing businesses to invest in new systems, equipment and processes. This will be as true for the café on the corner if the cost of importing coffee is higher or the local delivery contractor if the cost of petrol stays high, as it will be for the high-end niche manufacturer or the multi-national company. And none of these businesses will survive if they do not invest in skills.

As the economy changes, new opportunities will open up, requiring us to re-skill existing workers as they move from sectors in decline to those experiencing growth. Along with specialist skills, these workers will need strong basic skills and an ability to quickly adapt and pick up new skills, to make the most of new opportunities.

Similarly, ongoing growth in Asian countries and the development of their middle classes will create huge growth and new opportunities in a range of high quality goods and services, in education, financial services, design and high-tech manufacturing. If Australia does not take part in this growth opportunity, we might find Asian countries are filling these markets without us as they grow.

Skills and educational achievement levels have direct links to participation and income for individuals and, by extension, national productivity and output – or GDP.

In 2011, some 86 per cent of people with a non-school qualification were in the labour force, compared to only 69 per cent of those without one. It has been estimated that in the five years to 2015, Australia will need an additional 3.8 million skilled workers with post school qualifications, including higher education and VET, to meet the needs of the growing economy. By contrast the supply of skills is projected to be 2.7 million, leaving a 1.1 million shortfall. This includes replacing the significant number of retiring baby boomers as our population ages.

In relation to VET qualifications the projected demand for skills is 2.1 million in the five years to 2015, with a projected supply of 1.6 million – leaving a shortfall of half a million VET qualifications across the economy.

The Productivity Commission has estimated that achieving COAG’s ambitious targets for skills attainment targets by 2020 could increase workforce participation by around one per cent and GDP by around 1.3 per cent once all benefits are realised. However, it notes additional effort will be needed to achieve these targets.

The National Broadband Network and carbon pricing will also create new opportunities, in IT, retail, marketing, engineering, energy efficient production processes, and science. A range of existing jobs will change in nature, like plumbers and electricians learning to work with renewable energy sources.

The ageing of the population will create significant opportunities for both businesses and workers in the health, retirement and aged care services.

Figure 6 illustrates the occupations requiring a VET qualification that are expected to experience the strongest employment growth over the next five years. For example, an additional 58,900 electricians are expected to be employed, which means there is expected to be an annual growth rate of 6.8 per cent.

Figure 6: The 20 VET level occupations which are expected to grow most strongly over the five years to 2015–16

Occupation Percentage growth per annum to
2015-16
Employment growth to
2015–16 (‘000)
Electricians 6.8 58.9
Aged and Disabled Carers 6.3 46.7
General Clerks 3.1 31.5
Child Carers 4.8 30.6
Contract, Program and Project Administrators 4.9 28.0
Waiters 4.0 26.4
Retail Managers 2.1 26.1
Plumbers 5.1 26.0
Drillers, Miners and Shot Firers 8.8 22.8
Accounting Clerks 3.0 22.4
Nursing Support and Personal Care Workers 4.7 22.0
Carpenters and Joiners 3.2 20.8
Chefs 4.2 17.3
Welfare Support Workers 5.5 16.3
Receptionists 1.6 15.2
Earthmoving Plant Operators 4.6 14.2
Real Estate Sales Agents 2.8 13.7
Truck Drivers 1.5 12.8
Gardeners 2.9 10.0
Architectural, Building & Surveying Technicians 3.0 9.7

Data source: 2011 DEEWR employment projections to 2016

High quality business outputs, high skill levels, underpinned by strong basic skills and flexibility will be the key to making the most of the advantages offered by the new Australian economy.

High participation, high productivity, high quality, and high value: the keys to economic prosperity.