Granting TAFE a monopoly isn't good for it in the long term

The South Australian government has decided to largely limit funding for government-subsidised vocational courses to TAFE South Australia, the sole public training provider. The decision has resulted in a significant backlash from non-government providers and from peak business and social welfare bodies in the state.

The federal government has also intervened. It is threatening to withhold A$65 million in vocational education and training (VET) funding to the state, arguing that it is in breach of the VET National Partnership Agreement. This agreement commits the states to contestable VET funding.

Under this contestable funding agreement, TAFE has lost a large amount of the market share in Victoria and South Australia. These are the states that most strongly embraced contestable VET funding. Government cuts to TAFE in Victoria emerged as a significant issue in the 2014 state election and the Andrews Labor government is undertaking a major review of VET funding in Victoria.

It’s a market design issue

The South Australian government’s decision and the reaction to it, and the review of VET funding in Victoria, are emblematic of the problems of market design and implementation of contestable funding models in VET.

Ensuring that students and employers are able to choose a training provider that meets their needs is a long-established principle in VET policy. The concept of a training market has been embraced to give effect to that choice.

However, the publicly funded training market as it has emerged in VET is anything but a properly functioning market.

Governments regulate both provider quality and course content. In most states hundreds of providers have been approved to operate in this publicly funded and highly regulated system. Many of these providers are highly reliant on income from government funding.

Many of the non-government providers have signalled they may not be sustainable if the South Australian government goes ahead with awarding the bulk of funding to TAFE.

While states have agreed to open competition, South Australia has awarded the bulk of its funding directly to TAFE.AAP/Alan Porritt

Some providers have also been approved by the Commonwealth government as VET FEE HELP providers. Under VET FEE HELP, student fees are paid upfront by the Commonwealth, with students taking out a loan they don’t have to repay until they have reached an income threshold. This means the Commonwealth bears the risk of non-repayment of debts.

In these areas the training market is a government construct rather than a truly functioning market operating largely independently of government.

Not enough information on providers

The problem is compounded by the fact that students and employers have little access to information about the quality and capability of individual providers. Given the nature of education providers, it is difficult to assess their “product” before “purchasing” it. FEE HELP students pay nothing up front, meaning they can be quite insensitive to exorbitant fees.

Some providers have abused both the public subsidy system and the VET FEE HELP system. The government has been slow – or lacked the capacity – to quickly respond to growing evidence of poor quality, aggressive marketing and inappropriate enrolments.

VET public funding has now begun to decline. This has resulted in reductions in public subsidies and increases in student fees, which places further pressure on many providers.

The concept of a training market in Australia needs a major rethink while the objective of ensuring choice and diversity in the VET system is maintained.

Where governments are the major funder, it is perfectly reasonable for government to undertake a comprehensive market assessment to test potential supply against projected demand. It can then enter into long-term and stable funding agreements with a range of providers from whom students and employers can choose.

This approach contrasts with the current simplistic model for VET, which has favoured low requirements for market entry and provider numbers over quality. Government agencies have to then retrospectively deal with poor quality and excessive demand in ways that negatively impact the good, as well as the poor-quality, providers.

Students and employers need more information on the quality and offerings of the providers available to them. Mechanisms for dealing with student complaints must also be upgraded. The role of TAFE as the public provider and the costs associated with that role should be recognised.

The solution is not a knee-jerk return to a TAFE monopoly. That approach will not serve students' or employers' interests, nor in the long term TAFE’s own interests, which are best served by being a provider of choice.

Peter Noonan is Professorial Fellow in the Mitchell Institute at Victoria University. The University receives VET funding from the Victorian Government and is a VET FEE HELP provider. Peter Noonan has advised governments and education and training organisations on issues related to the design of VET markets.