Every five years since 2002 the Commonwealth Treasury has prepared an Intergenerational Report looking at how Australia will change over the next 40 years, with emphasis on population, participation and productivity as drivers of change.
It provides a lens for us to look at the effectiveness and sustainability of government policies and programs.
Like most mature economies the Australian population is aging but unlike other economies it is also growing as a result of net migration, fertility and increased life expectancy. In the future, the number of young people who are yet to enter the workforce, and older people who have left the workforce, will increase. This means that Australia’s dependency ratio (the proportion of people not in the workforce compared to those who are) will increase.
This also means that it’s important to improve the productivity of those who are working and ‘human capital’ – the skills and capabilities of the workforce – is an important contributor to productivity. The 2015 Intergenerational Report recognises this, saying that ‘improving physical and human capital investment will all be critical to Australia’s future productivity performance’.
The consequences of declining participation in tertiary education for Australia’s future challenges to increase workforce participation and workforce productivity are serious.
Australia’s tertiary education system – spanning higher education and vocational education and training (VET) – is a major contributor to workforce participation and productivity improvement. The Department of Jobs and Small Business forecasts that over 90 per cent of the 948,000 new jobs expected to be created by 2022 will require a post school qualification.
Levels of participation in tertiary education are therefore an important indicator of how well Australia is prepared to meet the twin challenges of workforce participation and productivity growth.
We need to apply the same lens as the Intergenerational Report in looking at the effect of future population growth on participation levels in tertiary education. To do this we need to think about participation levels in higher education and VET as discrete sectors and as an overall tertiary education system.
A new Mitchell Institute Report Participation in tertiary education in Australia: Modelling and scenario analysis highlights major concerns which become evident when we take this longer term view.
Participation rates in publicly funded tertiary education as a whole in Australia will steadily fall to 2031 on current trends and policy settings.
This fall will be mainly driven by declining VET enrolments. If current trends continue, participation by 15-64 year olds in publicly funded VET will fall to one percent by 2031 compared to 4.7 percent in 2017.
Participation rates in VET are now already lower than they were a decade ago. VET in effect would become a residual sector.
While this scenario may seem implausible, at present there is no agreed framework between the Commonwealth and State Government (which jointly fund VET) to stop this happening.
Higher education can now no longer even partially make up for the fall in VET participation.
Participation rates in higher education are likely to be static to 2031 as the demand driven higher education funding system has been discontinued. Commonwealth funding for undergraduate courses will be capped in 2018 and 2019 and then adjusted for population growth thereafter.
Taken together, sharply falling participation in VET and static participation in higher education mean participation in tertiary education as a whole will fall to 2031 and fall sharply, as the following figure shows.
The scenarios prepared for the Mitchell report are not predictions; and enrolments in tertiary education are driven by a range of factors including the labour market and future decisions by governments and tertiary institutions. Other scenarios can also be modelled.
Nonetheless, the consequences of declining participation in tertiary education for Australia’s future challenges to increase workforce participation and workforce productivity are serious.
They highlight the need for a comprehensive and coherent framework for funding tertiary education in Australia. The framework must be underpinned by a full assessment of Australia’s long term labour market needs, and the demands that will be generated by its growing population.
 Department of the Treasury Intergenerational Report 2015 Intergenerational Report
 Australian Institute of Health and Welfare (2015) Australia’s Welfare 2015
Commonwealth Department of Jobs and Small Business, 2017 Skill Level Projections