The nation’s independent skills and workforce advisory body Skills Australia has recommended the overhaul since releasing the most comprehensive review of the system in 20 years.

The report examines how the VET system can be most effectively managed and financed to boost skill levels and improve workforce participation.

The overhaul aims to achieve significant growth up to 2025, with the building blocks for reform in place within the next two to three years.

“We believe the VET sector can make a great contribution to avoiding future skills shortages,” says Skills Australia chief executive Robin Shreeve.

“The way we think this growth can be best achieved is by giving an entitlement to individual students and having an employer skilled investment fund, along with toughening of regulation and quality.

“We believe that employers and students are in the best position to make choices about their career and workforce needs. There should also be diversity of providers, to ensure public money goes to appropriately qualified providers.

“We also think that TAFE plays a unique role, so should continue to receive some base funding.”

Shreeve says that in order to take the VET system to the next level, it is essential to manage growth and ensure there is a system in place that can handle a considerable rise in student enrolments. “We think the emphasis should be on funding completions rather than enrolments, which will ensure that the providers are doing a quality job to meet the needs of their individual and industry clients,” he points out.

“For individuals, there should be entitlements for a fully publicly subsidised place up to certificate III, which is the normal initial trade skills and office worker credential. We also think there should be an element of co-funding on the basis that those who benefit the most should make a contribution. In terms of a return on investment for qualifications, people who do the more advanced qualifications get the best return.

“Therefore, we believe they should contribute through an extension of an inter-contingent loan scheme [such as the Higher Education Contribution Scheme] in the universities, so it’s not a barrier to entry.

“People shouldn’t be put off by high up-front fees.”

Additional key recommendations listed in the report include a workforce development program to enhance the skills and professionalism of the VET workforce, support for a national foundation skills strategy through additional funding of literacy and numeracy programs, and a shift from input-based to output and outcomes-based funding of training providers.

An industry-led enterprise skills investment fund will be created to consolidate a number of existing funding streams, and there will be better targeting and prioritisation of financial incentives for employers, apprentices and trainees, which will mean funds are linked to sustainable careers, equity or priority economic objectives and workforce development outcomes.

Regulation of apprenticeships and traineeships by the commonwealth as well as the establishment of a high-level apprenticeship advisory body has been recommended to provide independent leadership and proficiency.

The outlined agenda will require additional funding of 3 per cent a year, or $310 million for the year 2012-13, accumulating to an estimated $12 billion in 2020.

Shreeve warns that without significant reform, the country faces severe skills shortages, which would lead to inflation and higher interest rates, compromising Australia’s economic growth.

Australia will require an estimated 2.4 million additional skilled workers by 2015, increasing to 5.2 million by 2025, to meet projected industry demand.

“We believe that if we increase workforce participation and improve productivity by having deepening skills, the economic and fiscal benefits would be many billions of dollars a year, because there will be fewer people crowding social security and more people paying tax,” Shreeve says.