CHAPTER 9: FUNDING FOR LABOUR MARKET ASSISTANCE

This chapter details the Government's decisions on funding for labour market assistance in 1996­97 and subsequent years, and provides indicative estimates of the numbers of clients who might be assisted in the new employment placement market.

Funding for labour market assistance

The Government has allocated more than $5.4 billion for spending on labour market and entry­level training assistance over the next four years, including more than $1.6 billion in 1996­97 (Table 9.1). These substantial levels of funding reflect the strength of the Government's commitment to help those most disadvantaged in the labour market in their search for work.

Table 9.1: Funding for labour market and training assistance,

1996­97 to 1999­2000 ($m)

1996­97	1997­98	1998­99	1999­2000
1,627.3	1,347.0	1,249.0	1,189.6

The 1996-97 Budget decisions involve significant savings on the previous forward estimates for labour market assistance, heavily concentrated in the first two years. These savings need to be interpreted with care and set in their proper context.

Virtually all areas of Government activity have needed to make their contribution to the Government's fiscal consolidation objectives in this Budget, and spending on labour market assistance is no exception. As noted in Chapter 1 of this Statement, the Government's commitments to deficit reduction and budgetary discipline are an essential part of its broader strategy for increasing the growth capacity of the Australian economy, and ultimately for delivering sustained reductions in unemployment.

As far as possible, however, the Government has concentrated its savings on those areas of greatest inefficiency in current arrangements for labour market assistance, thereby minimising the likely impact on clients. Under the former Government's Working Nation arrangements, for example, some $860 million was expended in 1995­96 on three groups of costly 'brokered' programmes JobSkills, the Landcare and Environment Action Programme (LEAP) and the New Work Opportunities programme which in general have failed to deliver lasting employment outcomes for their participants. Accordingly, in the interim arrangements to apply for 1996­97, the Government will be reducing expenditure markedly in these and similar areas, concentrating its efforts on those programmes which have proven most cost­effective in securing real job outcomes. For example, the Government will be increasing its support for apprenticeships, traineeships and successful employment programmes such as JobStart.

Chart 9.1 shows that, notwithstanding the savings to be realised on the previous forward estimates, the Government's levels of funding for labour market and training assistance over the next four years compare favourably with those of the previous Government in the period prior to the introduction of Working Nation. In addition, demand for labour market assistance can be expected to reduce progressively over the next four years as the benefits of the Government's budgetary strategy and economic reforms flow through to the labour market.

Funding for the employment placement market

Table 9.2 provides estimates of the funds likely to be available to the new employment placement market during its first two full years of operation 1998­99 and 1999­2000. Funding sources include the programme funds shown in Table 9.1 and some elements of DEETYA running costs.

Some of the running costs currently used by DEETYA for the administration of the CES and labour market programmes will be needed to support DEETYA's new role as purchaser in the employment placement market, as well as to pay for relevant activities of the new service delivery agency and the administration of residual labour market programmes. The remainder will be available to be cashed out. An exact estimate of the latter amount cannot yet be determined since there will also be transitional costs which will not be known precisely until closer to the end of 1997. Broadly, however, it is estimated that running costs might provide between $300 million and $350 million per annum to the employment placement market.

Chapter 4 identified those labour market programmes which will continue to be provided as discrete programmes outside the new market-based arrangements. Funding allocations for these programmes total $478.5 million in 1998­99, rising to $495.4 million in 1999­2000. It is also proposed that the Formal Training Assistance (FTA) currently provided to participants in labour market training programmes should be abolished as a separately identified form of income support. Those income support elements of FTA equivalent to the Job Search, Newstart or Youth Training Allowances will be transferred to the DSS to meet the costs of standard income support payments for these clients. The residual elements of FTA will be cashed out into the employment placement market, on the understanding that EPEs will be expected to provide any ancillary assistance for training course participation from the overall funds at their disposal.

As Table 9.2 shows, the net effect of these various estimates is to leave a balance of some $1 billion available for use in the employment placement market in both 1998­99 and 1999­2000. These funds will be used to provide the market-based services discussed in Chapters 4,5 and 6 using the payment principles outlined in Chapter 7.

Table 9.2: Proposed sources and uses of labour market assistance funding, 1998­99 and 1999­2000 ($m)

^(a)Indicative estimate only.

Estimated level and distribution of assistance in the employment placement market

This section presents some indicative estimates of the numbers of clients who could be assisted in the employment placement market given an indicative budget of $1 billion as derived above. These estimates are quite sensitive to assumptions made on a number of key aspects of the new assistance arrangements, including the level and structure of fees to be paid and the proportions of clients obtaining payable outcomes. For this reason they should be treated as indicative only rather than as definitive forecasts.

It is estimated that funding of $1 billion would enable some form of employment placement assistance to be delivered to a total of 630,000 clients across Australia. Chart 9.2 illustrates how these funds might be allocated across the various forms of assistance described in Chapter 4.

Reflecting its targeting to the long­term unemployed and others severely disadvantaged in the labour market, intensive employment assistance (IEA) will consume a high proportion of total expenditure in the employment placement market on current estimates, some $890 million of the indicative budget of $1 billion. For illustrative purposes, estimates have also been made of the share of assistance which might be allocated to three different sub­groups in the IEA client population:

• Group 1: those clients who are newly unemployed but at high risk of long­term unemployment, together with long­term unemployed clients with less serious forms of disadvantage (for purposes of these estimates, this group has been proxied by the projected number of persons moving from short­term into long­term unemployment);
• Group 2: more seriously disadvantaged long­term unemployed clients (proxied by the projected number of persons unemployed for two years or more); and
• Group 3: persons with disabilities and Aboriginal and Torres Strait Islander clients who confront multiple barriers to employment.

Chart 9.2: Allocation of an Indicative Budget of $1 billion for Employment Placement Services (percentages of total expenditures)

Fee payments would vary across these different categories of client, ranging from an estimated average of $2,940 for Group 1 clients to $4,390 for Group 3 clients. Average fees paid across the IEA population as a whole are estimated at $3,250 per client a level of assistance which could be expected to make a significant difference to the employment prospects of these disadvantaged jobseekers.

Combining these various assumptions it is estimated that:

• expenditure on Group 1 clients would consume some 54 per cent of the total budget, helping 87,000 newly unemployed clients at risk of long­term unemployment and a further 97,000 long­term unemployed clients with less serious forms of disadvantage;
• expenditure on Group 2 clients would consume approximately 27 per cent of the total budget, assisting 72,000 long­term unemployed clients with more severe forms of disadvantage (representing some 44 per cent of the projected population of unemployment allowees in receipt of allowance for two years or more); and
• Group 3 assistance would be provided to some 19,000 people with disabilities and Aboriginal and Torres Strait Islander clients who confront multiple barriers to employment. This accounts for 8 per cent of the total budget.

For those clients who do not receive intensive employment assistance or who remain unemployed after receiving such assistance, labour exchange services and job search assistance will be available. An indicative budget of some $108 million has been allowed for these purposes, made up of $75 million for labour exchange services and $33 million for job search assistance. These estimates assume that 300,000 eligible clients would be placed in job vacancies by employment placement enterprises, at an average fee of $250 per client. In addition, approximately 55,000 clients could be provided with job search assistance similar to that currently provided through the Job Clubs programme, at an average cost of $600 per client.

An anticipated 85 per cent of clients in each of the assistance categories described above will be unemployment allowees (that is, recipients of JSA/NSA/YTA allowances). Recipients of other forms of income support and other eligible young people would make up the remaining 15 per cent. This arrangement maintains, in broad terms, the current distribution of labour market programme assistance between unemployment allowees and other recipients of income support.

In addition to the estimated 630,000 clients who would be assisted in the employment placement market, the Government is committed to providing some $500 million outside the market­based arrangements for entry-level training and assistance to special client groups and disadvantaged regions.

CHAPTER 10: THE WAY FORWARD TRANSITIONAL AND IMPLEMENTATION ARRANGEMENTS

The Government will move expeditiously to reform labour market assistance and give effect to its policy commitments in Pathways to Real Jobs. This will enable available resources to be used to best effect, and minimise the period of uncertainty both for private sector providers and public sector staff.

As noted in Chapter 1, the Government is firmly committed to the policy framework outlined in this Statement for the future delivery of labour market assistance to unemployed Australians. At the same time it is committed to an orderly process of transition in which those affected will be fully consulted and have the opportunity to adapt their current operations to a new environment. Previous experience with the introduction of major changes to labour market assistance arrangements highlights the hazards of hasty planning and rushed implementation of major policy change.

The Government has allowed a period of 15 months, to 1 December 1997, for the full implementation of its proposed reforms. In the interim period, in addition to a process of public consultation, it will be important to put in place the infrastructure and necessary support arrangements for the new employment placement market. Key tasks during this period will be:

• to develop legislation to establish the new service delivery agency, to support the employment placement market and to amend existing legislation as necessary;
• to establish the new agency and its associated network of offices;
• to develop service agreements between the relevant policy Departments (especially DEETYA and DSS) and the agency;
• to establish the corporatised public EPE in preparation for its participation in the employment placement market;
• to prepare for the new employment placement market itself, including:
  • planning for DEETYA's assumption of its purchasing responsibilities in the market;
  • the development of guidelines on tendering, pricing, selection and other aspects of market operating arrangements;
  • initiation of the first round of tenders for the provision of employment placement services;
• to develop information technology systems to support the new arrangements for labour market assistance;
• to determine the accountability and administrative law requirements to apply to providers in the employment placement market; and
• to maintain quality services to current clients within revised labour market programme and case management arrangements until December 1997.

Transition to more flexible, client-focused assistance

A key objective of the Government's reforms is to provide a single funding stream for more flexible, client­focused assistance encompassing case management, counselling, training and employment experience, within an incentive framework which maximises real job outcomes for clients. There are three main components of the proposed incentive framework:

• the "cashing out" of LMP funds into a single funding stream;
• an outcome-based fee structure; and
• a performance and price-based approach to tendering.

The Government will use the transitional period over the next 15 months to prepare the way for these important and necessary changes. Specifically, it will seek to:

• inform potential providers in the new employment market placement market, including current case management providers, about the basis for its reforms and arrangements for their implementation;
• maintain service and business levels within the labour market assistance funds available;
• within the current case management market, support the most effective existing providers, encourage new providers and provide incentives for better performance and value for money;
• streamline and simplify the delivery of labour market programmes; and
• keep an employer focus.

Labour market programme arrangements for 1996 and 1997

For the remainder of 1996 and 1997 labour market programme arrangements will continue to operate, but with some significant changes and improvements in keeping with the direction of the Government's reforms.

From 7 October 1996 the current range of labour market programmes will be simplified and streamlined in line with recommendations from the CES Advisory Committee (CESAC). Under the CESAC changes there will be four main categories of labour market programme:

• Employer incentives incentives for employers to employ (and train) eligible jobseekers and to arrange placements for more disadvantaged clients;
• Enterprise and adjustment assistance for individual jobseekers, enterprises and regions;
• Training for employment to assist unemployed jobseekers to gain employment through the provision or enhancement of vocational skills linked to specific employment opportunities; and
• Jobseeker preparation and support to help jobseekers access employment and training opportunities and address barriers which may be preventing this.

These programmes will complement the Training for Aboriginals and Torres Strait Islander Programme (TAP) and SkillShare.

The CESAC changes represent the first step in the transition from highly structured discrete programmes with a myriad of rules and regulations to a simple structure in which providers will have complete flexibility in the means they use to find their clients jobs. This interim measure will give both course providers and case managers valuable experience in operating in a more flexible environment.

Case management arrangements for 1996 and 1997

As noted above, full implementation of the Government's far­reaching reform of the delivery of employment services will take time to achieve. In the meantime existing arrangements for case management will remain in place, albeit with some enhancements.

For the next 15 months the Employment Services Regulatory Authority (ESRA) will continue its accreditation, tendering, contracting, regulatory and monitoring functions in the current case management system. In September this year, ESRA will issue invitations to tender to community and private sector organisations for the provision of case management services under contracts to run from December 1996 (when existing contracts expire) to the end of November 1997 (by which time DEETYA will have concluded its tendering and contracting for employment placement services). ESRA will also advertise for tenders from new providers. Organisations that are not yet accredited by ESRA but wish to tender will be able to submit an application for accreditation with their tender.

For the period December 1996 to November 1997, private and community agencies are expected to manage up to 160,000 new commencements in case management, around 50 per cent of all new commencements in that period. The public provider EAA will handle the remaining commencements.

The Government will also rectify some shortcomings in existing case management arrangements pending the major reforms from December 1997. With effect from December 1996 it will:

• simplify the client classification level system;
• amend the fee structure to give greater emphasis on outcomes;
• remove placements in brokered programmes (JobSkills, New Work Opportunities and LEAP) as an outcome for fee purposes;
• include in contracted case managers' fees an average of $300 per jobseeker for the provision or purchase of services for jobseekers. This element of fees will replace programme access for training, job search and personal assistance programmes. Case managers will be free to use all components of their fees as they see fit, whether for professional vocational assessment, training programmes, or other measures to assist their jobseekers to obtain employment; and
• ensure that case managers continue to have access through DEETYA to other labour market programmes, including English as a Second Language (ESL) training, employment training programmes and employer subsidy assistance.