Australian small and medium businesses aren’t training workers enough to match tech-driven change, the Productivity Commission (PC) has warned in proposing national skills reform that includes streamlining recognition of prior learning (RPL) and a national AI-based curriculum to support teachers.

The draft recommendations, which are contained in the Productivity Commission Building A Skilled and Adaptable Workforce interim report, warn that “training participation has stagnated” – extending systemic deficiencies that have also seen school students’ learning stagnating.

Despite ongoing reforms to boost the “quantity and quality of skills in Australia,” the report notes, “the adaptability of our workforce has received less attention…. To be sure of ongoing work [the average worker] will need to both learn new skills and adapt to new tasks and contexts.”

Yet resourcing challenges in vocational education and training (VET) had created “widespread perceptions that VET is an inferior study and career pathway,” it notes, 18 months after the government invested $12.6 billion in the sector amidst concerns that fewer than half of VET ICT students finish their studies.

Government policies must address “disjointed systems [that] limit its potential,” the report said in advising change to close the perception gap between VET and university education – keeping hundreds of occupations on the migration priority list as businesses struggle to find workers.

“Workers will need solid foundational skills, smooth pathways to upskilling, and easier entry into new occupations,” the report argues, urging state and federal governments to implement “alternative entry pathways where feasible while maintaining quality and safety standards”.

Encouraging small and medium businesses to train their workers

Although training participation is “concentrated in larger businesses,” the PC found, targeted incentives and policy reforms are crucial to helping small businesses improve training for workers that often struggle to develop their careers.

“Excessive” occupational entry requirements frustrate SMB hiring, Council of Small Business Organisations chair Matthew Addison said, arguing that mutual recognition of qualifications would “help fill skilled job vacancies and enable small businesses to hire where and when they need.”

“While small businesses offer non-formal learning opportunities every day, formalised training can be expensive and time consuming, and very hard to absorb,” he said, noting SMBs “want to invest in training that enhances operations, empowers employees and accelerates adoption of new tech.”

“Targeted, incentivised work-related training,” he continued, “would not only allow employers to offer the right education opportunities to staff [but] would also support innovation, increase specialised skills and improve small business service offerings.”

Skilled migrants often end up working outside of their areas of qualification, with policy obstacles and red tape making it hard for them to transfer their skills to an Australian context – thereby exacerbating a skills gap that, the PC warns, threatens to derail Australia’s economy.

Migrants often resort to jobs in outside their areas of qualification, which means Australia loses out on their skills. Photo: Shutterstock

Australia’s “growing reliance on services, combined with rapid technological advancement, makes participation in post-secondary education and [work-related] training more important than ever,” it said, “[and] current and future skill needs cannot be met without a significant increase.”

Among the reforms recommended are the creation of a national database of academic credit decisions – which students can use to better understand their tertiary education options and how they will translate into careers – and more consistent recognition of prior learning processes to give workers certainty.

“Without opportunities to gain new skills, workers and jobseekers may get stuck in less rewarding work or in unemployment,” said PC deputy chair Alex Robson.

“People of all ages and backgrounds need smoother entry pathways to VET and universities and better transitions between these sectors,” he said, adding “carefully designed incentives can lower the financial barriers faced by SMEs when providing work-related training for their employees.”

Tapping AI for nationwide education

The recommendations echo the Australian Computer Society’s recent Digital Pulse 2025 report, which led it to issue 10 key recommendations it argues could deliver a $25b boon for Australia’s economy by 2035.

“Digital skills are the foundation of Australia’s economic future,” ACS CEO Josh Griggs said as the PC report was released, lauding its callout of the importance of prior learning and ongoing workplace training that he called “vital for Australian workers to have the skills they need in the AI era.”

“To compete globally, we need to ensure every worker, from frontline staff to the executive suite, has the capabilities to work with and lead digital transformation.”

Building those capabilities should start in school but the current mishmash of state-based learning resources is inadequate to ensure equivalency, PC warned in advising adoption of advanced generative AI (genAI) edtech and creation of a national platform of lesson planning materials.

Current materials are “outdated or not aligned with specific school needs,” PC notes, advising that a “comprehensive bank of sequenced lesson-planning materials would provide teachers and schools with a foundation to adapt to their local context and student learning needs.”

Submissions to the ongoing PC enquiry – which is issuing a series of reports about how to harness technology for workforce change – warned that broad genAI adoption requires national genAI and edtech quality standards, as well as ensuring genAI access for regional and disadvantaged schools.

“The academic abilities of students in any one class is wide and teachers are under huge pressure to produce quality materials for all of them,” PC commissioner Catherine de Fontenay said, noting that “many students are leaving school without strong foundation skills in reading, writing and mathematics.”

“These are the skills students will need to complete qualifications, improve their skills on the job, and successfully retrain when needed,” she added.

“We need to give our teachers time and support to do the thing they do best – teach.”