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Skills and Capability5.4 International Comparison

5.4.1 Total expenditure on educational institutions as a share of GDP

Education represents a bedrock investment into personal, national and global development. This is especially true for countries pursuing knowledge-based growth as a means to shoring up prosperity and combating inequality. Among OECD countries, Australia has the 8th highest expenditure on educational institutions as a proportion of GDP (5.8 per cent in 2016–17) — well above the OECD average of 4.8 per cent.[156] While the majority of this expenditure is publicly funded, Australia's reliance on private funding of education is not common in other OECD countries.

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5.4.2 Expenditure on tertiary education institutions as a share of GDP

Australia's expenditure on tertiary education institutions relative to GDP is the 4th highest in the OECD, having increased from 1.52 per cent in 2005–06 to 1.91 per cent in 2016–17.[157] Higher education provides substantial economic and social benefits. According to a recent study, education related exports made up 5.7 per cent of Australia's total exports in 2014–15, representing the largest service export and the third largest export category overall with higher education representing roughly two thirds of this. The study estimated the value that university education adds to Australia's productive capacity at $140 billion in GDP in 2014, lifting GDP by around 8.5 per cent. Beyond the economic benefits to labour force outcomes, higher education has been found in other studies to be positively associated with improved health outcomes, quality of life and a range of other social well-being measures.[158]

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5.4.3 Adults attaining a tertiary qualification

Tertiary qualifications deliver multiple private and public benefits. According to one recent study, disciplines such as health, education, engineering and business tend to have the largest significant positive wage premiums, and around 55 per cent of the benefits associated with Tertiary qualifications were estimated to be public.[159] A percentage point increase in the share of workers with tertiary education in a city is associated with a 1.31 per cent increase in wages.[160] Australia's overall proportion of adult population (aged 25 to 64) with Tertiary qualifications is the 7th highest in the OECD, having increased substantially in a relatively short period — from 31.7 per cent in 2005–06 to 45.7 per cent in 2018–19.[161]

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5.4.4 Adults attaining a vocational qualification

Vocational education and training (VET) has important economic benefits that tend to be stronger in certain technological contexts. A recent cross-country study compared the effect on labour productivity of different VET systems using data from six EU member countries. It found multiple patterns of skill complementarity — especially in production-oriented sectors, in the presence of ICTs and in countries with apprenticeship-based VET systems. The complementarity between different skill types was weaker in service-oriented sectors and generally absent for countries with classroom-based VET systems.[162] Australia is primarily a service-oriented economy with a relatively modest proportion of adult population with VET qualifications. In 2018–19, some 20.9 per cent of Australia's adults (aged 25 to 64 years) had VET qualifications, which is at the lower end of the spectrum among OECD countries.[163]

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5.4.5 Government effectiveness

The degree of trust in government can be an important determinant of general polity effectiveness. Low levels of trust can reduce compliance with laws and regulations, diminish investor confidence, and increase risk aversion. This is likely to have a negative impact on policy outcome.[164] The World Bank measures the capacity of governments to effectively formulate and implement sound policies in its report on World Government Indicators. This captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.[165] The World Bank data suggests that Australia rates well on government effectiveness among OECD members. Other OECD members with high measures of government effectiveness include Switzerland, Canada, Japan, New Zealand and the United States. Australia's performance on this measure peaked in 2004 and has since declined. This result would suggest that Australia's innovation environment could be supported by a greater focus on increasing government effectiveness.[166]