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Albanian VET Strategy and Action Plan for the period 2013 - 2020

Workshop on VET System Management and Financing

VET System Financing

Werner Heitmann

Senior VET Policy Consultant

Tirana | 13 June 2012

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Basic Challenge of VET System Financing

VET System

Society Government

Donor Contribution

Social Demand from Individuals

Labour Market Demand from Enterprises

Employability Ability to Study

Government must be interested in satisfying market and social demand.

Competitiveness Voters

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EfficiencyLow High

Lo

w

Market model

GovernmentSchool model

Partnership model

Status Quo

Inter-company training model

Alternating model

Rehabilitation Strategy

Hig

h

Co-

oper

atio

n S

trat

egy

Eff

ect

ive

ne

ss

Efficiency: Input-Output-Relation

Effectiveness: Impact-orientation

Both are needed for sustainable

improvement of VET!

Efficiency and Effectiveness of VET

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Generation ofResources

Allocation

Institutions

ManagementFourKey

Elements

Vision:

Diversification of VET Financing (State, Enterprises, Individuals)

Strategy:

Efficient and effective allocation of rare resources

Objective:

Stronger incentive-driven & output-orientated financing

mechanisms

Result :

Replacement of input-driven financing mechanisms through demand-driven

financing mechanisms (e.g. vouchers, loans) Organisation:

Establishment of stakeholder-driven VET Funds in Combination

with a National VET Authority

Control Mechanisms:

Ensuring transparency; Avoiding misuse; Monitor & evaluate

progress and impact

Key Elements of VET Financing Systems

Challenges:

Public funds are decreasing, but still the main source

State budget alone is not sufficient for high-quality VET offers

Enterprises hardly contributing

Individuals‘ ability-to-pay is limited

Donor financing is lacking sustainability

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Four Basic Allocation Models

Decentralised (market) Approaches

Centralized (regulated) Approaches

Input Orientiation

Output Orientation

Centrally planned, input-

based distribution to

providers

Demand-driven

allocation through trainees

Performance-based

distribution to providers

Purpose-specific

purchasing from providers

Program-orientated

Contract based

Budget- orientated

Trainee-centeredInternational

Trend

Output-oriented allocation motivates VET providers to increase their internal efficiency.

Three reform models:

1.Financing of VET programmes (performance-based)

2.Tender-based purchase of VET services

3.Learner-centered financing model

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Strengthening Private Sector Involvement

Target: Direct contribution | In-Company Training Utilization of workplaces for training increases | Efficiency In-Company Training is employment-relevant | Effectiveness Direct benefit must be recognized ( Cost-benefit analysis)

Incentive Systems | Indirect Monetary Contribution Collective VET Levy Levy-Grant-Systems (levy exemption, re-distribution, re-funding) Special taxes

A VET Levy System can only be realized in combination with a National VET Fund.

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VET Levy

Advantages Adequate measure if engagement of companies in VET is weak Purpose-specific utilization of funds Constant flow of funds | Applicable to all companies

Disadvantages Informal sector | SMEs: Ability-to-pay is negligible Companies see levies as a burden, not an incentive

Particularly tax-paying enterprises being engaged in VET Mistrust in public institutions | Low acceptance

Clear regulations for purpose-specific utilization of funds, or combination of levies with pay-back / refunding mechanisms

are necessary!

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Option 2: Re-funding of training cost

Training Levy

Administration cost VET Funds

National VET Fund

Training providing Company

Non-Training providing Company

Option 1: Exemption from Training Levy

Training providing Company

Option 3: Redistributed levy

Direct Allocation to Training Provider, etc.

Tra

inin

gco

stTraining Levy | 3 Pay-Back Mechanisms

Tra

inin

gco

st

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Management via VET Funds

Key characteristics Budget clearly addressed to VET purposes only, no access

through other state budget positions Can be fed by sources of the public and/or private sector, donor

contributions etc. Frequently (not necessarily) combined with a levy system

Advantages Budgets reserved for VET purposes | Reliable financial planning Through ‚Funding Windows‘: Adressing special target groups Cross-subsidisation (between VET sub-systems) easier to control Private sector engagement in financing and forming VET system Independent / performance-based distribution of funds to providers

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Common VET Financing Reform Approaches

Government / State

Donors

Enterprises

National VET Fund

Target groups: Trainees, Workers

Income-Generating Activities

Public and Private Training Providers

Grants / Loans

Grants, Loans, Vouchers

Budget AllocationSubsidies, Matching Grants,

Tax Benefits

VET Levy

Performance / Output-orientated

FinancingFees

Fees /Vouchers

Additional Revenues

Trainees

Fees

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VET Voucher System | Possible Design

Cooperative Training; Partnerships between Industry & VET Providers

Government

VET Authority: Legislation, Regulation, Coordination, Facilitation

National VET Fund

including VET Voucher & Levy Administration

Public & Private VET Providers

Trainees

Voucher Schemes

Enterprises

Employers

VET Budget

Matching Grants

Donors

VET Information Center

Income Generation

Employee Voucher Schemes

VET Innovation

Fund

VET Vouchers

Levy-basedGrant

Grants

Temporary Budget Support

Tuition Fees

Innovation Budget

Tax Incentives

VET Levy

Quality Assurance & Accreditation

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