Australia has never produced more university graduates, yet almost three in ten assessed occupations remain in shortage, according to new research that estimates the country’s education economy at about $190 billion a year and finds a widening gap between the qualifications Australians acquire and the skills employers need.
Nearly 47 per cent of Australians aged 25 to 34 now hold a university degree, making them the most highly credentialled generation in the country’s history. At the same time, 29 per cent of assessed occupations remain in shortage, graduate underemployment has risen for three consecutive years and more than four in ten recently employed graduates say they are overqualified for the jobs they hold.
The nineteenth report in The Balance Sheet research series audits education as an economic system, following money and students from early childhood through schools, universities, TAFE, apprenticeships, research and into the workforce.
Its central argument is that Australia’s problem is not simply how much education it provides, but what that education ultimately produces.
“Australia does not under-produce skills,” the report concludes. “It produces the wrong ones, in the wrong fields, and buys the difference from abroad.”
The report estimates Australia’s education economy at about $190 billion a year, assembled from official spending and revenue data across schools, early childhood education, vocational training, universities and household expenditure. Excluding international student fees, it puts domestic spending closer to $175 billion.
Total education expenditure is equivalent to about 5.8 per cent of GDP, above the OECD average of 5.2 per cent. But Australian households and other private sources carry 29.5 per cent of the cost, the third-highest private contribution among 39 OECD education systems.
The report argues that Australia has no single national account showing what that investment produces across learning, qualifications, employment, skills and productivity.
The mismatch is clearest in vocational occupations.
Almost half of technician and trade occupations are in shortage, and most of the 139 occupations that have remained continuously short since 2021 require vocational qualifications rather than university degrees. Among apprentices who complete their training, 94.8 per cent are employed, yet the number of apprentices in training has fallen 24 per cent from its 2023 peak and only about 55 per cent finish their apprenticeship.
Universities are producing a different picture.
Among graduates surveyed several months after completing their studies, 41.4 per cent of those employed said they were overqualified for their job, while graduate underemployment reached 19.4 per cent. The report stresses that this does not mean degrees have stopped paying, but argues their economic value has become increasingly dependent on the field studied.
Estimates cited in the paper put the lifetime earnings advantage of a bachelor degree over completing Year 12 at about $800,000 for men and $600,000 for women. Those estimates remain substantial, although they are materially lower than earlier estimates based on older earnings data.
The report also builds an indicative comparison between university and vocational pathways. Once tuition and years of forgone earnings are included, it estimates the economic cost of acquiring some degrees can reach $200,000 to $300,000 before the graduate begins recovering the investment.
An electrician who begins an apprenticeship at 17 can therefore build a substantial earnings lead over a student spending three or four years at university, although the report stresses that the eventual result varies sharply by profession. Medicine, engineering and other high-earning degrees overtake much earlier, while some lower-earning degrees may produce far smaller returns.
Behind the university system sits a large student loan book.
Australians owed $81.05 billion in HELP debt before the legislated 20 per cent reduction removed about $16 billion from balances, leaving the remaining stock at roughly $66 billion on the report’s estimate. Almost 2.93 million people held HELP debts before the reduction.
The report’s new Skills Trade Balance attempts to measure what Australia trains against what it imports.
Medicine provides its clearest example. Australia produced 3,725 domestic medical graduates against 5,717 overseas-trained doctors joining the register, meaning overseas-trained doctors accounted for about 60 per cent of new supply. Migration supplied roughly 70 per cent of engineering workforce growth over the latest census period, while around half of Australia’s technology workforce was born overseas.
The system does not always convert imported qualifications efficiently either. The report finds only about half of migrant engineers work in engineering, while many temporary graduate visa holders work below their qualification level.
The other side of the Skills Trade Balance cannot yet be calculated because no national data series tracks Australian-trained professionals leaving the country by occupation.
The finding connects directly with the previous Balance Sheet report on healthcare, which found Australia facing projected shortages of doctors, nurses and care workers. Taken together, the two reports describe a country producing record numbers of qualifications while relying heavily on imported labour in some of the occupations it needs most.
Schools present a more contested picture.
The report estimates real government funding per student has risen about 45 per cent over two decades, while Australia’s PISA mathematics score fell from 524 in 2003 to 487 in 2022. Productivity Commission analysis cited in the report similarly found substantial increases in school income per student with little measurable improvement in test scores.
But the paper rejects a simple conclusion that additional money caused weaker results.
TIMSS recorded Australia’s best Year 4 mathematics result in 2023, recent NAPLAN numeracy results have improved, one-quarter of students now receive disability adjustments, and the latest needs-based school funding agreements only began taking effect in 2025.
Attendance presents a less ambiguous problem.
The proportion of students attending school at least 90 per cent of the time fell from 71 per cent in 2019 to 59 per cent in 2024.
“No funding formula teaches an empty chair,” the report says.
The teacher workforce also looks different when examined in detail.
Australia has about 325,000 full-time-equivalent teachers and a student-teacher ratio of 12.8, close to a historical low. The report challenges the often-repeated claim that half of new teachers leave within five years, finding no Australian evidence supporting that figure and citing research suggesting early-career attrition is much lower.
The more serious shortage is distributional. Remote schools struggle to recruit, while around two in five secondary mathematics classes are taught by teachers without specialist mathematics qualifications.
At university level, international students have become critical to the financial structure.
Australian education earned a record $53.57 billion in export income in 2024-25, making it the country’s largest services export. The report notes that about $15.6 billion of international student expenditure was financed from wages those students earned in Australia, meaning not every dollar recorded as export consumption represents money transferred from overseas. The spending nevertheless remains legitimately classified as an export under international accounting rules.
International fees also support university research indirectly.
Australian universities spent a record $16.4 billion on research, with about $8.6 billion coming from general university funds rather than dedicated competitive grants. Those general revenues are heavily supported by international tuition income, leading the report to warn that restrictions on international student numbers will reduce universities’ ability to cross-subsidise research unless another funding source replaces the revenue.
The problem continues after research is produced.
Australian universities spent $16.4 billion on research but research organisations generated only about $241 million in commercialisation revenue, roughly 1.5 cents for every research dollar on the report’s derived comparison.
The report argues the incentives remain stronger for producing academic research than building Australian-owned businesses around it.
Artificial intelligence could force another redesign.
Early trials cited by the paper suggest AI tutors can improve learning and reduce the amount of time teachers spend on some tasks. But AI is simultaneously weakening traditional forms of assessment. One industry analysis cited by the report found widespread AI-generated content in university submissions, while universities are increasingly returning to supervised examinations and oral assessments.
The report summarises the emerging economics in one sentence:
“AI cuts the cost of learning and raises the cost of proving it.”
That change becomes more important because Australia’s education system remains overwhelmingly concentrated at the beginning of life.
The report’s Life Classroom maps heavy public investment through childhood, school and the early 20s against a working life extending to 67. After formal education ends, nationally measured investment in retraining becomes remarkably thin. Australia has not conducted a dedicated national survey of employer training since 2002.
The report argues that model becomes increasingly difficult to defend when technology can change the value of skills several times during one career.
Its conclusion is not that Australia’s education system has failed.
Some parts convert investment exceptionally well. Vocational completers move rapidly into employment, international education generates tens of billions of dollars in export income, and education remains one of the strongest mechanisms for improving lifetime earnings and social mobility.
The weakness, it argues, lies between the institutions: school and work, university and occupation, research and commercialisation, migration and professional employment, and formal education and four decades of working life.
On the report’s own scenario arithmetic, lifting national productivity growth by half a percentage point through better conversion of education into skills and output would eventually produce an economic gain larger than the annual schools budget.
“The twentieth century asked how many Australians could be educated,” the report concludes. “The twenty-first will ask what their education converts into.”
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