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SYDNEY, NOV 28 AAP

November 28 2012, 4:44PM

Reserve Bank of Australia board member Heather Ridout has warned against state government cuts to technical college funding, saying Australia's workforce is critically lacking in skills needed to support the nation's future.

Ms Ridout, who was previously the chief executive of the Australian Industry Group, told the Association of Superannuation Funds of Australia (ASFA) conference in Sydney on Wednesday that increasing the level of skill among Australian workers was the only way to improve the nation's productivity.

The NSW, Victorian and Queensland governments have recently announced cuts to budgets or staff at their technical colleges.

Victoria has cut $300 million from its TAFE budget, NSW is cutting 800 staff jobs and Queensland is considering campus closures.

Ms Ridout expressed concern about the moves.

"The TAFE reforms that have been announced around the states I think need to be very carefully assessed," she said.

"Restructuring should not be a cover for cutting costs and cutting investment in this critical area.

"The big issue is we've spent a huge amount on schools over the last couple of decades, doubled our spending in real terms, while TAFE spending has flattened and higher education spending hasn't been rising like school spending, and we haven't had the returns for investment in that area that we should have seen."

Ms Ridout said skilled jobs would be created at 1.6 times the amount of unskilled jobs in Australia over the next 20 years.

"Literacy levels in Australia are still far too low - 46 per cent of Australians in our workforce still do not have the literacy capability to work in a modern workplace," Ms Ridout said.

A quarter of kids still leave school without a qualification, often with literacy problems.

By Peter Trute, AAP Senior Finance Writer