This paper is addressed to those responsible for determining policy in tertiary vocational education, in particular senior staff in TAFE. It discusses the likely effects of the Government’s recent emphasis on skills formation. The context for a skills formation approach is provided and the growing influence industry is likely to have upon vocational education is discussed. TAFE, as the major provider of tertiary vocational education, is the educational organisation most likely to be affected. The need to maintain a commitment to provide education as well as training, and for concern with equity as well as short term economic success, is stressed. The paper argues that we must learn from the thinking behind the economic successes of countries such as Sweden and Japan and use this to produce solutions which will work in our context, rather than simply copy the processes they have used to achieve that success.