The report also shows the government is well behind on its goal to double the number of working-age Australians with a higher-level qualification by 2020.

The Council of Australian Governments reform council issued progress reports on education systems across Australia, and workforce participation.

It said if Australia halved the number of people without a higher-level qualification by 2020, just 23.6 per cent would be without a qualification in eight years.

But between 2008 and 2011, the number of 20 to 64-year-olds without a higher level qualification fell marginally.

''A projection of this trend would see around one in three working-age Australians without a Certificate III qualification or above in 2020,'' the council said.

''We are yet to see any sign of the acceleration in the rate of qualification attainment that is needed to meet [the 23.6 per cent] target.''

The council also raised concerns about young people disengaged from work and study.

''From 2008 to 2011, the national proportion of 18 to 24-year-olds fully engaged fell by 3.8 percentage points from 76.3 per cent to 72.5 per cent,'' the reform council found. ''This was due to a fall in full-time employment … the largest decline from 2008 to 2011 in post-school participation in employment, education or training was for young people from the lowest socio-economic areas.''

Australian Industry Group chief executive Innes Willox said while the reports showed progress in some areas, that progress was too slow.

''As a national priority we need to double our efforts if we are to get our workforce ready to reap the benefits of the Asian Century.

"A prime area of concern is the fact that only 72.5 per cent of 18 to 24-year-olds are fully engaged in employment, education or training. For a country that has experienced 20 years of continuous economic growth it is alarming that one in four young people are disengaged.''

Nationally, grades 3 and 5 students improved their reading and numeracy performances, and school participation of 15 to 19-year-olds had increased after COAG introduced an ''earn or learn'' policy after year 10.

Education Minister Peter Garrett said the report showed the importance of introducing the Gonski school funding reforms.

''The report shows there is a strong need for a fairer system for all students, particularly those from low socio-economic communities,'' he said.