Money Matters, Spend it Right

A debate has raged for decades about whether money makes a difference in education. The arguments are at the forefront again in the debate about the Gonski funding plan.

Opponents of Gonski claim that research shows that more money does not improve student results. For example, the National Commission of Audit report said there was “no clear, consistent correlation … between increased funding and school outcomes”.

It is also claimed that large increases in spending in the past in Australia confirm this. The Federal Minister for Education, Christopher Pyne, regularly claims that school funding increased by 44 per cent in real terms since 2000 but school results have declined. The Commission of Audit report made a similar claim.

The claims are highly misleading. The first is based on a very selective reading of the research evidence while the second vastly exaggerates the actual increase in funding and ignores significant improvements in student outcomes.

The most commonly cited study for claims that spending more on schools does not improve student results is a review of research studies by Professor Eric Hanushek from Stanford University. His 1986 paper is still one of the most widely cited papers on the economics of education.

What is largely ignored, however, is that Hanushek’s finding was refuted by two analyses of his review.

One analysis by academics from the University of Chicago criticised the methodology he used to synthesise results across studies as having “low statistical power”, which made his conclusion “particularly suspect”.

This analysis adopted a more powerful analytic method and found the vast majority of studies with statistically significant effects showed a robust positive relationship between expenditure per student and student achievement. It concluded: “We find that money does matter after all.”

Another analysis by Alan Krueger, professor of economics at Princeton University and later chairman of President Obama’s Council of Economic Advisers, criticised Hanushek’s methodology as placing a disproportionate weight on a small number of studies that used small samples and mis-specified statistical models. He also concluded that money matters.

In a later synthesis of some 60 studies, the University of Chicago researchers confirmed their previous finding that increases in expenditure has a significant positive impact on student achievement. Other extensive reviews of the academic literature have also found a positive relationship between funding and school outcomes.

Many more recent studies have reached the same conclusion. They include studies on several US states, including repeated studies of school finance reform in Michigan and Massachusetts, and several UK studies.

The effect is small in some studies, while in others it is larger; in some the effect is larger in primary schools than secondary schools; in some additional funding appears to matter more for some students than others; and in others some forms of expenditure have a greater effect than others.

A number of cross-country studies on the relationship between school funding and international test scores have produced mixed results, with some finding increased funding leads to improvements in student results and others finding a weak relationship. However, even Professor Hanushek says cross-country studies have to be interpreted cautiously because of the highly aggregated data and the likelihood of unobserved country differences that may affect the findings.

There is even more evidence that money matters in reducing education disadvantage.
Many studies in the US and Europe have found increased school funding for disadvantaged students leads to better school results.

Even studies that found a weak impact of funding increases on general student outcomes have found much larger effects on the outcomes of disadvantaged students. Some show that the effect for disadvantaged students is two to four times that for other students.

One of the most comprehensive recent analyses of the relationship between school resources and outcomes stated:

“The conclusion that money doesn’t matter is not correct, and fiscal conservatives and opponents of fiscal equalisation should not take comfort from the complexities of an improved approach to school resources.”

Claims by the Federal Minister for Education and the National Commission of Audit of large increases in school funding over the past decade are simply incorrect.

Government funding per student adjusted for inflation increased by only 1.3 per cent a year between 1999-2000 and 2011-12. This is three times less than the 3.8 per cent figure given by the Commission of Audit for 2000-2012 and the 44 per cent increase claimed by the Pyne for 2001-2009 (4.1 per cent a year).

Both the Government and the Audit Commission figures are incorrect for several reasons.

They include book-entry items for government schools (user cost of capital and depreciation) and other items (payroll tax and school transport) that have increased significantly but which have no impact on school outcomes. These items alone account for 35 per cent of the nominal increase in government school funding since 2000.

The figures also fail to take account of increasing enrolments. Total school enrolments increased by nine per cent between 2000 and 2012, thus boosting government funding. They also ignore changes in the composition of enrolments. Indigenous, disability and senior secondary school students attract significantly higher funding per student than average and they increased as a proportion of all students from 19.4 per cent in 2000 to 23.6 per cent in 2012.

Both sets of figures also exaggerate the real increase in funding because the measure of costs used to adjust for inflation under-estimates the actual cost increases faced by schools. In addition, Pyne’s estimate of a 44 per cent increase is based on two different measures of expenditure for the start and end period which further exaggerates the actual funding increase.

The criticism that student outcomes have not improved with the increased funding fails to acknowledge that there have been some significant improvements in school outcomes over the period that school funding has increased. Year 12 outcomes have improved and primary school and Indigenous outcomes have improved.

Significant improvements have occurred in Year 12 outcomes over the last decade or more. Average retention rates to Year 12 increased from 72 per cent in 2000 to 82 per cent in 2013.

There was a significant increase in the average Year 4 mathematics results for the Trends in International Mathematics and Science Study tests between 2003 and 2012. The percentages of Year 4 Indigenous, remote area and LBOTE students above the mathematics and science standards also increased between 2007 and 2012.

In addition, average NAPLAN reading results in Years 3 and 5 increased between 2008 and 2013 by the equivalent of about half a year of learning. There were also large improvements in the average reading scores of Indigenous and remote area students.

In large part, however, past funding increase has not been well-directed to those most in need of additional support. A large proportion of low socio-economic status (SES) and Indigenous students are below international and national standards and there are large achievement gaps between these students and high SES students.

The vast majority of these and other disadvantaged students are in government schools. Yet, government funding increases have favoured private schools. The increase in real government funding per student in private schools was significantly higher than that of government schools from 1999-2000 to 2011-12  26 per cent compared to 16 per cent for government schools. This misdirection of funding is a scandal.

While money matters overall in education, how it is spent is also important. The deputy director for education at the OECD, Andreas Schleicher, recently said that “how resources are allocated is just as important as the amount of resources available.” Findings from the PISA studies show the most successful education systems target resources to disadvantaged students.

Clearly, the increases in funding in Australia have generally not been well-targeted. They have not been well-targeted between schools sectors. Nor have they been well-targeted within school sectors. Needs-based funding in Australia, especially for low SES students, has only ever been a very small proportion of total school funding.

The Gonski funding plan would have changed this. Its abandonment by the Federal Government on dubious grounds has put the future of disadvantaged students at risk.

The debate about whether money matters in education has been adjudicated. The research evidence clearly shows that Gonski got it right – increasing funding for the disadvantaged students is necessary to promote higher and more equitable educational outcomes.

This article was originally published in the September issue of Education Review

Previous Next

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.