New Method of Assessing Financial Need of Private Schools Has Major Flaws

At the end of February the Senate referred the provisions of the Australian Education Amendment (Direct Measure of Income) Bill 2020 to the Education and Employment Legislation Committee for inquiry and report. The Bill provides for a new measure of capacity to contribute by families to private schools, adjusted taxable income, to replace the area-based socio-economic status method introduced in 2001.

The submission by Save Our Schools highlights major flaws in the new measure and makes 13 recommendations to the Senate Committee. It can be downloaded below.

The key problems with the new method are:

  • Adjusted taxable income does not fully measure the capacity of families, especially high income families, to contribute because it does not include non-disclosed income held in Australia and in overseas bank accounts and tax havens, non-taxed capital gains, the wealth of families and income and assets held in family trusts. Research by the Australian Taxation Office indicates that high wealth individuals and private companies are understating income by several billion dollars a year. These groups are likely to include families with children in private schools, especially high fee schools.
  • Direct income measures of family capacity to contribute, including adjusted taxable income, also do not fully measure the financial need of schools because they exclude the wealth of schools and private donations to schools.
  • Use of adjusted taxable income as the sole measure of capacity to contribute in private schools under-estimates the capacity to contribute of families, over-estimates the financial need of schools and leads to greater government funding than warranted.
  • The analysis done by the National Schools Resourcing Board did not acknowledge the gaps in ATI as a measure of capacity to contribute and the financial need of schools. Currently, there is no substantive publicly available data or analysis to be able to firmly conclude that adoption of ATI will provide a significantly more accurate measure of the capacity to contribute and the financial need of schools.
  • The additional $3.4 billion in funding for the switch to the direct income measure has all the hallmarks of another special deal for private schools which provides more funding for private schools than warranted. The Commonwealth Government has failed to provide any modelling to justify the $3.4 billion increase.

The recommendations are:

  • If Adjusted Taxable Income (ATI) is to be used to measure the capacity to contribute of families and the financial need of schools, it should be supplemented by other measures.
  • Non-taxed capital gains be included in the measurement of the capacity to contribute of families in private schools.
  • The assets of schools be included in the assessment of financial need.
  • Private donations to schools be included in the assessment of financial need.
  • The Committee investigate whether it is possible to obtain information on donations to schools by families and trusts.
  • The Committee investigate whether the exclusion of other sources of family income from ATI, the exclusion of family and school wealth and private donations to schools significantly reduces the effectiveness of ATI as the measure of capacity to contribute compared with the current approach.
  • The Committee investigate and report on the administrative costs of using ATI as a measure of capacity to contribute.
  • The Committee report on what schools gain funding beyond that projected under the current method of assessing capacity to contribute, what schools receive less funding than projected under the current method and the extent of the gains or losses in each case. It should also publish the funding stream for each school over the transition period for the new method.
  • The Committee compare the amount of Commonwealth funding to be provided to each school under the current SES scale with what each school would receive under the proposed ATI measure with the same scale of payments and report on any differences.
  • The draft Regulation for implementing the direct income measure of the capacity to contribute be examined by the Committee and be published to allow broader public scrutiny and submission.
  • The Committee request the Minister for Education to explain how the initial $3.2 billion increase in funding was estimated before the actual direct income measure to be used was determined.
  • The Committee request the Department of Education provide it with the analysis done for the NSRB report and the Department to estimate the cost of moving to the direct income measure.
  • The Committee request and report on the analysis done by the Department of Education to estimate the increase in funding proposed for ACT private schools.

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