More School Funding Cuts by Stealth

The following is a summary of a new Education Policy Brief from Save Our Schools. The full Brief can be downloaded below.

The knives are out on school funding in the lead-up to the national education ministers’ meeting next week to determine the funding arrangements to apply from 2018. The cuts are being disguised by fiddling with the rates of annual increases in funding provided by the current funding model. It amounts to a confidence trick on the public. School funding is being cut by stealth.

Claims by the Federal Government that it is increasing school funding from 2018 are a swindle. The Government refused to fund the planned Gonski increase of $7 billion in 2018 and 2019 and now it intends to cut the annual funding increases agreed under the Gonski plan from 4.7% a year to 3.56% a year. It is another step in the destruction of Gonski by the Coalition. It means a funding loss for schools of over $600 million for 2018-2020.

The new report by the Grattan Institute goes one step further than the Federal Government. It combines a reduction in annual funding increases from 4.7% to 3.6% with a reduction in indexation of the Schooling Resource Standard (SRS) from 3.6% to 2.5%. Its fiddling of indexation rates is a ‘pea and thimble’ trick. Its claimed savings are highly likely to be illusory. It is more likely that funding will not keep pace with rising costs over the long term and there will be little or no progress in reducing under-funding of public schools.

The Grattan Institute claims that the indexation rates in the current funding model are too high because cost increases (mostly wages) are low. This claim is misplaced as it misunderstands the role of the annual increases of 4.7% under the Gonski plan. Its proposed indexing of the SRS at 2.5% a year is very unlikely to keep pace with rising costs over the long term.

It is not well recognised that the National Education Reform Agreement to implement the Gonski plan provided for three sources of funding increases – the ‘Gonski’ additional funding, annual baseline funding increases, and funding for enrolment growth and changes in demographic composition.

The 4.7% rate was never designed simply as compensation for inflation. It was designed to maintain the Federal Government’s average funding effort over the previous ten years (baseline funding), which included increased funding to match rising costs and additional funding over and above inflation. Its purpose was to ensure that the Gonski additional funding of $10 billion in Federal funding over six years was not financed by a cutback its existing funding effort. Reduction of the 4.7% rate is a straightforward cut in the Federal Government’s funding effort.

The savings estimated by the Grattan Institute are highly unlikely because its assumption that wages will only grow by 2.5% per annum over the next ten years appears unrealistic. While wages growth in education at present is at its lowest since 1998, it averaged 3.7% a year to 2016 which is almost exactly equivalent to the legislated SRS rate of 3.6%. Even the historically low growth over the past four years averaged 2.85% a year, which is higher than the proposed indexation. Moreover, the Federal Treasury has forecast a return to higher overall wages growth with increases of 3.25% in 2017-18 and 3.5% in 2018-19, and wages growth in education tends to be about one percentage point higher than the economy-wide average.

The assumption that wages growth in education will be very low in the long term presents a major risk to future school funding. If the Treasury projections for the next few years are realised and if there is a return to higher wage growth over the long term, the reduction in indexation of the SRS to 2.5% a year will mean that funding for public and private schools at or near their SRS will not keep pace with rising costs and will be cut in real terms. It seems entirely premature to reduce indexation of the SRS.

Public schools will suffer the most from these funding cuts. The goal of the Gonski additional funding was to get all schools to 95% of their SRS by the end of the six-year transition period to 2019. This goal will be met for almost all private schools by 2017. However, public schools will remain well below their SRS forever because they were dependent on the large increase in funding planned for 2018 and 2019 to achieve the SRS target. The proposed cuts in annual funding increases from 4.7% to 3.6%, or 3.56%, means that their funding will only keep pace with rising costs over the long term.

NSW public schools were at 84% of their SRS in 2014 and will be only at 88% by 2017, while Victorian public schools were at 78% of their SRS in 2014 and will be only at 82% in 2017. In contrast, Independent schools as a system were already at 95% of their SRS in 2014 and will be at 98% by 2017, while Catholic schools were at 90% of their SRS in 2014 and will be at 94% by 2017.

Over-funded private schools will benefit even more from the Government’s single indexation rate for all schools. Private schools that currently receive more funding than they are entitled to under the current model will get a funding increase of about $25 million over the three years because their annual increase will rise from 3% to 3.56%. The large majority of these over-funded schools are highly advantaged wealthy schools with very few or no disadvantaged students.

The Federal Government and the Grattan Institute are proposing cuts to school funding at a time when increases are most needed. As shown by the latest national and international test results, high proportions of disadvantaged students are not achieving expected standards and there has been no reduction of the large achievement gaps between rich and poor. Many studies show that well-targeted funding increases lead to significant improvements in the results of disadvantaged students.

The claims by the Federal Government and the Grattan Institute that Australia cannot afford the current funding approach are erroneous for two reasons. First, increasing school funding is an investment in the future. Improving school results for disadvantaged students promises large financial, economic and social returns.

Second, there is a massive potential revenue pool available to fund a resurrected Gonski model. Reducing tax concessions for high income earners and clamping down on the use of tax havens by wealthy individuals and corporations could generate up to $40 billion a year in extra revenue.

It is paradoxical that the Grattan Institute report accepts the furphy that the current funding approach is too costly and unaffordable when the Institute has produced several reports demonstrating very large savings from closing tax loopholes and cutting back on tax avoidance by the wealthy.

The national education ministers’ council should completely reject the proposals to reduce annual increases in recurrent school funding and indexation of the SRS. It will mean cutting funding by stealth and continuing under-funding of public schools at a time when increases are most needed. Ministers should resume the Gonski funding plan instead of fiddling with indexation rates. Gonski must be resurrected, not further demolished.

Trevor Cobbold

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