The Labor Government‘s proposed amendments to the Australian Education Act fail in their goal to provide “a pathway to full and fair funding for all schools”. Obstacles remain in the pathway for public schools, a pitfall that could delay funding increases in future. The amendment Bill makes a minimalist change to the limit placed on Commonwealth funding of public schools by the Turnbull Government. It fails to remove the blockage erected by the Morrison era funding agreements that allow the states to use “accounting tricks” to defraud public schools of billions in funding. Public schools will remain under-funded by billions even if all states and territories sign up to the Better Fairer School Funding agreements. Other amendments to the Act are needed to support full funding for public schools.
Blockages on the path to full funding of public schools
The key amendment is minimalist. It changes the current limit of 20% on the Commonwealth share of funding the Schooling Resource Standard (SRS) to a share that is no less than 20% for all jurisdictions except the Northern Territory where the share will be no less than 40%.
This change does not secure full funding for public schools.
First, the amendment simply replaces a funding ceiling with a floor. While the floor makes it possible for the Commonwealth to increase its share of funding public schools, the Labor Government is limiting the share to 22.5% except for the Northern Territory. This is incommensurate with the Commonwealth’s national responsibilities for educational, social and economic policies. As outlined below, there is a compelling case on educational, social and economic grounds for a greater role for Commonwealth funding of public schools that warrants a higher floor than prescribed in the Bill.
Second, the Bill fails to end the “accounting tricks” in the funding agreements conjured up between the Morrison Government and the states that swindle public schools of billions in funding. These “accounting tricks” are continued in the new agreements between the Labor Government and the Western Australian, Tasmanian and Northern Territory governments. They block the path to full funding of public schools. It is highly likely they will be included in any new agreements with the other states.
The fraud consists of allowing the states and the Northern Territory governments to claim, as part of their share of funding the SRS of public schools, funding for items specifically excluded from how the SRS is measured. They could claim funding for capital depreciation and school transport up to 4% of the SRS of public schools. In addition, many states could claim funding for regulatory agencies such as curriculum and teacher registration authorities.
As outlined below, these “accounting tricks” have swindled public schools of billions in funding over 2019-2024. The swindle was first exposed by Save Our Schools following the publication of the Morrison era agreements in 2018 (see Attachments A1-A4]. The swindle is now widely acknowledged.
These accounting tricks are continued in the new agreements between the Labor Government and the Western Australian, Tasmanian and Northern Territory governments. They block the path to full funding of public schools.
The Bill also creates a potential pitfall for increases in Commonwealth funding of public schools. It provides that the Commonwealth share for public schools in a year is the percentage prescribed by regulation. Further, the amendment states that the Parliament cannot disallow the regulation.
One protection against a future government arbitrarily reducing an agreed Commonwealth share is that the Bill requires that the share prescribed by regulation in a year cannot be less than that in the previous year. In other words, the Commonwealth share can only be maintained or adjusted upwards in any year. In addition, the Minister must consult with the Ministerial Council on any regulation to be made in this regard.
However, this may not provide full protection for any agreed increases in the share of funding public schools. There is no provision to stop a future government changing the regulation to maintain a current year share rather than increase it according to the terms of a funding agreement. For example, the new school funding agreement with the Tasmania Government provides that the Commonwealth will increase its funding share for public schools from the current 20% to 22.5% by 2029. Similarly, the new Northern Territory funding agreement specifies that the Commonwealth will gradually increase its funding share for public schools from 21.% in 2024 to 40% by 2029.
A new federal government in 2025 could easily change the regulation to delay planned increases until later in the agreement period. The changes would only have to be tabled in the Parliament and would not be subject to disallowance. Thus, a government could act peremptorily without public scrutiny and create funding uncertainty for public schools. Any such delay in funding increases could hold back improvements in student learning and outcomes. The obligation to consult with the Ministerial Council on the matter is just that, the Minister makes the final decision whatever the Council says.
The blockages and the pitfall to fully funding public schools must be removed
In order to remove the blockages and the pitfall to full funding of public schools, Save Our Schools recommends two other amendments to the Education Act.
- Increase the Commonwealth share of funding public schools to a minimum of 25% of their SRS.
- Prohibit the states from including non-SRS funding items as part of their share of funding the SRS of public schools.
Save Our Schools also proposes making the transition regulations disallowable by the Parliament.
Increase Commonwealth Government share of funding public schools to at least 25% of their SRS
While the states have primary constitutional responsibility for education, there is a compelling case for a greater Commonwealth role in the funding of public schools on educational, social and economic grounds. This case is discussed in more detail in Attachment A5.
The Commonwealth signed up to the national goals for schooling. National goals imply an important role for the national government. A key national goal is to increase equity in school outcomes. The achievement gaps between rich and poor are far too large as the Minister acknowledges.
The Commonwealth also has special responsibilities relating to Indigenous Australians and migrants, which implies a key role in funding public education. The large majority of Indigenous and immigrant students attend public schools. The Commonwealth has long had a national goal to improve education outcomes for Indigenous students and close the gap between Indigenous and non-Indigenous students.
The Commonwealth also has exclusive constitutional powers over immigration. It has responsibility for helping migrants in a range of social issues, including education, to support their integration in Australian society and ensure social cohesion.
The Commonwealth must play a stronger role in funding public schools to ensure greater equity in education in all states and territories. Over 80% of all low income, Indigenous, remote area and migrant students attend public schools and 90% of all schools with a high concentration of disadvantaged students are public schools.
The Commonwealth has the primary role in economic policy. Education is an important driver of productivity growth through improving the knowledge and skills of the workforce. The Minister wants to lift Year 12 and tertiary education completion rates to increase workforce skills and participation. This requires a greater role for the Commonwealth in funding public schools as only 70% of low income students complete Year 12. Adequate funding for public schools is fundamental to providing a highly skilled workforce.
The joint Commonwealth and state responsibilities for public education mean that the relative funding shares have to be negotiated and the actual division of funding shares for each state may vary as they do between the new Western Australian and Northern Territory agreements. However, the current limit on the Commonwealth role should be removed and provision be made to give the Commonwealth a greater role in funding public schools, thereby increasing equity in education. The Education Act should provide for the Commonwealth to at least fund public schools at 25% of their SRS. It would make a significant contribution to progressing national educational, social and economic goals.
Recommendation 1
Section 35A Commonwealth Share, clause (a) for a government school be amended to delete “20%” and substitute “a minimum of 25%”
Prohibit inclusion of non-SRS items as part of state funding shares of the SRS of public schools
There can be no doubt that the special allowances the states and the Northern Territory have been permitted to claim as part of their share of funding public schools are excluded from the estimation of the SRS. The estimation of the SRS is based on financial data collected by ACARA for the My School website. The measure of income is Net Recurrent Income Per Student (NRIPS). ACARA’s My School: Key Principles and Methodology (2023) clearly defines what is excluded from this measure. The exclusions include school transport, depreciation and umbrella costs associated with curriculum standards, national testing, and teacher registration. It says: “These funds have been deemed to be outside schools’ recurrent operations” [p.13]. Attachment A6 provides further details on the measurement of the SRS.
The Minister’s claim that the special allowances are “part of the SRS” is clearly incorrect. It is refuted by ACARA’s guide to the methodology behind My School and the text of the new funding agreements with the Western Australian and Northern Territory governments as well as that of the previous funding agreements. For example, the Western Australian agreement clearly distinguishes SRS and non-SRS funding:
Consistent with the calculation of the SRS, the Western Australian funding contributions will be measured consistent with the existing Australian Curriculum, Assessment and Reporting Authority (ACARA) financial data reporting methodology for state Net Recurrent Income Per Student (NRIPS) for school years Year 1 minus 1 to Year 12, excluding funding for full fee-paying overseas students, along with the following additional funding types. [Clause 49, emphasis added]
Parts (a) and (b) of the clause state that the additional funding types are direct school transport, capital depreciation, kindergarten (pre-school) up to 4% of the SRS as well as funding for the School Curriculum and Standards Authority and Department of Education’s regulatory functions. The new Northern Territory agreement includes similar provisions.
Previous statements by the Minister have acknowledged the distinction between SRS funding and non-SRS funding types. For example, in response to a question as to whether allowance to claim non-school costs would be removed, he said:
What I’ve said [is] we’ll look at that with all the states and territory as part of negotiating the next national school reform agreement…
Unfortunately, Labor has gone from promising in Opposition to end the swindle (here and here) to denying it exists in government. Moreover, it has extended the swindle in the new Northern Territory agreement.
As in the previous agreement, the Northern Territory Government will be able to claim as part of its SRS share expenditures that are specifically excluded from how the SRS is measured. It will be able to claim expenditure on capital depreciation and direct school transport expenditure up to 4% of the total SRS. The new agreement also includes additional allowance to claim expenditure on the NT Board of Studies and the Teacher Registration Board.
The new Western Australian agreement continues a contradictory arrangement whereby the WA Government can double dip on its special allowance to claim pre-school funding as part of its share of funding public schools. According to ACARA’s financial limitations report for Western Australia and compatibility reviews of the My School methodology, the NRIPS for WA public schools includes pre-school funding because it cannot be separated from school funding. Yet, the bilateral funding agreement allows the WA Government to claim pre-school funding as an additional item as part of its share of the SRS of public schools (Clause 49 (a). It is puzzling as to how the WA Government can have pre-school funding included it the SRS because it cannot be separated from school funding but then identify the amount of pre-school funding as an additional item to be included as part of its share of the public-school SRS. This strange arrangement further contributes to the under-funding of WA public schools by “accounting tricks”.
The accounting tricks allow the states and Northern Territory governments to artificially boost their SRS share with non-SRS funding items. For example, the target SRS share in the current Victorian agreement for public schools in 2024 is 70.43%. However, its actual share after adjusting for the “accounting tricks” is 65.82%. This substitution of non-SRS funding for actual SRS funding constitutes a loss of funding for public schools.
Overall, public schools across Australia were defrauded by about $13.1 billion over the course of the Morrison agreements from 2019-2024 inclusive [Chart 1]. Public schools will remain under-funded under new agreements or if current agreements are rolled over as the Minister for Education has indicated if other states do not sign new agreements. Save Our Schools estimates the potential loss of funding at $13. 3 billion.
Note: These estimates are based on data derived from Senate Estimates, the bilateral funding agreements, annual reports of state regulatory agencies and National Schools Resourcing Board annual compliance reports.
Thus, unless the accounting tricks are terminated, the prospect is that public schools across the country will still be massively under-funded in 2029, 18 years after Gonski proposed full funding.
It should be noted that the Morrison era agreements and the new agreements negotiated by the Labor Government do not permit the states and territories to claim non-SRS funding items as part of their share of funding private schools. Private schools benefit from school transport and receive services from regulatory agencies such as curriculum and standards authorities. This is another way in which the school funding arrangements are biased against public schools. The states and the Northern Territory are allowed to defraud public schools but not private schools.
It is imperative this fraud on public schools be ended. This can be done by prohibiting the inclusion of non-SRS funding as part of the state/territory shares of funding public schools.
Recommendation 2
Add a new sub-clause be added to 22A Conditions of financial assistance—State-Territory as follows:
State and Territory funding contributions to government and
non-government schools is measured according to the Australian Curriculum, Assessment and Reporting Authority (ACARA) financial data reporting methodology for state/territory Net Recurrent Income Per Student (NRIPS) and does not include any funding types excluded from NRIPS.
Changes to the Commonwealth funding share should be subject to disallowance by the Parliament
As discussed above, allowing the Commonwealth share of funding public schools in each state and territory to be prescribed by regulations creates the potential for a future government to delay increases in funding agreements. Maintaining the funding share of the previous year instead of meeting the agreed increase for any year could create some uncertainty for public schools about when the funding share will be increased. It could also restrict the resources available to make learning improvements in public schools.
Recommendation 3
Regulations on the Commonwealth shares be subject to disallowance by the Parliament. This provides for some public scrutiny and debate.
Conclusion
The Explanatory Memorandum to the Bill claims:
For the first time, all jurisdictions who are party to the BFSA 2025-2034 will have a formally agreed pathway to reaching 100 per cent SRS funding for government schools.
This is demonstrably untrue as outlined above. For as long as the accounting tricks continue, public schools will remain underfunded.
The proposed amendments are critical to ensuring that public schools are genuinely fully funded. The Commonwealth should play a greater role in the funding of public schools to meet national education goals that all children receive an adequate education and increase social equity in education. The states and territories must stop defrauding public schools with their accounting tricks.
List of Attachments
These attachments are available on request
A1: Public Schools Are Swindled by Billions Under New Education Agreements
A2: Loophole leaves nation’s public schools shortchanged
A3: New Funding Agreements Defraud Public Schools
A4: Special deals ‘swindling’ public schools out of billions, new analysis says
A5: The Case for a Greater Commonwealth Role in Funding Public Schools
A6: The Integrity of the Schooling Resource Standard is Subverted by Accounting Tricks