The School Funding System is Heavily Biased Against Public Schools

The following is a slightly revised version of a presentation by Trevor Cobbold to a Policy Symposium on Funding, Equity and Achievement in Australian Schools held at the Melbourne Graduate School of Education on 17 April.

Ten years ago, the Gonski funding model promised much to reduce the vast inequity in school funding and outcomes. What we got was the reverse, courtesy of sabotage by successive Coalition governments, which have always favoured choice over equity, and because of the failure of state governments to deliver adequate funding for public schools.

School funding in Australia is in a parlous state. It is heavily biased against public schools and systematically favours private schools in terms of past funding increases, resource levels and current funding arrangements. Fixing this is not on the immediate agenda of the Albanese Government. All it has done is delay addressing it with yet another inquiry when we already know what has to be done.

Increases in Government Funding for Private Schools Have Far Outstripped Increases for Public Schools

Government funding increases have massively favoured private schools since 2009 and for years prior to this. Funding per student in private schools, adjusted for inflation, increased by 3 times that for public schools between 2009 and 2020 [Chart 1]. Commonwealth Government funding of private schools was also 3 times that for public schools. Despite having the major responsibility for public schools, the states have not delivered any significant funding increases. Indeed, they cut funding in real terms up to 2019 while increasing funding for private schools. Income per student in Independent schools increased by more than five times that for public schools and income per student in Catholic schools increased by almost five times that for public schools.

Source: ACARA, National Report on Schooling data portal. The figures are adjusted for inflation by a combined index of the Wage Price Index for Public and Private Education and the Consumer Price Index.

Private Schools Have A Large Resource Advantage

The result is that private schools now have a big resource advantage over public schools. The income per student in Independent schools is over 50% more than that of public schools and 12% higher for Catholic schools [Chart 2].

Source: ACARA, National Report on Schooling data portal.

The prospect is for these trends to continue under the current funding arrangements unless they are dramatically revised. This is because the Direct Measure of Income (DMI) model introduced by the Morrison Government is fundamentally flawed and because the current Commonwealth-State bilateral funding agreements are heavily biased against public schools.

Commonwealth Funding of Private Schools is Fundamentally Flawed

The DMI purports to measure the capacity of families with children in private schools to contribute financially to their education. It is based on the Adjusted Taxable Income of families. It under-estimates the capacity to contribute because it excludes:

• The Bank of Mum & Dad
• Non-taxed income from capital gains
• Non-disclosed income such as in overseas bank accounts and tax havens

The DMI assumes that only the parents of children pay the school fees. This is demonstrably false. Many private school students have their fees fully or partly paid by their grandparents. One financial services company estimates that 60% of private school students have their fees at least partly paid by their grandparents.

It also ignores other income from grandparents such as money for home deposits and other expenditures such as cars, household assets, childcare, etc. that frees up income to be spent on school fees. The Bank of Mum and Dad is reputed to be the 9^th largest bank in Australia. Over 50% of parents help their adult children with a variety of expenses including school fees.

As a result of this direct and indirect financial support for families, which is not recorded in adjusted taxable income, the capacity of private school parents to pay school fees is vastly under-estimated. Consequently, private schools are over-funded by taxpayers.

Another flaw is that only 50 % of the income from selling family capital assets is recorded as taxable income. The other 50% is not included as taxable income and therefore is not included in the DMI of families. As a result, their actual income and capacity to contribute is further under-estimated.

Adjusted Taxable Income ignores include non-disclosed income held in overseas bank accounts and tax havens. A few years ago, the Tax Office announced that it was investigating more than 100 Australian parents with children at 60 elite private schools who paid school fees from overseas bank accounts. The Tax Office was concerned that the offshore accounts being used to pay the fees were concealing much larger amounts of money amounting to millions of dollars.

Assessing the financial need of schools according to the capacity of families to contribute ignores a major source of income for elite private schools, namely donations and investment income. Figures obtained from the Australian Charities and Not-for-profits Commission show that 50 of the richest private schools in Australia raked in $611 million from these sources over five years from 2017 to 2021. Just 10 schools raked in nearly $300 million They included Melbourne Grammar $43.2M, Geelong Grammar $32M and Scotch College $31.4M.

Several elite private schools even receive donations from overseas. The Australian Independent Schools USA Foundation raises donations for 25 Australian private schools from the US and Canada. Annual returns filed with the US Internal Revenue Service show that it raised over $A10 million during 2018-2020.

None of this income is included in the assessment of the financial need of these wealthy private schools. It means that their financial need is over-estimated which results in over-funding by the taxpayer.

Even apart from these flaws, the current funding model is over-funding many wealthy schools on its own criteria. Private schools are supposed to be funded at 80% of their Schooling Resource Standard (SRS) by the Commonwealth Government and the remaining 20% by state governments. However, official figures provided to Senate Estimates (AQON SQ22-00024, 2022-23 Budget Estimates, Education and Employment Committee) reveal that many of these exclusive schools are massively over-funded by the Commonwealth in 2023. For example, in NSW Loreto Kirribilli is funded at 134% of its SRS by the Commonwealth instead of 80%; Melbourne Grammar was funded at 104%, Brisbane Grammar at 125% and St Mary’s Anglican Girls School in Perth at 120%.

The figures show that Catholic systemic schools in every state and territory are funded at over 80% of their SRS by the Commonwealth. Nearly 30% of all Independent schools are also funded at over 80% while the rest are fully funded. The over-funding will continue for at least the next 5 years. No private school is under-funded by Commonwealth in 2023.

The Commonwealth-State Funding Agreements Defraud Public Schools

While private schools are being lavished with funding, public schools are being defrauded by the Commonwealth-State bilateral funding agreements which the Labor Government has extended for another year to 2024.

The Australian Education Act requires the Commonwealth to fund public schools to 20% of their SRS and the states will contribute at least 75%. The funding agreements specify achievement of the state targets by the end of the decade in most cases.

The agreements are a massive fraud on public schools. There are three sources of under-funding by the states:

• First, there is a gap of 5 percentage points between the official 75% target share for the states and the 80% share allocated to them in the Education Act. At present, there is no firm proposal to fill this gap.
• Second, all states except Western Australia, South Australia and the ACT are funding public schools at less than their target 75% share. Under the current agreements most states are not due to achieve the 75% target until 2029, 2032 in the case of Queensland and 2050 for the Northern Territory.
• Third, all states except the ACT can claim up to 4 percentage points against their target share for expenditures such as depreciation and school transport that are explicitly excluded from the measure of the SRS. Several states can also claim expenditures on curriculum and standards authorities that are also excluded from the measure of the SRS. This skulduggery is defrauding public schools of over $2 billion a year.

These sources of under-funding amount to about $6.8 billion this year. They mean that the maximum state shares of the SRS of public schools by 2029 will only be 71% or less in all states except the ACT. Accordingly, they will be only funded at 91% or less of their SRS for many years.

Public Schools are Under-Funded and Private Schools are Over-Funded

The official projected shares of the SRS for public and private schools are misleading. The Commonwealth shares ignore funding for private schools outside the DMI model. The shares shown in this chart include funding from the $1.2 billion Choice and Accountability slush fund. However, even these shares are under-estimates because they do not include other funding outside the model such as the $769 million JobKeeper rort.

The official state shares also ignore the special allowances to claim expenditures as part of their share that are not included in the definition of the SRS. The figures shown in Chart 3 take account of these special allowances.

There are massive differences in the funding shares of public and private schools. Private schools across Australian are funded at 105.5% of their SRS while public schools are funded at only 87.3%. Private schools in all states except the Northern Territory are funded at over 100% of their SRS while public schools in all states except the ACT are funded at 90% and less.

Source: Senate Estimates, Commonwealth-State bilateral agreements. Annual reports of regulatory agencies.

Public schools in all states except the ACT will be funded at 91% or less of their SRS by 2029 because of under-funding by state governments. By contrast, private schools in all states except the Northern Territory will be funded at 100% or more of their SRS. This is because of over-funding by both the Commonwealth and state governments.

Public Schools are Under-Funded by Billions

The cumulative under-funding of public schools from 2019 to 2029 amounts to about $73.7 billion under the current arrangements [Chart 4]. Almost all under-funding is by the states. The extension of the current agreements for another year by the Albanese Government could cost public schools about $70 million in funding because it allows the states to freeze their SRS shares at their current level for 2024.

In contrast, private schools will be over-funded by about $5.9 billion. The cumulative Commonwealth over-funding of private schools from 2019 to 2029 will amount to about $2.7 billion and state over-funding will be about $3.2 billion.

Source: Updated SOS estimates.

Conclusion

The current school funding system is destroying public education. Public education is being progressively dismantled and reduced to a welfare safety net while the privatisation of education increases. Inequality in school outcomes and social segregation between schools is deepening. Massive achievement gaps between rich and poor continue. Apart from the disastrous effect on the lives of disadvantaged students it has serious implications for the nature of our society and Australia’s future economic prosperity.

This parlous situation demands a comprehensive revision to better direct taxpayer funding where it is most needed. We must look to a Gonski Plus funding model fully based on need. In particular, public schools must be fully funded and the disadvantage loadings should be increased because international studies show they are far too low to be effective. Taxpayer funding for private schools should only fill the gap between private income and the base SRS. Governments shouldn’t be in the business of providing a resource advantage to private schools as they are now.

We are at a critical point in school funding. The defrauding of public schools and the over-funding of private schools must end. The challenge for the next National School Reform Agreement is to deliver a fairer funding system and greater equity in school outcomes.