One of the arguments used by the wealthy to justify government subsidization of their fees at elite private schools is that they pay taxes and there should receive government funding for whatever school their child attends. Apart from being a spurious argument, it appears that many of the wealthy are not paying taxes anyway.
Last month, the Australian Taxation Office announced that it has contacted more than 100 Australian parents with children at 60 elite private schools who paid school fees of $100,000 a year from overseas bank accounts. The ATO obtained information from the schools and matched it against parents’ tax returns. It is part of the ATO’s crackdown on tax evasion by wealthy individuals with hidden income and assets offshore.
“We’ve checked this information against income tax returns and will follow up discrepancies with about 100 parents who may have failed to declare their offshore interests,” said the ATO Deputy Commissioner, Michael Cranston.
“We’ll be asking them to provide documents and attend interviews to answer questions about their arrangements. There is nothing wrong with having an offshore account, but you need to pay tax on the interest or earnings.”
The ATO Assistant Commissioner, Jeff McAlister, told The Australian that the school tuition payments involved “significant payments in private school fees to a significant number of elite private schools” that would include “some of the best schools around Australia”.
Fees may have been dressed up as trust “expenses” as funds channelled money back to Australia from offshore accounts. “Some ways of getting this money back is payment of expenses, and school fees are one way of doing that,” Mr McAlister said.
The ATO is concerned that the offshore accounts that are being used to pay the private school fees may be concealing much larger amounts of money amounting to millions of dollars. The ATO has a list of 5000 client names obtained from wealth management firms and a list of 100 advisers and promoters who had a direct link with people who may have evaded taxes. “The net is closing for people who think they can avoid their Australian tax obligations by holding money and assets offshore,” Mr. Cranston said.
According to the Australian Financial Review, the ATO asked Swiss tax authorities last year to provide the records of up to 120 wealthy people with undeclared offshore bank accounts after receiving information from an informant. At least one person admitted to $30 million in income and $120 million in assets held in Liechtenstein and Switzerland. Another admitted $80 million in assets and $20 million in income from overseas. More than 30 people conceded they had more than $1 million in overseas income, and five people came forward with $10 million in hidden income.
A tax amnesty by the ATO last year to encourage disclosure of offshore income resulted in more than 5,800 Australians disclosing $5.4 billion in assets and $600 million in income held overseas. It resulted in $240 million in additional tax liabilities.
But, apart from salting away money in overseas tax havens, the wealthy in Australia have many ways of avoiding paying their share of taxes. Three key tax shelters are capital gains and negative gearing, superannuation, and private trusts and companies.
While many of the wealthy avoid paying or reduce their taxes, the federal and state governments continue to subsidise their school fees by several thousand dollars per student.
The My School website shows that there were 75 private schools in Australia with average school fees of over $19,000 a year in 2013, including 16 with fees around $25,000-$30,000. These schools are obviously bastions of the wealthy. Over 75 per cent of the students in these schools were from the top SES quartile and only one per cent was from the bottom quartile. Nearly 85 per cent of students at the 16 highest fee schools were from the top SES quartile.
The average subsidy from the Federal and state governments for these 75 elite schools was $4,250 per student. Over one-quarter (20) of these schools received subsidies of $5,000-$7,000 per student. The average subsidy for students in the 16 highest fee schools was $3,400 per student. One of these schools, The King’s School, received nearly $5,000 per student.
The total government subsidy for the 75 schools was $390 million in 2013. The 16 highest fee schools received $71 million from the taxpayer. Several schools received over $10 million: Haileybury College – $17.9 million; Caulfield Grammar – $13.6 million; Wesley College (Melbourne) – $11 million; Trinity Grammar (Sydney) – $10.4 million.
Government funding compounds a tremendous resource advantage over public schools. Their average recurrent income per student in 2013 was over double that of public schools – $28,518 compared to $12,576. The average income of the 16 highest fee schools was $31,951 per student. The 75 schools would still have double the funding of public schools even without any government funding.
Funding elite private schools is a complete waste of taxpayer funds. It does not produce any better school results. Public schools with a similar high socio-economic student profile do just as well as elite Catholic and Independent schools, and substantially better in many states, with less than half the funding of the elite schools. The extra resources provided by governments is wasted on gold plating facilities, lavish marketing budgets to hire boutique public relations firms to promote their school and scholarships to cream off high achieving students from other schools.
Government funding of elite private schools diverts scarce funds from serving those with high learning needs to those with few needs. The nearly $400 million in government funding for elite private schools would be far better used to support highly disadvantaged schools where a large proportion of students do not achieve national standards in literacy and numeracy.
Even if the wealthy all paid their fair share of taxes there is no case that they are thereby entitled to government funding to support their children in private schools.
All citizens pay taxes to fund basic community services such as public transport, police, paramedics, fire brigades, libraries, garbage removal, street repairs and public education regardless of whether or not they use these services. Governments do not subsidise families if they choose to use taxis instead of public transport, buy their own books instead of using the public library, use private security arrangements to protect their home instead of police services, or use private recreation and leisure facilities such as their backyard pool instead of the municipal pool.
The purpose of taxation is to provide services of benefit to society. People who do not avail themselves of publicly provided services are not entitled to claim a certain proportion of taxation revenue to fund their private choices.
This is not to say that there is no case for governments to fund private schools. For example, there is a good case for governments to fund under-resourced private schools and to fund disadvantaged students in private schools to the same extent as those in public schools. But, there is simply no case for governments to fund wealthy private schools on the principle that their families pay taxes, however unlikely it is that they actually pay their share.