Why funding changes for non-government schools don't go far enough

The new Department of Education data shows how much schools’ funding will alter under the new means-testing “direct measure of income” system. It’s no small matter, since Australia’s non-government schools get taxpayer funding to the tune of $15 billion a year – and growing.

At the best of times, school funding is highly complex; a mix of complicated formulas, historical precedent and arbitrary deals. Reforms almost always increase the funding pie, but this shake-up doesn’t increase the pie so much as change the way it’s sliced up.

The formula itself isn’t being changed (as earlier Gonski reforms did), but there’s a new tweak in how much taxpayers should contribute on top of what parents tip in. That’s because taxpayers indirectly subsidise parents who choose non-government schools, making their fees lower than they would be otherwise – at least in theory.

The perennial problem has always been to get the subsidy right. If it’s too low, then fees go up, schools have fewer enrolments, and may have to close. And if it’s too high, then private school parents pay less at the expense of taxpayers – and, some argue, at the expense of public schools that would otherwise get more funding.

But the truth is the current subsidy isn’t well-targeted in assessing how much parents can and should pay and how much of the bill taxpayers should foot. One culprit has been the “area-based” approach – the subsidy depends on where parents live and how well off these areas are. That’s something the new system tries to fix, by adjusting the subsidy according to parents’ incomes, rather than what suburb they happen to live in.

Parents who choose schools with higher median incomes are expected to chip in more, as they should generally. And there’s no doubt this approach is far more precise than the old area-based one.

But the new “direct measure” approach is no cure-all either. First, the subsidy is based on the median parents’ income across the whole school, rather than what each parent actually earns.

Second, parents’ income level isn’t always the perfect guide to how much parents can afford to pay in fees – for some, assets or help from family members would make a better proxy. And third, parents’ incomes don’t necessarily measure a child’s educational advantages – which is what school funding ultimately is supposed to address in the first place.

For this reason, some regional schools stand to lose taxpayer support, since regional parents might earn relatively high incomes – particularly in mining and related communities – even if they haven’t studied since leaving school. High salaries may also be temporary for these households – riding on mining and agricultural booms – which might not reflect permanent wealth. This means that fees could rise and some schools may close.

But it’s not necessarily fair to call these failures of the new approach either. There are simply so many flaws with school funding that tweaking around the edges just won’t cut it. For a start, any subsidy should be paid to parents directly, not to schools. This would cut out the middlemen in administration who recalculate what goes to schools, irrespective of what the formula says.

The amount of subsidy should be based on each student’s and family’s needs, not their school’s needs. While the Gonski formula is notionally based on a child’s needs, it gets lumped in with other pots of cash. This means funding doesn’t necessarily flow to individual students to support their learning needs.

And the subsidy should be genuinely means-tested for each household, not the school’s median. We already provide welfare payments directly to households, adjusted to income and assets tests. Why not provide families with school-aged children a cheque each year equivalent to a basic, means-tested amount to spend directly on schooling?

Schools could then set their fees based on demand factors – like how popular they are and how much parents are willing to pay. Parental choice would keep these fees in check too, since schools with excessive fees will be less attractive to parents. And public schools could offer market-based fees too, perhaps with some regulation to make sure they remain within reach of locals.

Parents could choose to pay more than the cheque’s amount – much like they do already – but the subsidy would be better targeted. And parents might use the cheque to pay for additional out-of-school support too, especially if their child has particular needs that are hard to address in school.

That would be far more transparent, competitive, and efficient than anything currently on the table. It also levels the playing field between public and private schools. School funding can be improved – not by spending more, but by spending it more wisely.