Exposed: Private Schools caught in commonwealth funding rort

May 21, 2024
Money saving for kids, family financial wealth management concept : Dollar or cash in hemp bags or burlap sacks and a white paper cut (dad, mom and son) on wood balance scale. Green nature background.

The increasing number of Grandparents paying private school fees has enabled elite schools to evade Commonwealth parent income tests determining the rate of taxpayer funding that goes to society’s most wealthy and least in need students.

Some private schools have acknowledged that many grandparents pay school fees. In effect, this is an admission that they are over-funded by the taxpayer because payment of fees by grandparents is not counted in the assessment of the need for government funding. This assessment is based just on the capacity of parents to pay the fees. The result is that private schools are over-funded by governments by even more than shown by official figures.

A story published in the Sydney Morning Herald on 10 May reported two elite private schools admitting that many grandparents paid the school fees for students.

A spokesman for St Joseph’s College said: “…we have seen an increase in recent years in grandparents wishing to support their grandchildren through high school by providing financial assistance with school fees.” The headmaster at Knox Grammar said: “Anecdotally, Knox has always had a number of grandparents paying fees, and that number is probably increasing with changes in how people invest”. He also said that grandparents also paid for other items such as excursions.

In 2022, St Joseph’s College received $9 million in taxpayer funding: $6.6 million from the Commonwealth and $2.4 million from the NSW Government despite an average family income of over $260,000 and 85% of its students being from the top two socio-educational advantage (SEA) families. Knox Gramar received $13.3 million in government funding including $9.3 million from the Commonwealth and $4 million from the NSW Government despite having an average family income of between $235,000 and $260,000 and 94% of its students from the top two SEA quartiles.

It is difficult to estimate the extent to which grandparents pay school fees. However, surveys by financial services firms indicate that a significant proportion do so. For example, the industry superannuation fund, REST, found that almost one-third of grandparents use their superannuation to pay school fees for grandchildren. A survey by the education finance company Edstart, found that only half of families with children in private schools can afford the fees from their income, so it is hardly surprising that grandparents are helping. In 2018, another financial services company, Alpha Advisors, reported that 60% of private school students have their fees at least partly paid by their grandparents. The Sydney Morning Herald story last week also reported that a Melbourne wealth management firm said that 70% of its clients are paying school fees for their grandchildren.

Commonwealth Government funding of private schools is based on the capacity of families to pay fees as measured by parent income. It does not take account of fee payments by the “Bank of Mum and Dad”, that is, the “Bank of Grandma and Grandpa”. This failure means that the capacity of families to pay fees is under-estimated and that private schools are highly over-funded by the taxpayer, even more than official figures show.

Commonwealth funding of private schools also ignores other income provided directly or indirectly to families. The Bank of Mum and Dad provides a steady stream of income to more advantaged families for things such as money for home deposits, cars, household assets, childcare, etc. that frees up family income so it can be spent on school fees.

For example, money provided to adult children by the Bank of Mum and Dad is a substantial addition to family income. It was reported recently that many parents are giving their children an early inheritance to enter the housing market. It said financial gifts for house purchases usually range between $200,000 and $300,000. Some parents even purchase a house outright for children. It is virtually impossible to measure the extent of the Bank of Mum and Dad, but as one report noted, it is “visible on auction floors every weekend as many buyers walk away with the keys thanks to family backing”.

According to Finder’s, a financial services company, more than 60% of first home buyers in Australia receive some form of financial assistance from their parents to buy their first home. Finder’s estimates that the Bank of Mum and Dad is worth about $35 billion for home purchases. It ranks among the top 10 home lenders in Australia.

The failure to take account of all the income provided to families by the Bank of Mum and Dad means that the capacity of families to pay school fees is vastly under-estimated and that private schools are highly over-funded by the taxpayer.

This is not the only defect in the funding model for private schools. Another major flaw is that it ignores other sources of income and wealth of private schools including donations to tax deductible building, library, arts and scholarship funds and income from investments, rental properties and hire of facilities such as aquatic centres. Private schools rake in hundreds of millions of dollars from these sources. For example, figures obtained from the Australian Charities and Not-for-profits Commission show that 50 private schools received $611 million in donations and investment income over five years from 2017 to 2021.

None of this income is taken into account in assessing taxpayer funding of private schools. Together with the failure to take account of family income received from the Bank of Mum and Dad, it means that private schools, particularly the elite schools, are vastly over-funded. The funding model introduced by the Morrison Government is a complete perversion of the Gonski principle of funding according to need.

A complete overhaul of this failed funding model is long overdue. It is a model specifically designed to over-fund private schools. The Albanese Government should acknowledge that the funding model is unfair, incoherent and wasteful. It should commission an independent inquiry to design a better approach. It is not a matter of tinkering with the model. Basing the funding of private schools on the concept of parent capacity to pay is fundamentally flawed. The problems associated with this approach are insuperable because it ignores other income and assets of families and schools.

A new model for funding private schools is necessary to ensure they are funded solely on a needs basis. The basic principle behind government funding of private schools should be that no school operates with less total resources than a community standard necessary to provide an adequate education for all students. Governments have the responsibility to ensure that children should not be deprived of an adequate education because their parents enrol them in under-resourced schools.

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