JOHN THOMPSON. Private schools don’t pay rates and taxes.Oct 1, 2018
While most attention is focussed on the level and distribution of funds paid directly to non-government schools by the Commonwealth Government, little attention is given to the very substantial financial concessions and benefits that the private school system obtains from all levels of government in Australia. The millions of dollars of revenue foregone by local, state and Commonwealth Governments in relation to non-government schools as a result of their anachronistic status as charities are simply not taken into account when funding decisions are made. This post uses one Victorian municipality to identify the type of financial benefits provided to private schools by all levels of government in Australia and indicates the scale of such benefits.
Boroondara City Council is a large municipality in Melbourne’s inner and middle eastern suburbs, five kilometres east of the central business area. With an area of about 60 square kilometres and a population of approximately 160,000, it is primarily residential in nature and a generally sought after place to live. Property values are relatively high compared to the rest of Melbourne.
There are 24 non-government schools in Boroondara distributed across the suburbs of Balwyn, Kew, Canterbury, Camberwell, Hawthorn and other suburbs. These schools range in size from the sprawling Scotch College down on the Yarra River in Hawthorn on about 27 hectares to a few schools on relatively small sites like the compact Lady of Good Counsel Primary School in Deepdene on about 0.65 hectares.
Most of the non-government schools have ovals, playing fields and other outdoor spaces. The main campus of Xavier College in Kew, for example, occupies in total about 15.6 hectares of which about 10 hectares provide ovals, tennis courts, cricket fields and soccer pitch. (Xavier College has another campus in Kew. This second campus is about 6 hectares and also enjoys a range of sporting facilities.) The sporting facilities and open space areas of the non-government schools are for the private use of the schools. Open space facilities at government schools are available to the surrounding community.
All of the non-government schools are located on land zoned for residential purposes and the sites are therefore very valuable assets. Specific valuations of the land occupied by the 24 non-government schools in Boroondara have not been obtained but estimates have been made on the basis of information provided by the real estate industry in the area. Methodist Ladies College in Kew, for example, occupies about 7.2 hectares. If the school were to be considered for residential purposes (its zoning use), approximately 120 single residential properties would be available. Advice suggests that the unimproved capital value of those properties would amount to about $250 million. Schools on residential zoned land of similar area such as Carey Baptist School and Genazzano FJC School would have land assets of similar value. Thus the 24 non-government schools in the city are located on residential zoned land valued at considerably more than a billion dollars.
Private schools are not required to pay municipal rates or land tax even though their facilities are not available to the general community. As a result, the municipal council concerned (Boroondara City Council in this case) does not derive any rates from this large area of land occupied by a significant number of schools. (Of course, government schools are similarly not subject to such land charges, but unlike private schools, their facilities are expected to be available to their local community.)
Some schools are purchasing adjacent or nearby residential properties and, provided the acquired properties are used for school-related purposes, they cease to be rateable on purchase. Scotch College, for example, has purchased all the residential properties in Morrison Street, Hawthorn, and has now purchased 11 of the 27 residences in nearby Hambledon Road. The recent purchase of one residence was for $3.2 million, $1 million above the reserve price.
So while Boroondara Council is foregoing millions of dollars of rates each year in relation to the properties owned by non-government schools, the council is nevertheless required to meet many of the costs that such schools impose on the community. For example, a large proportion of the student population of the non-government schools do not live in the municipality and are driven to their school or are transported by bus to school. However, the traffic management and parking requirements of this quite substantial traffic volume is the responsibility of the council.
The Victorian Government is also foregoing substantial land tax revenue and stamp duty on transfers of land ownership. Land tax is levied on a varying scale on properties having a land value of more than $250,000. It is unlikely that there are any schools in the municipality with land valued at less than $1 million at which value the rate is $2,975 plus 0.8% of the amount above $1 million. Properties with land valued at more than $3 million and less than $1.8 million attract land tax amounting to $24,975 plus 2.25% of the amount above $3 million. Thus if the land that is currently occupied by a school such as Gennazano FCJ was owned by private interests, it is likely that the Victorian Government would derive annual revenue of more than $5 million that is currently not received. The total land tax foregone by the Victorian Government in relation to the non-government schools amounts to many millions of dollars in that particular municipality alone.
Further substantial revenues are foregone by the State Government in relation to land transfer taxes (stamp duty) when non-government schools buy properties. These taxes are also levied on a varying scale depending on the value of the transaction. Most property sales in the municipality involve land values of more than $1 million, at which level of value the tax is 5.5% of the property transaction amount. So in the case of the property purchased for $3.2 million by Scotch College that was mentioned above, the Victorian Government had foregone $176,000 on that transaction alone.
In Victoria, non-government schools are determined to be exempt organisations in respect of payroll taxes. These taxes are levied on the wages and associated benefits of all employees of non-exempt organisations in Victoria with wages expenditure of more than $52,083 per month. The rate of payroll tax levied is 4.85% of the total wages paid. (A lower rate applies to organisations in regional areas.) This exemption is clearly very advantageous to private schools, many of which would otherwise be required to pay very large sums to the Victorian Government. Scotch College, for example, with an annual wages bill of about $37 million (2016 report to NAPLAN), would be liable for about $1.8 million per annum.
The Commonwealth Government has exempted private schools from the requirement to pay the Goods and Services Tax (GST). In its 2014 report entitled ‘How to extend the GST without hurting the poor’, the Australia Institute indicated that the Commonwealth Government forewent GST revenues of $790 million per annum otherwise payable by private schools. The Institute also provided advice that removing private schools from the exemption to pay GST would make the GST less regressive. This is because these school services make up more of the average high-income earners’ expenditure than that of low-income earners.
In summary, non-government schools receive very substantial financial benefits and concessions in addition to considerable State and Commonwealth grants. These concessions are known as ‘tax expenditures’. It is important for all levels of government to consider the nature and level of tax expenditures for non-government schools when determining the level of direct government funding they should receive.
John Thompson is an economist with experience in primary health.