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The Myth of School Choice: the Economics of Independent Schools and Australian Government Policy

We are wasting money on education. The debate continues to focus on what happens during the school years and within the classroom despite evidence that what makes the difference is the experience in the first few years of life when major brain development occurs and cognitive gain is greatest. The presence of books in the home, the opportunities the very young child has to engage in stimulating and diverse experiences and the degree of contact the mother has with the child in the first couple of years as well as the physical environment are critical. That is supported by the recent study by Hong Son Nghiem and colleagues reported elsewhere.

Just as economic growth is not irrelevant to improvements in education, health and human services – cross border transfer of ideas is the principal driver – so schooling is not irrelevant to gains in education but it isn’t the most important contributor. Education won’t fix poverty, something made clear by US researchers such as Jean Anyon[1].

Once the child enrols in school, more time is spent on activities outside school, where family members and peers have influence. And where the child is free to develop their own view of things, to gradually build up their view of how the world seems to them. Increasingly aspirational parents encourage children to participate in a wide range of activities to the near exclusion of play activities with friends – activities which enlarge the child’s understanding of how the world works – and schools continue providing substantial amounts of homework which itself is of doubtful relative value. To understand this just watch young children at play!

Over the period of school education the main area where money is being wasted is in support of independent schools. In a democratic society if parents wish to send their children to a school that is not part of the public (government) system that ought to be their right. The extent to which such schools are regulated along the same line as public schools could be an issue.

The extent to which the qualifications gained by the students are accepted in the community for further education and employment ought to be a determining factor along with the contribution made in areas such as preparation for full participation in the community and realisation of the individual’s full potential. But that is no reason why governments should pay the cost of non-public schools in the absence of reliable evidence that the education gained is superior and the cost is of benefit to the community in the longer term. In countries other than Australia governments very seldom pay the costs of non-government schools.

In Australia, during the period 1973 to 2012 634,068 students were added to the enrolment of non-government schools, as reported by Lyndsay Connors & Jim McMorrow of the Faculty of Education and Social Work at the University of Sydney.[2] According to Connors and McMorrow, enrolment of the additional students in the public system would have resulted in increased recurrent costs to government in 2012 prices of approximately $7.4 billions. In fact the extra cost to government, that is the taxpayer, of sending the students to non-government schools was around two  billion dollars or just over $3,100 per student.

There is in some countries a long-running campaign demonising public schools and their teachers. It asserts that too many bad teachers are retained beyond what happens in other professions and unions are claimed to inhibit improvement. In the US influential philanthropic foundations such as the Walton Family Foundation support this propaganda and help fund charter schools outside the public system. The funding of US public schools based on the local taxes of the area diminishes resources for schools in poor neighbourhoods leading to a high degree of inequity. The OECD in its PISA reports has criticised that very strongly. The US authorities have taken no action: charter schools continue to be supported as part of ‘Race to the Top’; and a new program, ‘Common Core’ mandating a uniform curriculum tied to standardised testing, has been installed.

Unfortunately, education, in many countries including Australia, is now treated as a path to economic success rather than a preparation for a fulfilling life. Learning “core competencies” is privileged over creative exploration of new opportunities. That means that the most important outcome of education, the enhancement of creativity, is marginalised: it is that which contributes both to the enjoyment of life’s experiences and significant economic gains and so to the development of the individual, the family and the community.

Let us remind ourselves of the purposes of education and specifically the purposes of schooling. They have been summarised by education academic Alan Reid (as quoted by Connors & McMorrow) in the following terms:

The approach to schools policy however is all bound up in the current economic orthodoxy which most governments follow blindly as if an economy is a society.

In Australia the dominance of ideology over evidence is demonstrated by the Commonwealth Government’s funding of school chaplains, by direct tied grants to the states because the High Court said the Commonwealth Government was not entitled constitutionally to do so. And it is also demonstrated by Minister Pyne’s funding of Direct Instruction, a process whose educational efficacy has scant support from research evidence.

Some advocates of independent schools claim their payment of fees to those schools amounts to double “taxation”. Connors and McMorrow have this to say:

Those who argue that this shift of enrolment share to the non-government sector has saved public spending, generally base their argument on a comparison of total enrolments in non-government schools with ‘average recurrent costs’ in government schools [as asserted by Kevin Donnelly in the Sydney Morning Herald February 4 2014]. This is, of course, a grossly hypothetical assumption. For a start, it relies on the assumption that the average costs are comparable across all sectors, and ignores sector differences in student profiles. It also ignores the savings in recurrent funding that could accrue to government from the economies of scale that would apply if there were one large system in each state, rather than a scatter of uneconomic government and non-government schools. Other financial savings might also result from the more cohesive planning and sharing of teachers, professional development, buildings, equipment, technologies and transport that would be possible within a single sector.

As pointed out above, independent school enrolments don’t save taxpayer money, they increase it!

I’m reminded of the comedy sketch by John Oliver on the Daily Show in which an advocate against gun control in the US, Philip Van Cleave of the Virginia Citizens Defense League, is asked about the success of the actions taken by Australian Prime Minister John Howard (after the Port Arthur massacre) to reduce gun ownership in Australia. The response by Van Cleave is to assert that Australia is not part of the real world!


A decade of Commonwealth Government support for Independent Schools

Cobbold has drawn attention to the massive disparity in funding for private schools resulting particularly from the Howard Government’s policies of support for independent schools. He has most recently concluded, “In general, there is no case for governments to fund private schools to a level beyond what they are prepared to fund public schools. However, government funding enables some 1,400 private schools to have more resources than public schools. It costs the taxpayer about $3 billion a year that would be far better spent on supporting disadvantaged public and private schools.”

Cobbold shows that 217 private schools in Australia have incomes from fees and private donations exceeding the average income per student in public schools: these schools in 2013 received $1.02 billion in funding from governments, Commonwealth and State, 70% of which was from the Commonwealth. Thus the funding of these wealthy schools was $25,696 per student (of which $5,214 was from government) compared with $12,576 per student in public schools.

The wealthy private schools have a higher proportion of students from more advantaged families, the average ICSEA (Index of Community Socio-Educational Advantage) score being 1162 compared with 1003 for public schools other than special schools.

Cobbold points out “Federal and state governments could make considerable savings which could be re-invested in disadvantaged government and private schools. Increasing resources for disadvantaged students would do more to improve national levels of educational achievement… The extra resources provided by governments is mostly 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.”

He concludes, “There is no sustainable case for continuing to provide taxpayer funds for schools which enables them to be better resourced than government schools, apart from the unusual circumstance where a private school has a higher proportion of disadvantaged students than the average for public schools… The over-funding of private schools has not produced better school results.”


The Commonwealth continues its equivocation

In Australia Commonwealth Government support for private schools continues and Prime Minister Malcolm Turnbull continues the policy announced by Tony Abbott (in contradiction of the pre-election pledge of no cuts to education (or health)) of withdrawing support for the funding model proposed by the Gillard and Rudd governments to resource schools on the basis of need. That is the principal recommendation of David Gonski’s report (and incorporated in the National Plan for School Improvement).

Two state governments – those of New South Wales and Victoria – have pledged to provide funds in accordance with the agreement they signed with the former government following the Commonwealth’s withdrawal from the Labor government’s funding commitment.

The Turnbull Government maintains there are not sufficient funds available. Cobbold strongly disputes this, both on the basis of the excessive funding to private schools (as outlined above) and more particularly the substantial tax advantages, or “tax expenditures” provided to the already advantaged which, if eliminated or substantially reduced, would be more than sufficient to cover the funding of the Gonski proposals, and much more.

Cobbold, a former Productivity Commission economist, has claimed that the Commonwealth Government has a “massive potential revenue to fund Gonski”. He estimates tax concessions to high income earners, not even counting tax minimisation, totals $23 billion; he estimates tax evasion at $6.2 billion. “The funding needed to finance the average $3.5 billion a year for each of the last two years of Gonski is only 10% of the total tax revenue foregone annually.”

Australia has one of the highest tax expenditures in the world according to the International Monetary Fund: it tops the list of 16 OECD countries with tax expenditures amounting to 8.5% of GDP. The tax concessions include superannuation of $16.3 billion, capital gains $4.7 billion, negative gearing (writing off expenditures incurred in renting property) of $2 billion. And Australia is a low tax country, contrary to prominent claims by business lobbies, ranking 29th out of 34 OECD countries in terms of tax to GDP ratio in 2013, according to published statistics.

The Coalition government is undeterred. Education Minister Birmingham continues to maintain that what is important is high quality teachers (meaning what exactly?) and devoting more funds to education is not the issue since achievement levels have declined despite substantial increases in school funding. In a speech to the Independent Schools Council of Australia on March 15 Birmingham sought to put the responsibility for school funding on the states and asserted that the Commonwealth had been “doing the heavy lifting” in funding schools over the past decade. (Anyone who wants to chase down the expenditures and the needed adjustment to recognise the effects of inflation knows that the claim of substantial additional schools funding is weak!)

Birmingham “blasted state governments for having the “gall” to complain about an education funding crisis when they have failed to invest in their own schools”. (Does the heavy lifting include substantially reducing university and vocational education funding and opening the sector up to private participation which has meant an accumulated debt of billions of dollars in fees advanced to prospective students enrolled (more properly corralled) in private colleges offering courses of dubious quality and then collapsing financially?)

Quite simply his claims, like those of Christopher Pyne before him, are complete nonsense. As Australian Education Union President Correna Haythorpe pointed out (as reported by Mathew Knott in the Sydney Morning Herald for March 15 2006), the coalition government had tried to stop funding agreements which required coinvestment from states. Birmingham conveniently “forgets” that Pyne had said, on becoming Minister for Education, that the Commonwealth government did not intend to tell the states how to spend their money as he handed out money to Queensland, Western Australia and the Northern Territory.

The farce that is the school education funding debate

The debate emerged into farce at the end of March 2016 as Prime Minister Turnbull suggested that the states take over complete funding of public schools! When the Council of Australian Government Ministers (COAG) refused to endorse the proposition that states should raise their own taxes (and so fund education and health), Turnbull retreated to his former position of government having to restrain expenditures within available revenues.

In a statement released after the COAG meeting Turnbull said the Commonwealth was not wedded to “the full Gonski”, stating, “the funding commitment made by the Gillard government was put forward under “barely credible” circumstances”. This repeats earlier claims, the contradictory assertions made by the Coalition about Gonski and funding.

It has been made clear time and time again that the Labor government initially included funding for the Gonski reforms in its forward estimates, through redirection of funding from other programs, but when Queensland, Western Australia and the Northern Territory refused to sign up to the agreements, the funds which would have gone to them were withdrawn since provision in the forward estimates was no longer appropriate. Ever since coming to office the Coalition has used that to claim that the Labor Government did not include sufficient funding for the program; it has continually asserted that it – the Coalition Government – was in fact increasing its funding for education which it is, but not by the amount or in the manner intended by the former government.

Minister Birmingham, commenting on Turnbull’s proposals, pointed to the “funding for Government schools at about $6.8 billion”. “So, you actually create a situation where the states and territories, if they chose to, could fully implement the Gonski model if that’s what they wanted to do. Or they could invest more in preschool and early childhood education.”

Dr Ken Boston, a member of the Gonski Panel, former director-general of the NSW Department of Education and head of the UK’s Curriculum Authority, described the Prime Minister’s proposal that the states and territories directly fund all public schools and the Commonwealth fund private schools, as “the worst of all possible worlds” which, “if acted upon would harm children in the country’s neediest schools”. The Commonwealth had, he said, “a major responsibility for the national education system … schools funding should be needs-based and sector blind”. The coincidence of increasing spending and declining achievement was due to money not being spent strategically. Money was “being spent in schools that don’t need it, on things that don’t matter.”

Australian Education Union Deputy President Maurie Mulheron described Turnbull’s proposal as a betrayal and Labor Opposition Leader Bill Shorten categorised it as abandoning students.

The Coalition government’s own “blueprint”, its Green Paper on reform of the Federation pointed out that the proposal to have the states fund public schools and the Commonwealth fund only independent schools could “create a more unfair system and “perverse” incentives for cost shifting and lead to very different funding models being applied across the states and territories and between the government and non-government sectors, leading to differences in the level of public funding for schools with similar population characteristics.” That would likely “limit state governments’ ability to effectively regulate non-government schools and … undermine the considerable degree of cooperation across the schooling sectors that has built-up over many years”.

The Government’s own Commission of Audit recommended that the states take responsibility for funding all schools: the Green Paper considered that would provide “absolute clarity” about who is responsible for schools, promote better service delivery, provide more budget certainty and allow better planning.

The extremely disturbing element in this argument is that the only issues being discussed are the well-worn arguments that what matters is how money is spent and teacher quality is the major issue: on the latter there is minimal elaboration and next to no understanding. It is as if the success of schools rests primarily on who funds them. It does not! Teacher quality, so it is asserted, can of course be fixed simply by having all teacher gain more qualifications and pass proficiency tests! More accountability!

In fact, in education as elsewhere, success rests on agreement between stakeholders on policies and standards and, in particular, pursuit of demonstrated, and agreed, best practice, in this case in the learning environment and in the school organisation. And, what is not mentioned, it rests on support for early childhood! That requires consideration of parental leave arrangements which is foolishly being pursued mainly in the context of workforce participation and economic growth, not as a way of helping prepare young people for a schooling and eventually a fulfilling life.

The entire argument has been dragged down to what the players think they know most about: money! What is clear is that in fact they have no idea as to how to allocate the funds strategically. Instead, they have engaged in a massive waste of money over decades as well as failing to repair a system described by one observer as comparable with the construction of different railway gauges in every state. Another example of people who know nothing about the system making the decisions.

Addressing the future of Australia as a Nation simply by examining financial responsibility ignores the fundamental issues which have continued to plague the country: it has placed those who believe they know about money in charge in preference to those who know about the issues! It is irresponsible and deceptive.

Achievement levels of Australian students as assessed by standardized tests have been declining, as they have in a number of countries. However, Australia’s achievement levels are still well above the average in PISA surveys, and above that of many European countries. What is extremely disturbing in Australia, and which PISA reports have consistently drawn attention to, is the wide disparity in achievement related especially to socioeconomic background. That has been traversed above. It is that to which the Gonski recommendations are addressed. To ignore that is to simply favour the already advantaged in the community!

The entire exercise implicit in Prime Minister Turnbull’s proposals is based in naivety, on the proposition that if you – in this case the states – have to earn the money you will spend it more wisely. Moreover that the states currently do not manage their expenditure responsibly because they find it easier to go to the Commonwealth to bail them out. It is a nonsense!

That is not to deny the annual round of grandstanding and pleading that is the annual discussions between Commonwealth and States. It is simply to assert that the States by asking the Commonwealth for money are inherently irresponsible. As if they were adolescent children able to go out and earn their own money but were too lazy to do so, as if they need to be punished because they haven’t tidied their room. Its like comparing government financial management to household budgeting: it might be thought easier for the average person to understand – which is condescending – but it is wrong.

The funds the Commonwealth manages are taxes paid by citizens of Australia and collected by the Commonwealth! The states do raise additional funds for part of their activities, they do face the electorate over the expenditure of those funds and they do face the dubious judgements of rating agencies in judgements on their financial situation. And they have faced the outcomes of “New Public Management” and its destructive downsizing of government and stripping out of expertise as the best staff leave each year as “efficiency dividends” take hold. The result? Decreasing ability to provide expert advice, manage contracts for outsourced programs and a plethora of consultants, as shown by the Australian Financial Review’s Laura Tingle in her Quarterly Essay Political Amnesia and by various reports from the Centre for Public Policy and others.

The problems of government intervention are not resolved by determining that one government should prevail over others. The problem is government involvement itself which unless carefully structured, can descend into centralised control, an exercise of power. Centralised control of complex matters doesn’t work, something that politicians in many domains simply refuse to accept. The Turnbull government’s arguments are ones made by persons with only the most basic understanding of economics and human behavior! And history!

In late April Trevor Cobbold excoriated the stance taken by the Commonwealth Government in proposing they continue funding independent schools whilst the states took responsibility for public schools. Cobbold branded the statements made by Prime Minister Turnbull – that he was “totally committed” to funding public education – and Minister Birmingham – that “the Turnbull Government is not abandoning schools and or public education and has never proposed doing so” – as “highly misleading”. The statements are “a sleight of hand that ranks with Tony Abbott’s and Christopher Pyne’s 2013 pre-election big lie that the Coalition was on a “unity ticket” with Labor on school funding.”

The COAG meeting which rejected the proposal for the states to levy income taxes agreed to consider the Federal Government sharing personal income tax revenue with the states in return for reducing the number of tied grants to the states. As Cobbold points out this would mean that the states “would not be required to spend it on specific purposes such as education. Under this proposal, there would be no targeted federal funding of public education as there is now, and has been for the last 40 years. It would be up to the states to decide how to spend their share of personal income taxation. In the extreme case, they could decide not to spend any of it on public schools.”

Assistant Treasurer Kelly O’Dwyer made the ridiculous statement that “It seems to make a lot of sense that the States should be fully accountable and responsible for education”.

Is Australia a Nation? Is the Pope a Catholic? There is a fundamental point here which is at the heart of the arrangements under which the Australian Federation works and it has never been solved: it is as corrosive as the ongoing arguments about the nature of the European Union and its internal economic policies and whether the United Kingdom would remain part of it. The same question about the meaning of nationhood can be posed in respect of several other countries, not all of which are former colonies!

Cobbold concludes that the proposal would have profound and damaging effects and would be a national disaster.

It is likely to reduce the prospects for disadvantaged students and exacerbate inequity in education. It would most likely increase resource disparities between public and private schools. It would compound the inconsistency and incoherence of school funding in Australia so heavily criticised by the Gonski report.

“It would dramatically reverse the bi-partisan and nationally co-operative approach that has existed for over 40 years, whereby the Federal Government has provided important funding support for disadvantaged and Indigenous students, the large majority of whom attend public schools.

“It would make public school funding even more uncertain than at present. “There can be no guarantee that public education’s current share of funding will be maintained in the future, let alone increase to meet student needs. Indeed, the proposal could lead to even further reductions in state funding of public education.”

So! An inquiry into school funding by a panel chaired by a distinguished business person, comprising experts and citizens with very different backgrounds and views, spends years inquiring into the funding prevailing in Australia’s schools and reports to the Government. Months go by before the Gillard Government decides what to do. When it eventually does, it is not completely what the Panel recommended but it encompasses many of the main points and it gains bipartisan support and endorsement within the community, especially from educators and researchers. And now the most superficial consideration, not of the nature of schooling or the disparities, or the possible solutions that might address the problems identified, but a recommendation by a Commission of Audit established by the incoming Prime Minister together with the already formed view of ministers who show no evidence of having read the Panel’s Report or any of the commentary, is front and centre of education policy. Is this the way the future should be decided?

In commentary on the Commission of Audit, which was chaired by Tony Shepherd, one-time President of the Business Council of Australia, former head of the London-based independent think tank Demos Tom Bentley, said, “The Coalition is deliberately bastardising the treasury-inspired advice that “something must be done” about the budget, and using it as cover to introduce ideological priorities that it did not reveal before the 2013 election. Tony Shepherd, head of the Commission of Audit, has willingly volunteered to play the stooge.

“The bluster from Maurice Newman [advisor to then Prime Minister Tony Abbott] and Wesfarmers head Richard Goyder is, frankly, repugnant. Who does Goyder think buys his groceries? Where is the big red hand? How about “Down, down, pensions are down!” as the next Liberal campaign slogan? Is he seriously trying to tell us that moving the aged pension and public funding for schools to the same “junk bond status” currently enjoyed by the NewStart allowance is an investment in Australia’s future economic productivity? He should be shamed by the public.

Of course Bentley was once Julia Gillard’s Deputy Chief of Staff.

Author and economics commentator Greg Jericho called the Commission of Audit the triumph of ideology over evidence. “The Commission of Audit is a rare example of a government attaching itself to a document that appears to hate Australia. Its recommendations start from a premise that the Australia which has become the envy of the world needs to be drastically changed. Notions of equality and fairness which have underpinned our health, education and welfare systems would be replaced with a view that efficiency trumps all.”

The Australia Institute found it deeply flawed. Those who considered the report positively were of the view that spending was unsustainable: they did not consider unsustainable a failure to invest in health, education or address economic or social disadvantage!

The recommendations of the Commission of Audit informed significant aspects of the first budget of the Abbott Government. As others have said, advance Australia Fair. But where?

Expenditure on Education is an Investment

In early April 2016 the Victorian Minister for Education, the Hon James Merlino, released the review of Government School Education by former Premier Steve Bracks. The review, Greater Returns on Investment in Education, has some interesting recommendations. A base allocation to every school with loadings for disadvantage in accordance with the Gonski model is the centerpiece: both Commonwealth and State have to honour their commitment to that model and failure of the Commonwealth to do so – by not funding years five and six of the agreement – would mean Victoria would have to rethink its decisions.

Bracks emphasises directing funding to “a long term reform strategy for improving student outcomes, with evidence based annual budget submissions and transparent [and simpler] reporting”.

Improved collaboration and innovation between schools, including better sharing of information about how schools are funded, their performance and ‘what works’ and encouraging smaller schools to consider partnering with nearby schools, are recommended. High performing teachers should be encouraged through “new incentives” to work in disadvantaged schools.

An annual program of strategic audits to report on effectiveness of resource use – with findings made public – and “establishing an Education Performance Monitor to drive student improvement and inclusion” are also recommended as is increasing principal salaries “to encourage improved performance”. New funding formulas including rural, indigenous, health and wellbeing and school size loadings, to improve outcomes for our most vulnerable students are proposed.

Rather than developing (presumably financial) incentives, thought ought to be given to what has happened in Canada (and some other countries) where additional support staff are brought in to assist teachers of classes with special needs. (That is something already happening with Gonski funding in many schools as mentioned below.) Performance pay – extra money for principals to encourage performance – does not produce better outcomes by professionals like principals and teachers.

The Victorian Government will consult with teachers, principals and parents before determining its response to the review. That the commitment to fund the needs-based Gonski model is critical is clear and the Commonwealth position as announced by Turnbull after the April COAG meeting can only be condemned.

The recommendations on collaboration between schools are important: one might recall the impact of the business model imposed on New Zealand schools which set every school up to compete against every other and virtually wiped out teacher collaboration across schools as Cathie Wylie, chief researcher at the Council for Education Research reported.[3]

Those reforms were the result of concerns about parents perceptions of the way schools were responding to their needs and of inadequate school management! The context was an overarching policy driven by a Treasury commitment to neoclassical economics and its promotion of competition as the driver of increased efficiency! Fortunately, the Bracks review has not gone down that path.

[1] What “Counts” as Educational Policy? Notes toward a New Paradigm. Harvard Educational Review, 75: 65-88, 2005

[2] Imperatives in Schools Funding: Equity, sustainability and achievement, Australian Council for Educational Research (ACER), Camberwell 2015.

[3] Vital Connections. Why we need more than self-managed schools, NZCER Press, Wellington 2012