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Australian Education Amendment (Direct Measure of Income) Bill 2020

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2019-2020

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

australian Education Amendment (DIRECT MEASURE OF INCOME) bill 2020

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Minister for Education,

the Honourable Dan Tehan MP)



australian education amendment (DIRECT MEASURE OF INCOME) bill 2020

 

OUTLINE

 

The Australian Education Act 2013 ( the Act ) came into effect on 1 January 2014, and is the principal legislation for the provision of Australian Government funding for schooling.

 

The purpose of the Australian Education Amendment (Direct Measure of Income) Bill 2020 ( the Bill ) is to introduce a new, more accurate direct measure of income methodology ( DMI methodology ) for calculating a school community’s capacity to contribute financially to a non-government school. To ensure that schools are not adversely affected financially by these changes the Bill also enables adjustments to be made to the transition pathways of non-government schools to a nationally consistent Commonwealth share of the Schooling Resource Standard ( SRS ).

 

Australian Government funding for non-government schools reflects the policy that responsibility for funding non-government schools is shared between the Commonwealth, the state and territory governments, and the persons responsible for students attending those schools. The calculation of recurrent Commonwealth funding for non-government schools under Part 3 of the Act reflects this policy. The formula estimates the total public funding a school requires to meet the education needs of its students (commonly referred to as the Schooling Resource Standard, or SRS) and then calculates the Commonwealth’s share of that total public funding. Under section 35A of the Act, the Commonwealth share of the SRS for non-government schools is 80 per cent for non-government schools.

 

The SRS amount for a school is calculated by reference to a base amount for every primary and secondary student, along with six loadings that provide extra funding for disadvantaged students and schools. In the Act, the SRS is known as the base plus loading segment of the recurrent funding formula in section 32. For most non-government schools, the base amount is discounted by the ‘capacity to contribute percentage’ ( CTC percentage ), which is currently calculated by reference to the socioeconomic status ( SES ) score of the school. The capacity to contribute percentage estimates the anticipated capacity of the school community to financially contribute towards the school’s operating costs. This gives effect to the Australian Government’s policy that, for these schools, the base amount of public funding for a non-government school should be discounted by the CTC percentage that is calculated. Certain schools, including all government schools and ‘majority Aboriginal and Torres Strait Islander schools’ as defined in the Act, are exempt from this reduction in that their capacity to contribute percentage is set at zero under subsection 54(1) of the Act.

As the Act currently stands, the capacity to contribute of a school community is determined using an area-based SES measure which is used to derive an SES score for the school. The Act specifies the capacity to contribute percentage that applies for each SES score. SES scores are determined in accordance with the methodology set out in the Australian Education Regulation 2013 (the Regulation ). U nder that methodology, a school community’s capacity to financially contribute towards the operating costs of the school is calculated based on an averaging of certain indicators for each Australian Bureau of Statistics ( ABS ) Statistical Area Level 1 ( SA1 ) in which the students at the school reside, for which the residential addresses of students is collected. That is, the SES score for a school is based on an averaging of characteristics of all people residing in a certain geographical area (SA1), not just families of students attending the school. This was the best available data when implemented in 2001.

In June 2018, the National School Resourcing Board ( the Board ) completed a review into the existing methodology for calculating SES scores for schools, titled Review of the socio-economic status score methodology . One of the Board’s recommendations was that SES scores for schools should be calculated based on a direct measure of the income of the persons responsible for students in schools (for example, parents and legal guardians). The Board considered that such a measure would be a more fit-for-purpose, transparent, and reliable way in which to determine a school community’s capacity to financially contribute to a school. The Board identified that advances in government agency data linkages mean that income information does not need to be collected directly from parents and legal guardians in order to develop such a measure. The Board recommended further consultation with the non-government school sector and experts on the development of, and transition to, such a new direct measure for implementation from 2020. On 20 September 2018 the Australian Government announced its response to the Review. The Australian Government agreed to all of the Board’s recommendations.

Recent innovations mean that a better measure of a school community’s capacity to contribute, based on a more robust and reliable set of data, is now available. The new direct measure of income is a targeted, more accurate approach, ensuring funding flows to the schools that need it most. The Bill gives effect to the changes required to the calculation of financial assistance for non-government schools and rates of transition to the nationally consistent Commonwealth share under the Act. Over 2020 to 2022, schools will move to the new direct measure of income when it is most financially beneficial for them to do so. During 2020 and 2021, the capacity to contribute percentage of schools will be based on the best of one of three options including the current SES methodology, the SES methodology using more recent data and the new direct measure of income. This will allow schools time to plan and adjust to the new measure.

 

To provide schools with time to transition to the new measure, non-government schools which are transitioning down to an 80 per cent Commonwealth share of SRS will have an extension of two years, from 2027 to 2029. All non-government schools will also have their starting Commonwealth share reset from 2020 to 2022 to ensure schools are not unnecessarily disadvantaged by moving from the SES methodology to the new direct measure of income.

 

The Bill will also clarify the Commonwealth’s ability to make GST-inclusive payments under the Act where the recipients of those payments incur GST liabilities, in line with long-standing practice.



In summary, the Bill will:

 

·          amend terminology from ‘SES score’ to capacity to contribute or ‘CTC score’;

·          enable the Regulation to prescribe a new method for calculating a non-government school’s CTC score by reference to a direct measure of income of a school community;

·          enable the Regulation to alter the way in which the Commonwealth share for a non-government school is calculated, and alter the period over which that transition occurs, in order to manage any adverse financial impacts arising from the change in CTC score methodology;

·          broaden the definition of a ‘majority Aboriginal and Torres Strait Islander’ school and enable the Minister to make a determination that a school is likely to be a majority Aboriginal and Torres Strait Islander school for the year to avoid any unintended application of the capacity to contribute methodology; and

·          amend the Act to provide clear authority and appropriation to make GST-inclusive payments, where necessary.

The Australian Government is committed to delivering needs-based funding arrangements that ensure students with the same need in the same sector attract the same level of support.



FINANCIAL IMPACT STATEMENT

 

The Bill proposes changes to the capacity to contribute methodology and schools’ transition to the uniform Commonwealth share. The financial impact of these changes is an estimated additional $1.3 billion in Commonwealth recurrent funding over the Budget and forward estimates from 2019-20 and 2022-23, and an estimated $3.4 billion increase in recurrent funding over ten years from 2019-20 to 2028-29.

 

As a result of the changes, total Commonwealth recurrent funding for non-government schools will increase from an estimated $13.1 billion in 2020 to $19.1 billion in 2029 (an increase of 45.7 per cent with an average annual growth rate of 4.3 per cent). Funding arrangements for government schools are unchanged. Total Commonwealth recurrent funding for government schools will increase from an estimated $8.7 billion in 2020 to $13.4 billion in 2029 (an increase 54.2 per cent with an annual average growth rate of 4.9 per cent).

 

 

 



 

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

 

Prepared in accordance with Part 3 of the Human Rights

(Parliamentary Scrutiny) Act 2011

 

australian education amendment (DIRECT MEASURE OF INCOME) bill 2020

 

The Australian Education Amendment (Direct Measure of Income) Bill 2020 ( the Bill ) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill

 

The Australian Education Act 2013 ( the Act ) came into effect on 1 January 2014, and is the principal legislation for the provision of Australian Government funding for schooling.

 

The purpose of the Australian Education Amendment (Direct Measure of Income) Bill 2020 ( the Bill ) is to introduce a new, more accurate direct measure of income methodology ( DMI methodology ) for calculating a school community’s capacity to contribute financially to a non-government school. To ensure that schools are not adversely affected financially by these changes the Bill also enables adjustments to be made to the transition pathways of non-government schools to a nationally consistent Commonwealth share of the Schooling Resource Standard ( SRS ).

 

Australian Government funding for non-government schools reflects the policy that responsibility for funding non-government schools is shared between the Commonwealth, the state and territory governments, and the persons responsible for students attending those schools. The calculation of recurrent Commonwealth funding for non-government schools under Part 3 of the Act reflects this policy. The formula estimates the total public funding a school requires to meet the education needs of its students (commonly referred to as the Schooling Resource Standard, or SRS) and then calculates the Commonwealth’s share of that total public funding. Under section 35A of the Act, the Commonwealth share of the SRS for non-government schools is 80 per cent for non-government schools.

 

The SRS amount for a school is calculated by reference to a base amount for every primary and secondary student, along with six loadings that provide extra funding for disadvantaged students and schools. In the Act, the SRS is known as the base plus loading segment of the recurrent funding formula in section 32. For most non-government schools, the base amount is discounted by the ‘capacity to contribute percentage’ ( CTC percentage ), which is currently calculated by reference to the socioeconomic status ( SES ) score of the school. The capacity to contribute percentage estimates the anticipated capacity of the school community to financially contribute towards the school’s operating costs. This gives effect to the Australian Government’s policy that for these schools the base amount of public funding for a non-government school should be discounted by the CTC percentage that is calculated. Certain schools, including all government schools and ‘majority Aboriginal and Torres Strait Islander schools’ as defined in the Act, are exempt from this reduction in that their capacity to contribute percentage is set at zero under subsection 54(1) of the Act.

As the Act currently stands, the capacity to contribute of a school community is determined using an area-based SES measure which is used to derive an SES score for the school. The Act specifies the capacity to contribute percentage that applies for each SES score. SES scores are determined in accordance with the methodology set out in the Australian Education Regulation 2013 (the Regulation ). U nder that methodology, a school community’s capacity to financially contribute towards the operating costs of the school is calculated based on an averaging of certain indicators for each Australian Bureau of Statistics ( ABS ) Statistical Area Level 1 ( SA1 ) in which the students at the school reside, for which the residential addresses of students is collected. That is, the SES score for a school is based on an averaging of characteristics of all people residing in a certain geographical area (SA1), not just families of students attending the school. This was the best available data when implemented in 2001.

In June 2018, the National School Resourcing Board ( the Board ) completed a review into the existing methodology for calculating SES scores for schools, titled Review of the socio-economic status score methodology . One of the Board’s recommendations was that SES scores for schools should be calculated based on a direct measure of the income of the persons responsible for students in schools (for example, parents and legal guardians). The Board considered that such a measure would be a more fit-for-purpose, transparent, and reliable way in which to determine a school community’s capacity to financially contribute to a school. The Board identified that advances in government agency data linkages mean that income information does not need to be collected directly from parents and legal guardians in order to develop such a measure. The Board recommended further consultation with the non-government school sector and experts on the development of, and transition to, such a new direct measure for implementation from 2020. On 20 September 2018 the Australian Government announced its response to the Review. The Australian Government agreed to all of the Board’s recommendations.

Recent innovations mean that a better measure of a school community’s capacity to contribute based on a more robust and reliable set of data is now available. The new direct measure of income is a targeted, more accurate approach, ensuring funding flows to the schools that need it most. The Bill gives effect to the changes required to the calculation of financial assistance for non-government schools and rates of transition to the nationally consistent Commonwealth share under the Act. Over 2020 to 2022, schools will move to the new direct measure of income when it is most financially beneficial for them to do so. During 2020 and 2021, the capacity to contribute percentage of schools will be based on the best of one of three options including the current SES methodology, the SES methodology using more recent data and the new direct measure of income. This will allow schools time to plan and adjust to the new measure.

 

To provide schools with time to transition to the new measure, non-government schools which are transitioning down to an 80 per cent Commonwealth share of SRS will have an extension of two years, from 2027 to 2029. All non-government schools will also have their starting Commonwealth share reset from 2020 to 2022 to ensure schools are not unnecessarily disadvantaged by moving from the SES methodology to the new direct measure of income.

 

The Bill will also clarify the Commonwealth’s ability to make GST-inclusive payments under the Act where the recipients of those payments incur GST liabilities, in line with long-standing practice.

 

 

 

 

In summary, the Bill will:

 

·          amend terminology from ‘SES score’ to capacity to contribute or ‘CTC score’;

·          enable the Regulation to prescribe a new method for calculating a non-government school’s CTC score by reference to a direct measure of income of a school community;

·          enable the Regulation to alter the way in which the Commonwealth share for a non-government school is calculated, and alter the period over which that transition occurs, in order to manage any adverse financial impacts arising from the change in CTC score methodology;

·          broaden the definition of a ‘majority Aboriginal and Torres Strait Islander’ school and enable the Minister to make a determination that a school is likely to be a majority Aboriginal and Torres Strait Islander school for the year to avoid any unintended application of the capacity to contribute methodology; and

·          amend the Act to provide clear authority and appropriation to make GST-inclusive payments, where necessary.

The Australian Government is committed to delivering needs-based funding arrangements that ensure students with the same need in the same sector attract the same level of support.

 

Analysis of human rights implications

 

The Bill engages the right to education under Article 13 of the International Covenant on Economic, Social and Cultural Rights ( ICESCR ), Articles 28 and 29 of the Convention on the Rights of the Child ( UNCRC ), and the right to privacy under Articles 17 and 24(1) of the International Covenant on Civil and Political Rights ( ICCPR ), and Article 16 of the UNCRC.

Rights to Education

The Bill engages the right to education in Article 13 of the ICESCR. Article 13 recognises the right of everyone to education, which is directed towards the full development of the human personality and the sense of its dignity, and to enable all persons to participate effectively in society. The right to education recognises the liberty of parents and guardians to choose non-government schools for their children’s education, provided those schools conform to minimum educational standards required under the law. The right to education for children is also contained in Articles 28 and 29 of the UNCRC.

The Bill provides for a more targeted, more accurate measure of a non-government school community’s capacity to contribute to the cost of schooling. This measure promotes the right to education by seeking to implement a fit-for-purpose measure of a school community’s capacity to financially contribute to a school, to enable the better targeting of financial support for non-government schools in circumstances where parents and legal guardians may have less capacity to financially contribute to a school. This supports and ensures Australia continues to have functioning educational institutions that are available in sufficient quantity and receive sufficient Commonwealth financial assistance. These measures also support the liberty of parents and legal guardians to choose non-government schools for their children by ensuring non-government schools receive targeted Commonwealth financial assistance according to a school community’s capacity to financially contribute to a school. This will support parents and legal guardians of various socioeconomic backgrounds to select non-government school tuition for their children.

The Bill also promotes the right to education by providing schools time to adjust to the new direct measure of income so schools can continue to financially plan and ensure Australia can continue to have functioning and well-resourced educational institutions.

The Bill also expands the circumstances in which a school may be regarded as a ‘majority Aboriginal and Torres Strait Islander school’ under the Act. This has the potential to further enhance the right to education as it means more schools may be eligible to receive a CTC percentage of zero. Having access to this is beneficial as it means the base amount of recurrent funding is not discounted by an amount to reflect the capacity of the school community to contribute financially to the school.

The Bill is compatible with and promotes the right to education.

 

Right to Privacy

 

The Bill engages the right to privacy in Article 17 of the ICCPR as the DMI methodology will use personal information about students and persons responsible for students (for example, parents and legal guardians), which will be disclosed to the Australian Statistician (i.e. the ABS) in accordance with the Regulation.

 

The development of a direct measure of income commenced in 2018. As part of this work, the Australian Government amended the Regulation in 2018 to require the provision of the additional information specified in section 58B to the then-Department of Education and Training. This additional information included the name and residential address of each person responsible for students. Two collections of this additional information have occurred (2018 and 2019). Section 21 of the Regulation continued to enable the Minister to request a statement of the residential addresses of students at relevant non-government schools. The statement of residential addresses of students contributes to the calculation of the SES score for a school. The Australian Government department responsible for administering the Act (currently the Department of Education, Skills and Employment) ( the department ) is provided the residential address of each student at relevant non-government schools.

This information informed the new methods to be prescribed in the Regulation for the purposes of determining a school’s CTC score, including going forward. F or the purposes of determining a school’s CTC score using the new DMI methodology, the Regulation authorises the disclosure of information, including the residential addresses of a student and their parents and guardians, to the Australian Bureau of Statistics.

Article 17 of the ICCPR recognises a person’s right to protection against unlawful or arbitrary interference with their privacy and family, and provides that persons have the right to protection of the law against such interference. ‘Privacy’ is understood to comprise freedom from unwarranted and unreasonable intrusions into activities that society recognises as falling within the sphere of individual autonomy. The right to privacy for children is also found in Article 24(1) of the ICCPR, and Article 16 of the UNCRC.

 

In order for interference with privacy not to be arbitrary, the interference with privacy must be in accordance with the provisions, aims and objectives of the ICCPR, and should be reasonable in the particular circumstances. Reasonableness, in this context, incorporates notions of proportionality to the end sought and necessity in the circumstances. The limitation on privacy must also be authorised under domestic law, which should be precise and not give decision-makers too much discretion in authorising interferences with privacy.

 

The Bill follows an extensive consultation with the non-government sector and technical experts following the Government announcement of 20 September 2018 that it would implement the direct measure of income from 2020. Implementation from 2020 was to support further consultation and consideration of implementation arrangements and technical refinements. The purpose of collecting the additional information about students, and persons responsible for students, and linking it to income data and other information held by the ABS is to support the implementation of the new direct measure of a school community’s capacity to financially contribute to a school. In turn, this will help enable the better targeting of financial support for non-government schools in circumstances where parents and legal guardians may have less capacity to contribute financially to the school. Improving the way in which Commonwealth financial assistance for schools is calculated so its allocation may be better targeted to help meet the educational needs of school students, is a legitimate and important social policy objective of the Australian Government. The collection, use and disclosure of personal information required by the Bill is the minimum necessary to give effect to the DMI methodology to accurately determine a school community’s capacity to contribute.  

 

The Australian Government is confident that appropriate protocols have been put in place to mitigate the risk of identifiable data being used or disclosed without authorisation. There will be safeguards to protect the privacy of individuals, as follows:

 

-           it is proposed that the information may be disclosed to the ABS for linking with personal income tax data collected by the Australian Taxation Office ( ATO ) and ABS Census data, such as through an approved project conducted in accordance with the Multi-Agency Data Integration Project ( MADIP ). The MADIP is a partnership among six Australian Government agencies that brings important national datasets together securely to maximise their value for policy analysis, research, and statistical purposes. Any information to be disclosed to the ABS will be authorised by law under the Regulation.

 

-           the ABS conducts the MADIP in accordance with its mandate to collect, compile, analyse, and disseminate statistics, under the Australian Bureau of Statistics Act 1975 and the Census and Statistics Act 1905 . The collection and use of personal information in the MADIP is consistent with applicable legislation such as the Privacy Act 1988 , including the Australian Privacy Principles. The Government is satisfied that the ABS has sufficient security and data protections in place for the transmission and storage of personal information.

 

-           the information is to be disclosed to the ABS for the sole purpose of undertaking work to support the implementation of the new DMI methodology. Partner agencies to the MADIP will not have access to this information and the ABS will not use this information for unrelated purposes.

 

-           the department will only be able to access de-identified information in the ABS’ secure DataLab, through its personnel who have been seconded to the ABS to work on the particular MADIP project. Departmental personnel who have access to the DataLab will be subject to the same rigorous security, privacy, and confidentiality requirements as ABS officials.

 

In addition, approved authorities for non-government schools are provided with a privacy notice, that complies with Australian Privacy Principle 5, to distribute to the school community to advise amongst other things, of the information being provided to the department and the purposes for which it is being provided. This notice covers:

 

-           what information is being collected

-           the purpose of the collection

-           the legislative authority for the collection

-           how the information that is collected may be used or disclosed

-           how to contact the department for further information regarding privacy.

 

Any potential impact of the Bill on an individual’s right to privacy is lawfully enacted, is proportionate and reasonable and not considered arbitrary as it is done to achieve legitimate policy objectives, and any personal information will be securely handled. Finally, the application of the Privacy Act 1988 , and the department’s compliance with it, will further ensure any personal information is used, managed and disclosed only in accordance with Australia’s privacy laws. As such, the Bill is compatible with and protects the right to privacy.

 

Conclusion

 

The Bill is compatible with human rights because it promotes the right to education under the ICESCR and the UNCRC and any potential limitations on the right to privacy are reasonable, necessary and proportionate in achieving legitimate policy objectives .

 

 

Circulated by authority of the Minister for Education, the Honourable Dan Tehan MP

australian education amendment (DIRECT MEASURE OF INCOME) bill 2020

 

NOTES ON CLAUSES

 

Clause 1 - Short title

 

Clause 1 provides for the Act to be the Australian Education Amendment (Direct Measure of Income) Act 2020.

 

Clause 2 - Commencement

 

Clause 2 sets out when the provisions of the Bill will commence, being the day after the Act receives the Royal Assent.

 

Subclause 2(2) provides that information in column 3 of the table at subclause 2(1) is not part of the Act and information may be inserted into column 3 or information in it may be edited in any published version of the Act.

 

Clause 3 - Schedules

 

Clause 3 provides that any legislation that is specified in a schedule is amended or repealed as set out in the applicable items in the schedule and that any other item in a schedule has effect according to its terms.

 

List of abbreviations

 

ABS Census

ABS Census of Population and Housing data

Act

Australian Education Act 2013

CTC percentage

Capacity to contribute percentage

CTC score

Capacity to contribute score

DMI methodology

Direct measure of income methodology

GST

Goods and services tax

Regulation

Australian Education Regulation 2013

SES methodology

Area-based socioeconomic status methodology

SES score

Socioeconomic status score

SRS

Schooling Resource Standard

The Board

National School Resourcing Board

 

 



 

Schedule 1   —  Amendments

 

Summary

 

1.              Australian Government funding for non-government schools reflects the policy that responsibility for funding non-government schools is shared between the Commonwealth, the state and territory governments, and the persons responsible for students attending those schools.

2.              The calculation of recurrent Commonwealth funding for non-government schools under Part 3 of the Act reflects this policy. The formula estimates the total public funding a school requires to meet the education needs of its students, and then calculates the Commonwealth’s share of that total public funding. This approach was recommended in the 2011 Review of Funding for Schooling - Final Report.

3.              The estimated total recurrent funding a school requires is commonly referred to as the Schooling Resource Standard, or SRS. It is calculated by reference to a base amount for every primary and secondary student, along with six loadings that provide extra funding for disadvantaged students and schools. In the Act, the SRS is known as the base plus loading segment of the recurrent funding formula in section 32.

4.              Under section 33 of the Act, calculation of the base component of the SRS includes a discount based on the CTC percentage. This gives effect to the Australian Government’s policy that, for most non-government schools, the base amount of public funding for a non-government school should be discounted by the anticipated capacity of the school community to financially contribute to the school’s operating costs. Certain schools, including all government schools, are exempt from this reduction in that their CTC percentage is set at zero under subsection 54(1) of the Act. Calculation of the CTC percentage is discussed further below.

5.              The Australian Government has agreed to the introduction of the DMI methodology to more accurately calculate the capacity of persons responsible for students at a school to financially contribute to the costs of operating the school. The move to a DMI methodology will represent a shift from the current area-based SES methodology. Hence, the Bill gives effect to a change of terminology from calculation of a school’s ‘SES score’ to a ‘CTC score’. The Bill also enables an adjustment to the rate at which a non-government school moves to the Commonwealth share set out in section 35A of the Act, to smooth out any fluctuations presented by the phased implementation of the DMI methodology.

6.              Under section 35A of the Act, the Commonwealth share of the SRS is:

a.        80 per cent for non-government schools, reflecting the Australian Government’s role as the majority funder, and

b.       20 per cent for government schools, reflecting the Australian Government’s role as a minority funder.

7.              Due to the need to transition schools from historical funding arrangements gradually, most schools are currently in the process of transitioning to these Commonwealth shares from the Commonwealth shares that they had in 2017 (called “starting Commonwealth shares”). The formula for calculating the Commonwealth share of recurrent funding for transitioning schools is set out in section 35B of the Act. Under section 35B:

a.        schools with starting Commonwealth shares below those set in section 35A are to have their Commonwealth shares increased incrementally each year from 2018 to 2023; and

b.       schools with starting Commonwealth shares above those set in section 35A are to have their Commonwealth shares decreased incrementally each year from 2018 to 2027.

8.              The transitional arrangements in section 35B do not apply to schools that started to receive recurrent Commonwealth funding on or after 1 January 2018. These schools attract the Commonwealth shares stipulated in section 35A of the Act (i.e. 80 or 20 per cent Commonwealth share of the SRS).

9.              As noted in paragraph 4 above, government schools already receive a CTC percentage of zero. Without the need to calculate a CTC score for government schools, the move to a DMI methodology only affects non-government schools. The Bill therefore makes a number of amendments to distinguish between ‘transitioning government schools’ and ‘transitioning non-government schools’. ‘Transitioning government schools’ moving to the consistent Commonwealth share in section 35A will continue to be subject to section 35B, while ‘transitioning non-government schools’ will now be subject to a new section 35C. This is further explained below.

Capacity to contribute - moving from an area-based measure to a direct measure of income

10.          The capacity to contribute percentage is currently based on the SES score for the school, as per the table in section 54 of the Act. This table correlates a list of SES scores to a list of capacity to contribute percentages. The SES score affects recurrent funding entitlements for a school, as schools with lower SES scores attract a smaller capacity to contribute discount to the school’s base funding entitlement. As SES scores increase, the base funding entitlement is discounted further.

11.          SES scores for a school are determined under section 52 of the Act. SES scores determined by the Minister remain in place until a new SES score is determined.

12.          SES scores determined by the Minister must be in accordance with the Regulation unless the Minister is satisfied doing so would result in an SES score that does not accurately reflect the general socioeconomic circumstances of persons responsible for students at the school.

13.          The majority of current SES scores were determined in accordance with the methodology contained in section 23 of the Regulation. This methodology uses student residential addresses collected by the then Department of Education and Training and the average socioeconomic variables of the SA1 in which the students reside as determined by the ABS Census.

14.          Prior to 2018, the practice was to update SES scores every five years, following the release of new ABS Census data. This last occurred in 2013, using the 2012 address collection and 2011 ABS Census. SES scores using this data were applied for 2014 onwards. Scores for non-systemic schools were calculated by applying this data to the methodology provided in subsections 23(1)-(4) of the Regulation. However, approved system authorities were given the option of receiving a student-weighted system-wide average SES score which would be applied to its member schools, determined by legislative instrument under former subsection 52(2) of the Act and former section 20 of the Regulation. If the approved system authority opted in, a system-weighted average SES score was determined for that school based on the following calculation:

a.        multiplying the SES score of each individual member school by the number of student enrolments at that member school;

b.       then summing this calculation; and

c.        dividing the total by the total number of student enrolments in that system.

15.          The system-weighted average SES score applied to all of an approved system authority’s member schools for the full current funding period. This score did not change even when schools left or joined the system or there were other changes in demographics of member schools.

16.          Following amendments to the Act in 2017, which removed the capacity for the Minister to determine SES scores for more than one school by legislative instrument,

a.        SES scores determined for non-systemic approved authorities were saved; and

b.       SES scores for approved system authorities were recalculated and determined in accordance with new subsection 23(5)-(6) of the Regulation.

17.          The drafting of subsections 23(5)-(6) of the Regulation provided the Minister with the ability to recalculate SES scores using historical data (2011 ABS Census and, where available, 2012 statement of addresses), but at the school level rather than as a system weighted score. The reason for using this historical data to determine SES scores for 2018 was to ensure equitable treatment of schools that previously had system weighted SES scores with those that did not. It also met the Australian Government’s objective of providing funding certainty pending an upcoming review of the SES score methodology.

18.          As a result, the majority of current SES scores are based on the methodology in the Regulation calculated using 2011 ABS Census and the 2012 statement of addresses - with the exception being SES scores for schools that started receiving funding following the 2017 amendments to the Act.

19.          In November 2017, the then Minister for Education and Training initiated a review of the SES score methodology by the Board. The Board’s final report on the review found that the use of the area-based data under the current method did not always result in an accurate assessment of the capacity of a school’s community to contribute financially to the operation of the school. The Board recommended the use of a direct measure of income measure based on the median income of parents and guardians of students at the school, facilitated by the linkage of personal income data and residential address data collections. The Board recommended continuing existing arrangements for 2019, using updated 2016 Census data.

20.          In its response to the Board’s recommendations, the Australian Government announced a phased implementation of the new direct measure of income. The phasing arrangement is that the DMI methodology will be applied in 2020 and 2021 to calculate a school’s CTC score wherever a financial benefit will ensue. The arrangement provides the flexibility to have the DMI methodology used to calculate funding in 2020 and 2021 if there is a financial benefit while providing time for others to plan for the change.

21.          Additionally, in order to give effect to the Board’s recommendation that 2016 ABS Census data be used as an interim arrangement, the Australian Government agreed to provide schools with the benefit of an SES score based on updated 2016 ABS Census data (i.e. to be used if there was a benefit for that particular school).

22.          As a result of the phased implementation arrangements, in 2020 and 2021 the CTC percentage for schools will be based on the best of one of three options (to be given effect to through amending section 23 of the Regulation):

a.        the SES methodology using historical data (largely 2012 addresses and 2011 ABS Census);

b.       the SES methodology using the most up to date data (2017 addresses and 2016 ABS Census); or

c.        the new DMI methodology.

23.          By 2022, all non-government schools will have their funding calculated using the new DMI methodology. However, the Regulation will also set out a further methodology to be used from 2022 for schools for which the DMI methodology would not be suitable (for instance, very small or small schools). This methodology will be referred to in the Regulation as the ‘refined area-based methodology’.

24.          In all cases, subsection 52(1) of the Act ensures the Minister is able to depart from the methodology prescribed by the Regulation if satisfied that a determination in accordance with the Regulation would result in a CTC score that does not accurately reflect the capacity of the persons responsible for students at the school to contribute financially to the operation of the school.

Transitioning all schools to consistent Australian Government shares of the Schooling Resource Standard

25.          As discussed in paragraph 7 above, due to historical funding arrangements, the Commonwealth recurrent funding levels of most schools are incrementally increasing or decreasing to reach the consistent Commonwealth share (either 80 per cent or 20 per cent) of the SRS.

26.          The formula for calculating the Commonwealth share for transitioning schools is stipulated in section 35B of the Act. 

27.          The starting point for the transition is based on the calculation of the starting Commonwealth share in subsection 35B(2). This formula calculates what the school’s Commonwealth share would have been in 2017, by expressing 2017 recurrent funding as a percentage of an adjusted SRS (adjusted to retrofit the SRS to 2017). This starting Commonwealth share is calculated for the approved authority and the same percentage is applied to each school of the approved system authority. In this respect, the starting Commonwealth share is said to be ‘at the approved authority level’.

28.          The change from the current SES methodology to the DMI methodology will require an adjustment to the rate at which a transitioning non-government school will transition to the consistent Commonwealth share. The Australian Government intends to reset a non-government school’s transition path towards the consistent Commonwealth share of the SRS in a manner that smooths out fluctuations in funding levels by extending the transition for non-government schools whose Commonwealth share is decreasing and updating the starting Commonwealth share for all non-government schools to more accurately reflect each school’s circumstance. To ensure non-government schools are not adversely financially affected by this change, the Bill will also enable the Regulation to modify existing arrangements and timeframes for transition of all non-government schools to a nationally consistent Commonwealth share.

29.          A non-government school below the consistent Commonwealth share will be transitioned at a faster rate than a non-government school which is above that share, when it commences transition. This is to ensure that transition continues to take place incrementally while still enabling all non-government schools to reach the consistent Commonwealth share by an extended timeframe of 2029.

30.          The move to a direct measure of income does not impact on current arrangements that apply to government schools (all government schools automatically receive a CTC percentage of zero which means a CTC score will not need to be calculated). Consequently, the Bill will not affect the existing transition arrangements for government schools.

Commonwealth shares to be determined in accordance with the Regulation

31.          To provide the Australian Government with flexibility to adjust transitional arrangements in response to future changes in the circumstances in the non-government sector, and mitigate potential unintended consequences arising from the refinement of the direct measure of income, it has been decided to move the provisions relating to the determination of Commonwealth shares from Part 3 of the Act to the Regulation. The Regulation will also prescribe a new definition of a transition year for a non-government school.

Broadening the circumstances in which a school may be regarded as a ‘majority Aboriginal and Torres Strait Islander school’

32.          The Bill will also make minor amendments to the definition of a ‘majority Aboriginal and Torres Strait Islander school’ to broaden the circumstances in which a school may be regarded as one for the purposes of receiving a CTC percentage of zero.

 

Detailed explanation

 

Items 1 and 2 amend the Guide to the Act in section 4 to reflect that the transition period for government schools will differ from the new transition period proposed for non-government schools. Instead of making reference to a period of 6 to 10 years, which continues to apply only to government schools, the Guide is amended to use more generic descriptors such as ‘transition years’ to reflect that the transition period for a non-government school will change (through amendments to the Regulation).

 

Item 3 inserts a new definition of ‘6-year transitioning government school’ which means ‘a transitioning government school whose starting Commonwealth share is less than its final Commonwealth share’. The amendment maintains status quo for government schools in transition but ensures the definition no longer applies to non-government schools (for whom a different transition period will be prescribed through the Regulation).

 

Item 4 repeals the definition of ‘6-year transitioning school’. This term is replaced by a new definition that specifically applies only to government schools (see item 3).

 

Item 5 repeals the current definition of ‘Commonwealth share’ and replaces it with one that differentiates between how Commonwealth shares will be determined for transitioning government schools (section 35B will continue to apply), and for transitioning non-government schools (new section 35C will apply). The Commonwealth share for a government school or a non-government school that is not in transition continues to have the meaning given in section 35A.

 

Item 6 inserts a new definition of ‘CTC score’ (otherwise known as the ‘capacity to contribute score’). The school’s CTC score is the number determined by the Minister under subsection 52(1). From 2020, the term ‘SES score’ will be replaced by ‘CTC score’.

 

Item 7 amends the definition of ‘majority Aboriginal and Torres Strait Islander school’ to also make reference to new subsection 8(3). If a determination under that new provision is made in relation to a school, that school will also satisfy this definition for the year.

 

Item 8 repeals the definition of ‘SES score’. As noted above, this expression is being replaced by ‘CTC score’ from 2020.

 

Item 9 inserts a new definition of ‘transitioning government school’ which essentially replicates the previous definition of ‘transitioning school’ ensuring it only applies to government schools (being a government school for which financial assistance was payable under Part 3 or 4 of this Act for 2017, or a government school prescribed by the Regulation).

 

Item 10 repeals the definition of ‘transitioning school’. This term is replaced by a new definition that specifically applies only to government schools (see item 9).

 

Items 11, 12 and 13 amend the definition of ‘transition year’ to reflect the new transition arrangements for non-government schools. Paragraphs (a) and (b) are limited so the expression ‘6-year transitioning school’ only applies to government schools, while new paragraph (c) introduces the meaning of a ‘transition year’ for non-government schools, being a year prescribed by the Regulation for the school from 2020 to 2029. The Regulation will prescribe at least two final transition years for different classes of non-government schools, 2023 (for schools whose Commonwealth shares are increasing over time to 80 per cent, or which are already exactly 80 per cent) and 2029 (for schools whose Commonwealth shares are decreasing over time to 80 per cent).

 

Items 14 and 15 amend section 8 to broaden the circumstances in which a school will be regarded a ‘majority Aboriginal and Torres Strait Islander school’. Under subsection 54(1) of the Act, certain kinds of schools receive a CTC percentage of zero. This benefits a school because it means the base amount of recurrent funding the school receives for a year is not discounted by an amount to reflect the school community’s ‘capacity to contribute’. A ‘majority Aboriginal and Torres Strait Islander school’ is one such kind of school.

 

The amendments made through item 14 mean that schools that meet the minimum enrolment requirements in paragraphs 8(1)(b) or 8(2)(b) for either the previous year or the current year (as well as being otherwise eligible) will satisfy the definition of ‘majority Aboriginal and Torres Strait Islander school’. Item 15 further expands the definition of a ‘majority Aboriginal and Torres Strait Islander school’ so the Minister may determine that a school is also such a school for the year if satisfied that the school is likely to be such a school under either subsection 8(1) or 8(2). This is intended to assist (for example) new schools where data is not immediately available in the first year of its operations. Under existing subsection 129(1) of the Act, the Minister may delegate any or all of his or her powers to the Secretary, or an APS employee in the Department. It is considered appropriate for this new power to be treated similarly, and not included in the list of powers or functions that cannot be delegated under subsection 129(2) given its expected frequency of use, purpose and significance. It is envisaged that a small number of new schools or existing schools who wish to be considered under subsection 8(3), despite not strictly meeting the criteria under subsections 8(1) or (2), may apply. The power to make a determination will be exercised in a beneficial way in accordance with departmental guidelines that identify which schools may be considered suitable, notably those that are considered close to the required threshold of enrolments. This assessment will ordinarily be based on a preliminary statement of enrolments provided by the school at the beginning of the school year and the number of adverse determinations is expected to be minimal. Further, it is unlikely to need to be applied in the majority of cases, with most schools retaining their status as a ‘majority Aboriginal or Torres Strait Islander school’ under subsections 8(1) or 8(2) year on year.

The Minister will delegate this power to officers of the department to undertake this assessment and make a determination in accordance with the relevant guidelines.

 

 

Subsection 8(4) is included to assist readers, as the instrument is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003 ( the Legislation Act ). Instruments made under subsection 8(3) will merely apply the law to particular circumstances rather than determining the content of the law. Thus, subsection 8(4) is merely declaratory of the law rather than prescribing a substantive exemption from the requirements of the Legislation Act.

 

Item 16 amends the Guide to Part 3 of the Act to use more generic language to reflect that transition may occur over different periods depending on whether the school is a government or non-government school.

 

Item 17 amends section 35A to make it also subject to the new section 35C (whereas previously it was only subject to section 35B). Section 35A continues to reflect Australian Government policy on the appropriate Commonwealth share of the SRS for government schools (20 per cent) and non-government schools (80 per cent). However, if the school is a ‘transitioning government school’, section 35B will continue to apply in relation to determining its Commonwealth share for a transition year, with new section 35C addressing non-government school transition from 2020.

 

Items 18, 19, 21 and 22 replace references in section 35B to ‘transitioning schools’ with the new term ‘transitioning government school’, with the effect that section 35B will now only apply to government schools transitioning to the consistent Commonwealth share of 20 per cent. The new section 35C (see item 25) will provide for the Commonwealth share for non-government schools transitioning to the consistent Commonwealth share of 80 per cent.

 

Item 20 inserts a note to subsection 35B(4) to explain that the expression ‘SES score’ used in that provision was defined in the Act as previously in force in relation to 2017.

 

Items 23 and 24 replace references in section 35B to ‘6-year transitioning schools’ with the new term ‘6-year transitioning government school’.

 

Item 25 inserts a new section 35C dealing with determining the Commonwealth share for transitioning non-government schools. A non-government school’s transition path towards the consistent Commonwealth share of the SRS is intended to be reset through the Regulation in a manner that smooths out fluctuations in funding levels. The Regulation will achieve this principally through:

·          extending the transition for non-government schools whose Commonwealth share is decreasing to 80 per cent by an additional two years (from 2027 to 2029);

·          re-setting the starting Commonwealth share for all non-government schools to accurately reflect each school’s circumstance and smooth out fluctuations arising from a change of methodology during the transition to the direct measure of income; and

·          prescribing a method to work out the Commonwealth share for transition years.

It has been decided to move the provisions relating to the determination of Commonwealth shares for non-government schools during their transition years from Part 3 of the Act to the Regulation. Section 35C thus provides that the Regulation may prescribe a percentage, or a method to work out a percentage, for a non-government school for a transition year for the school, that is the Commonwealth share for the school for the transition year. The rationale for this approach is to provide flexibility to adjust transitional arrangements in response to future changes in the circumstances in the non-government sector, and mitigate potential unintended consequences arising from the refinement of the DMI methodology. It is also considered appropriate given t he regulations made for this purpose will be time-limited in nature with starting Commonwealth shares to be reset in 2020, 2021 and again in 2022, and all non-government schools expected to transition to the consistent Commonwealth share by 2029. Through enabling the Regulation to detail the methodology applying to the transition period only, complexity in the Act is kept to a minimum, with the focus of the Act instead being on the longer-term funding arrangements for non-government schools. The amendments to the Regulation setting out the way in which Commonwealth shares will be worked out for non-government schools will be subject to parliamentary scrutiny and disallowance. Extensive consultation has already occurred in relation to the proposed content of those regulations. Further, it is intended that an Exposure Draft of the amendments to the Regulation will be sent directly to key stakeholders for comment as soon as possible after the introduction of the Bill.

 

Items 26, 29, 30, 31, 32, 33 and 37 replace references in sections 52, 53, 54 and 118 to ‘SES score’ with ‘CTC score’ wherever occurring.

 

Item 27 repeals subsection 52(1) which currently refers to the determination of a school’s ‘SES score’ and substitutes it with a new subsection 52(1) that obliges the Minister to determine a school’s ‘CTC score’ (except for those schools specified in subsection 52(6)). The new expression ‘CTC score’ represents the move from an area-based socioeconomic measure to the new direct measure of income which will more accurately reflect a school community’s capacity to contribute financially to the funding required by the school. The direct measure of income will be based on the median income of parents and guardians of students at the school, facilitated by the linkage of personal income data and residential address data collections. Subsection 52(4) provides that a CTC score determination must generally be in accordance with the Regulation. The Regulation will therefore be amended to give effect to the new direct measure of income from 2020 onwards. However, the implementation of the new direct measure of income will be phased in from 2020 to 2021 (inclusive). The Regulation will thus provide three different options for working out the CTC score for a school in this period, to ensure there is no financial detriment to a school:

 

a.        the grandfathered SES methodology using historical data (largely 2012 addresses and 2011 ABS Census);

b.       the grandfathered SES methodology using the most up to date data (2017 addresses and 2016 ABS Census); or

c.        the new DMI methodology.

From 2022 onwards, it is proposed the CTC score for the majority of non-government schools will be calculated through the DMI methodology. For those non-government schools for which the direct measure of income is not suitable, the Regulation will also set out an alternative refined area-based measure that will apply to calculating their CTC scores.

 

Item 28 amends subsection 52(4) as a result of the move to the direct measure of income. Under the new arrangements, a school’s CTC score will not “reflect the general socioeconomic circumstances of the persons responsible for students at the school”. Rather, by examining the individual incomes of the persons responsible for students at a school, it will more accurately reflect the capacity of those persons to contribute financially to the operation of the school.

 

Item 34 amends the Guide to Part 5 to the Act to use more generic language to reflect that transition may occur over different periods depending on whether the school is a government or non-government school.

 

Item 35 amends subsection 69B(1) to reflect the new transition arrangements for non-government schools, which differ from the arrangements for government schools. The amendments ensure the Minister may continue to determine transition adjustment funding for a school for a transition year, rather than limiting it only to transitioning schools for a year from 2018 to 2027 (inclusive) (which will only continue to apply to government schools).

 

Item 36 inserts, into the table of reviewable decisions in subsection 118(1), the determination which the Minister may make under new subsection 8(3), to determine a school is also a majority Aboriginal and Torres Strait Islander school for a year. The relevant person who can seek a review is the approved authority for the school.

 

Item 38 will insert a new section 125A into the Act. The purpose of the new section is to provide clear authority for the Commonwealth to make payments of GST-inclusive amounts of funding under the Act in circumstances where the ultimate recipient of that funding is liable to pay GST on the funding.

 

Australian Government funding for non-government schools has been GST-inclusive since the GST was introduced in 2000. Schools funding has been provided under five different Acts during that time:

·          States Grants (Primary and Secondary Education Assistance) Act 1996 (1997-2000);

·          States Grants (Primary and Secondary Education Assistance) Act 2000 (2001-2004);

·          Schools Assistance (Learning Together - Achievement through Choice and Opportunity) Act 2004 (2005-2008);

·          Schools Assistance Act 2008 (2009-2013);

·          Australian Education Act 2013 (2014 - ).

 

The new provision will preserve these long-standing arrangements for the payment of GST-inclusive amounts. As the new provision simply preserves existing payment arrangements, it has no financial impact.

 

New subsection 125A(1) will clarify that where an amount is payable in accordance with a determination under section 25, paragraph 28(1)(b) or 29(1)(aa) of the Act for an acquisition (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 ), and an input tax credit or decreasing adjustment arises for that acquisition, then the amount payable is increased by an amount reflecting the input tax credit or decreasing adjustment relating to that acquisition.

 

The effect of this provision is that, generally-speaking, where a recipient of recurrent, capital or prescribed circumstances funding under the Act is liable for an amount of GST on that funding, the amount of funding is increased by the amount of the GST for which the recipient would be liable on the total amount of funding paid - that is, the payment becomes GST-inclusive. So, for example, if a GST-exclusive amount of $10 is payable for a school as a result of a determination under section 25 of the Act, and the recipient of the payment would be liable for GST on that payment, the payment is increased to a GST-inclusive amount of $11 (as the amount of input tax credit that would arise on an acquisition of $11 is $1).

 

Section 68 of the Act imposes an annual limit on capital funding, and most forms of prescribed circumstances funding set out in Schedule 1 to the Regulation are also capped. These funding limits are “GST-exclusive”, and so subsection 125A(2) will ensure that the increase in payments due to subsection (1) are not taken into account for those purposes.

 

In addition, a number of subsections of section 9 of the Act provide that an overpayment for the purposes of the Act occurs when amounts paid for a school as a result of determinations under section 25, paragraph 28(1)(b) or 29(1)(aa) of the Act exceed the annual amounts calculated or determined under the Act. Those annual amounts are also “GST exclusive”, and so subsection 125A(3) will ensure that the increase in payments due to subsection (1) will not result in overpayments under section 9.

 

Items 39 and 40 will amend section 126 of the Act to ensure that the standing appropriation in that section covers the GST component of GST-inclusive payments.

 

Item 41 is an application provision that specifies the amendments of the Act made by Schedule 1 (other than items 38, 39 and 40) apply in relation to financial assistance for 2020 and later years.

 

Item 42 is a transitional provision to clarify that a determination of transition adjustment funding made under subsection 69B(1) of the Act that is in force immediately before the commencement of Schedule 1 continues in force as if it had been made under subsection 69B(1) of that Act as amended by this Act. This is to ensure that the amendment to subsection 69B(1) of the Act (through item 35) does not affect the validity of determinations made prior to the commencement of Schedule 1.