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Education and Employment Legislation Committee—Senate Standing—Australian Education Amendment (Direct Measure of Income) Bill 2020 [Provisions]—Report, dated March 2020


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March 2020

The Senate

Education and Employment Legislation Committee

Australian Education Amendment (Direct Measure of Income) Bill 2020 [Provisions]

© Commonwealth of Australia 2020

ISBN 978-1-76093-079-0

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

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iii

Members

Chair Senator the Hon James McGrath LP, QLD

Deputy Chair Senator Louise Pratt ALP, WA

Members Senator Perin Davey NATS, NSW

Senator Mehreen Faruqi AG, NSW

Senator Deborah O'Neill ALP, NSW

Senator Matt O'Sullivan LP, WA

Secretariat Dr Jane Thomson, Committee Secretary Ms Pothida Youhorn, Principal Research Officer Ms Kate Campbell, Senior Research Officer Ms Georgia Bourke, Research Officer Ms Jade Monaghan, Administrative Officer

Committee web page: www.aph.gov.au/senate_eec

PO Box 6100 E-mail: eec.sen@aph.gov.au

Parliament House Ph: 02 6277 3521

Canberra ACT 2600 Fax: 02 6277 5706

v

Table of contents

Members ............................................................................................................................................. iii

Chapter 1—Introduction .................................................................................................................... 1

Conduct of the inquiry ........................................................................................................................ 1

Scope and structure of the report ...................................................................................................... 1

Background ........................................................................................................................................... 1

Purpose of the bill ................................................................................................................................ 3

Direct measure of income methodology and capacity to contribute score .................................. 3

Multi-Agency Data Integration Project.................................................................................. 5

Transitioning to the new methodology ............................................................................................ 5

Transitioning to the Australian Government's share of the Schooling Resource Standard ...... 6

Majority Aboriginal and Torres Strait Islander schools ................................................................. 7

GST ......................................................................................................................................................... 7

Reports of other committees ............................................................................................................... 7

Financial impact ................................................................................................................................... 7

Statement of compatibility with human rights ................................................................................ 8

Chapter 2—Key issues........................................................................................................................ 9

The direct measure of income methodology .................................................................................... 9

Development of the new methodology .......................................................................................... 12

Impact on regional schools and boarding schools ....................................................................... 13

Use of median income ....................................................................................................................... 16

Data matching rates and missing data ............................................................................................ 19

Transitional arrangements ................................................................................................................ 22

Details in regulation .......................................................................................................................... 23

Funding to non-government schools verse government schools ............................................... 24

Committee view ................................................................................................................................. 25

Labor Senators' additional comments ........................................................................................... 27

Australian Greens Senators' dissenting report ........................................................................... 31

Appendix 1—Submissions .............................................................................................................. 35

1

Chapter 1 Introduction

1.1 On 27 February 2020 the Senate referred the provisions of the Australian Education Amendment (Direct Measure of Income) Bill 2020 (the bill) to the Education and Employment Legislation Committee (the committee) for inquiry and report by 1 May 2020.1 The committee subsequently resolved that it would table its report on 23 March 2020.2

Conduct of the inquiry 1.2 The committee advertised the inquiry on its website and wrote to relevant persons and organisations seeking submissions by 12 March 2020. The committee received 23 submissions, which are listed at Appendix 1 and are

available on the committee's website.

1.3 The committee did not hold any public hearings.

1.4 The committee thanks all individuals and organisations who contributed to this inquiry.

Scope and structure of the report 1.5 This report comprises two chapters. The remaining sections of this chapter provide background to the bill and an overview of the bill, including its purpose and key provisions. Chapter 2 outlines the principal issues raised in

evidence and presents the committee's views and recommendation.

Background 1.6 The Australian Education Act 2013 (the Act) is the primary legislation for the provision of Australian Government funding to government and non-government schools across Australia. While delivering school education is

the responsibility of states and territories, schools receive funding contributions from Commonwealth, state and territory governments pursuant to the Act.3 The remainder of schools funding is obtained from the school community, that is, the parents and guardians of students who attend the school.

1.7 Part 3 of the Act outlines the formula to calculate the amount of recurrent Commonwealth funding for non-government schools, which takes into

1 Journals of the Senate, No. 46, 27 February 2020, pp. 1407-1408.

2 https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_

Employment/EducationIncomeBill (accessed 12 March 2020).

3 https://www.education.gov.au/how-are-schools-funded-australia (accessed 12 March 2020).

2

account the school community's capacity to contribute to the funding of the school. The funding model is based on the Schooling Resource Standard (SRS), which measures the total public funding a school requires to meet the educational needs of its students.4 The Commonwealth's share of the SRS is 80 per cent for non-government schools and 20 per cent for government schools.5

1.8 The SRS amount for a school is calculated by reference to a base amount for every student and six loadings that provide extra funding for disadvantaged students in the school.6 The SRS funding amounts in 2020 are $11 747 for primary students and $14 761 for secondary students.7

1.9 For most non-government schools, the base amount is discounted by the capacity to contribute percentage (CTC percentage). All government schools and 'majority Aboriginal and Torres Strait Islander schools' are exempt from this reduction as their CTC percentage is set at zero.8

1.10 The CTC percentage is calculated by reference to the socio-economic status (SES) score of the school. The SES scores are determined in accordance with the methodology set out in the Australian Education Regulation 2013 (the Regulation). This uses an area-based SES measure, which averages the particular characteristics of all people residing in a certain geographical area and not just families of students attending the school.9

1.11 In June 2018, the National School Resourcing Board (the Board) completed a review into the SES score methodology—Review of the socio-economic status score methodology—and made six recommendations.10 On 20 September 2018, the government announced its response to the Board's review and agreed to the six recommendations.11

4 Australian Education Amendment (Direct Measure of Income) Bill 2020, Explanatory Memorandum

(EM), p. 2. See also https://www.education.gov.au/how-are-schools-funded-australia (accessed 12 March 2020).

5 EM, p. 2. See also section 35A of the Act.

6 EM, p. 2.

7 https://www.education.gov.au/what-schooling-resource-standard-and-how-does-it-work

(accessed 12 March 2020).

8 EM, p. 2. See also subsection 54(1) of the Act.

9 EM, p. 7.

10 National School Resourcing Board, Review of the socio-economic status score methodology: Final report,

June 2018, p xii, https://docs.education.gov.au/system/files/doc/other/national_school_resourcing_ board_ses_review_final_report.pdf (accessed 12 March 2020).

11 Australian Government, The National School Resourcing Board's Review of the socio-economic status

score methodology, https://docs.education.gov.au/system/files/doc/other/rsrb_ses_review_ government_response_.pdf (accessed 12 March 2020).

3

1.12 The bill seeks to implement a number of the Board's recommendations.

Purpose of the bill 1.13 The Explanatory Memorandum outlines the objective of the bill:

The purpose of [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).12

1.14 The Minister for Education, the Hon Dan Tehan MP, acknowledged that the new methodology for calculating a school community's capacity to contribute was the result of recommendations made by the Board.13

1.15 The bill proposes the following changes:

 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.14

1.16 The key provisions in the bill and the proposed amendments to the Regulation are summarised below.

Direct measure of income methodology and capacity to contribute score 1.17 The bill proposes to amend the methodology to determine a school community's capacity to contribute from an area-based SES measure, to a

'direct measure of income' (DMI) methodology. This would be achieved by

12 EM, p. 2.

13 The Hon Dan Tehan MP, Minister for Education, House of Representatives Hansard, 26 February

2020, p. 7.

14 EM, pp. 3-4.

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repealing the definition of, and references to, the SES score and replacing it with a CTC score.15 Currently, the Act provides that the Minister must determine the SES score for a school.16 The bill proposes to repeal this subsection and instead provide that the Minister must determine the CTC score for a school.17 As the current methodology to calculate the SES measure is contained in the Regulation, the details of the DMI methodology and the calculation of the CTC scores will also be detailed in the Regulation.18

1.18 Minister Tehan noted that state and territory governments and the non-government school sector would be provided a summary of the proposed changes to the Regulation and consulted on its implementation.19 The Explanatory Memorandum similarly states:

…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.20

1.19 In accordance with the Board's recommendations, the DMI will be calculated based on the income of the persons responsible for students in the school, rather than the averaging of characteristics of all people residing in a certain geographical area.21 The Department of Education, Skills and Employment's (the department's) website explains how the DMI score will be calculated:

The DMI is based on the median income of parents or guardians at the school (family income that sits in the middle of the range of incomes at a school). The median family income is translated into a DMI score by comparing the median family income of a school against the median family income of other schools. The data are standardised to a mean of 103 and a standard deviation of 13, weighted by enrolments.22

1.20 The CTC score will determine the level of Commonwealth funding for a school. The CTC score is calculated by averaging the DMI for the school in the previous three years.23 However, for 2020, the CTC score will be the DMI average for the previous two years.24 The department's website states that 'for

15 Proposed items 6, 8, 26-33, and 37 of the bill. Refer also to the EM, pp. 14-16.

16 Subsection 52(1) of the Act.

17 Proposed item 27 of the bill.

18 EM, pp. 20-21.

19 The Hon Dan Tehan MP, Minister for Education, House of Representatives Hansard, 26 February

2020, p. 8.

20 EM p. 20.

21 EM, p. 15.

22 www.education.gov.au/what-methodology-direct-measure-income-dmi (accessed 13 March 2020).

23 www.education.gov.au/what-methodology-direct-measure-income-dmi (accessed 13 March 2020).

24 www.education.gov.au/what-methodology-direct-measure-income-dmi (accessed 13 March 2020).

5

small and very small schools, the year on year change in CTC scores will be capped at two points'.25

Multi-Agency Data Integration Project 1.21 The DMI uses the names and address of parents and guardians of school students, and links this to data collected from the Multi-Agency Data Integration Project (MADIP).26 The MADIP will use information disclosed to

the Australian Bureau of Statistics (ABS) for linking with personal income tax data collected by the Australian Taxation Office (ATO) and ABS Census data.27

1.22 The development of the DMI methodology was informed by a Working Group—the Direct Income Measure of Capacity to Contribute Technical Working Group—established in November 2018.28 The Working Group was chaired by the department and included:

 the National Catholic Education Commission;  the Independent Schools Council of Australia;  the Australian Bureau of Statistics;  the Australian Taxation office; and  state education representatives from South Australia, New South Wales and

the Northern Territory.29

1.23 In August 2019, the Working Group was discontinued.30

Transitioning to the new methodology 1.24 The bill provides that the CTC score determination must be in accordance with the Regulation.31 Non-government schools will have by 2022 to have their funding calculated using the new DMI methodology. The Explanatory

Memorandum notes that the Regulation will be amended to give effect to a phased approach to the DMI methodology. The Explanatory Memorandum states:

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):

25 www.education.gov.au/what-methodology-direct-measure-income-dmi (accessed 13 March 2020).

26 EM, p. 10.

27 EM, p. 10.

28 Department of Education, Skills and Employment, Submission 16.1, p. 3.

29 Department of Education, Skills and Employment, Submission 16.1, p. 3.

30 Coalition of Regional Independent Schools Australia, Submission 13, p. 5.

31 Proposed item 27 of the bill.

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(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.32

Transitioning to the Australian Government's share of the Schooling Resource Standard 1.25 Currently, the Australian Government's share of the SRS is 80 per cent for non-government schools.33 The SRS funding model was introduced in 2017

and provides for schools to transition down to an 80 per cent share of Commonwealth funding by 2027.34

1.26 The bill proposes for the Commonwealth's funding for non-government schools to remain at 80 per cent. However it is intended that the Regulation will be amended to give non-government schools an extra two years (until 2029), to use the DMI methodology to transition down to receiving Commonwealth funding of 80 per cent. The Explanatory Memorandum provides the rationale for this proposed amendment:

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.

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 2029.35

32 EM, p. 16.

33 Subsection 35A(b) of the Act.

34 Section 35B of the Act.

35 EM, pp. 16-17.

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Majority Aboriginal and Torres Strait Islander schools 1.27 The bill proposes to provide the Minister the power to make a written determination that a school is a 'majority Aboriginal and Torres Strait Islander school' for one year, if the Minister is satisfied that the school is likely to be a

majority Aboriginal and Torres Strait Islander school.36 As noted in the Explanatory Memorandum, this would 'broaden the circumstances in which a school may be regarded as one for the purposes of receiving a CTC percentage of zero'.37

GST 1.28 The bill seeks to introduce a new section that allows the Commonwealth to make payments of GST-inclusive amounts of funding under the Act where the recipient of that funding is liable to pay GST on the funding.38 The Explanatory

Memorandum notes that Government funding for non-government schools has included GST since 2000.39 It states:

The new provision will preserve these long-standing arrangements for the payments of GST-inclusive amounts. As the new provision simply preserves existing payment arrangements, it has no financial impact.40

Reports of other committees 1.29 At the time of writing, the Senate Standing Committee for the Scrutiny of Bills and the Parliamentary Joint Committee on Human Rights had not considered the bill.

Financial impact 1.30 It is estimated that the financial impact of these changes is ‘$1.3 billion in Commonwealth recurrent funding over the Budget and forward estimates from 2019-20 and 2020-23, and an estimated $3.4 billion increase in recurrent

funding over ten years from 2019-20 to 2028-29’.41

1.31 The Explanatory Memorandum states that it is estimated that the changes will increase Commonwealth recurrent funding for non-government schools from $13.1 billion in 2020 to $19.1 billion in 2029, equating to an increase of 45.7 per cent with an average growth rate of 4.3 per cent.42

36 Proposed item 15 of the bill.

37 EM, p. 17.

38 Proposed item 38 of the bill.

39 EM, p. 21.

40 EM, p. 22.

41 EM, p. 5.

42 EM, p. 5.

8

Statement of compatibility with human rights 1.32 The statement of compatibility with human rights asserts that the bill is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary

Scrutiny) Act 2011.43

43 EM, pp. 6-11.

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Chapter 2 Key issues

2.1 This chapter will examine the key issues discussed by submitters, including:

 moving from an area-based socio-economic status score to a direct measure of income methodology for the funding of non-government schools;  the development of the new methodology;  the impact of the new methodology on regional schools and boarding

schools;  the use of the median income of parents and guardians to determine the school's capacity to contribute score;  low data matching rates and missing data;  transitional arrangements;  details contained in regulation; and  the funding of government schools compared to the funding of

non-government schools.

2.2 The chapter will conclude with the committee's views and recommendation.

The direct measure of income methodology 2.3 As noted in chapter 1, the bill proposes to transition from an area-based socio-economic status (SES) score, to a direct measure of income (DMI) and capacity to contribute (CTC) score. This amendment intends to implement

recommendations one and two of the National School Resourcing Board's (the Board), Review of the socio-economic status score methodology.1 The Board considered that a school community's capacity to contribute should be calculated based on a direct measure of the income of persons responsible for students in schools. The Explanatory Memorandum explains that the Board considered this would be 'a more fit-for-purpose, transparent, and reliable way' to determine a school community's capacity to financially contribute to the school.2

2.4 The Catholic and Christian independent education sector welcomed the change from the current SES methodology to the proposed DMI methodology.3 For example, the National Catholic Education Commission

1 National School Resourcing Board, Review of the socio-economic status score methodology: Final report,

June 2018, p xii, https://docs.education.gov.au/system/files/doc/other/national_school_resourcing_ board_ses_review_final_report.pdf (accessed 13 March 2020).

2 Australian Education Amendment (Direct Measure of Income) Bill 2020, Explanatory Memorandum

(EM), p. 7.

3 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 2; National Catholic

Education Commission, Submission 15, p. 3.

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(NCEC) stated that the SES score was a 'blunt instrument', which overestimated a school community's capacity to contribute for many Catholic schools.4 The Catholic Education Commission of Victoria (CECV) considered the SES scores to be 'a deeply flawed approach', with the biggest flaw being the use of area-based data.5 CECV concluded that the DMI methodology was more accurate and therefore a vast improvement on the SES scores.6 The Australian Association of Christian Schools (AACS) agreed that the methodology to determine the SES score was too broad and not reflective of the families who attend the school, and that the new methodology was a more precise measure.7 AACS stated:

Many of our schools have benefited from the new methodology and the process has affirmed what many Principals anecdotally suspected, that their SES scores were heightened due to surrounding geographical wealth that did not reflect the demographic attending their school.8

2.5 Conversely, the independent school sector raised a number of concerns in relation to the DMI methodology, particularly the adverse impact it will have on regional schools and boarding schools.9 These concerns will later be discussed in detail.

2.6 The committee also received evidence directly from a number of schools that expressed deep concern that their funding would be significantly reduced under the new DMI/CTC methodology.10

2.7 The Department of Education, Skills and Employment (the department) acknowledged that non-government schools will be impacted by the new DMI methodology.11 However, the department advised that '[t]hree quarters of schools are better or no worse off under the new measure with funding continuing to grow for the majority of schools'.12

4 National Catholic Education Commission, Submission 15, p. 3.

5 Catholic Education Commission of Victoria, Submission 22, p. 3.

6 Catholic Education Commission of Victoria, Submission 22, p. 4.

7 Australian Secondary Principal's Association, Submission 18, p. 3.

8 Australian Association of Christian Schools, Submission 17, p. 1.

9 See for example: Association of Independent Schools of the Northern Territory, Submission 1.

Independent Schools Council of Australia, Submission 7; Independent Schools Victoria, Submission 8; Association of Independent Schools of New South Wales, Submission 10; Independent Schools Victoria, Submission 8; and Coalition of Regional Independent Schools Australia, Submission 13.

10 St Paul's Grammar School, Submission 19, p. 1; Confidential, Submission 23.

11 Department of Education, Skills and Employment, Submission 16, p. 7.

12 Department of Education, Skills and Employment, Submission 16, p. 7.

11

2.8 The DMI methodology will use an individual's adjusted taxable income to determine the amount of financial resources available to the individual.13 The department explained that the adjustable taxable income includes a range of income sources, including:

…particular fringe benefits, net investment losses and reportable superannuation contributions, and will have a particularly pronounced effect on individuals and families that make greater use of these forms of income.14

2.9 The Association of Independent Schools of the Northern Territory (AISNT) expressed concern that the proposed methodology does not take into account a range of socio-economic factors such as the parental occupation and education, nor school level factors such as the percentage of Indigenous students and the geographical location of the school.15 Independent Schools Victoria (ISV) expressed similar concerns and explained that individual income levels can change more quickly than a person's education and occupation data, which 'will make the DMI methodology more volatile and unpredictable than the old SES methodology'.16

2.10 However, other submitters, such as the Principals Association of Victorian Catholic Secondary Schools (PAVCSS) considered it a positive measure that the proposed CTC scores will not take into account the education and occupation of parents and guardians of school students, arguing that income was a more accurate and fair measure of needs-based funding.17

2.11 PAVCSS provided strong endorsement stating that '[t]he proposed legislation will fix clear and long-standing inequities in school funding arrangements'.18

2.12 The PAVCSS argued that Catholic schools are more likely to enrol lower-income families, compared to independent schools.19 However, under the current SES methodology Catholic schools receive similar SES scores to nearby independent schools, despite families of Catholic schools tending to be on a lower income.20 PAVCSS argued that the 'unjust funding system' undermines the ability of Catholic schools to compete.21

13 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

14 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

15 Association of Independent Schools of the Northern Territory, Submission 1, pp. 7-8.

16 Independent Schools Victoria, Submission 8, p. 7.

17 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 4. See also

Australian Council of State School Organisations, Submission 4.

18 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 2.

19 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 2.

20 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 3.

21 Principals Association of Victoria Catholic Secondary Schools, Submission 9, p. 3.

12

2.13 In addition to using the adjusted taxable income to determine the DMI, submitters suggested other income should be included to enable a more accurate calculation of a family's capacity to contribute, including:

 family wealth or assets;22  'hidden' family income and wealth, such as income earnt overseas, family tax minimisation strategies, and transfer of family wealth such as when grandparents contribute to school fees;23

 beneficiaries of trusts, company for directorships and shareholdings;24  assets included in the above trusts or companies; and25  a family's capacity to earn rather than income as family income can be masked by the ability to negatively gear and reduce tax.26

2.14 Moreover, some submitter such as the Australian Education Union (AEU) and Save our Schools Australia also suggested that a school's wealth should also be used to determine the CTC score.27 The AEU argued that the following data should be included in the calculation of a school's CTC score:

 School wealth including expenditure on equipment  School income through alumni fund raising, trust funds and endowment funds and parental donations  The prevalence of the reallocation of recurrent funding to capital

projects by schools.28

Development of the new methodology 2.15 A number of submitters, including the Independent Schools Council of Australia (ISCA), expressed concern with the development of the DMI methodology. As a member of the Direct Income Measure of Capacity to

Contribute Technical Working Group (the Working Group), ISCA explained that due to the unavailability of data, the Working Group could only consider issues on a theoretical basis.29 ISCA noted that it did not see any modelling of the CTC scores using different variables or settings, or any potential funding impacts on schools.30 Accordingly, this meant that 'proper consideration of the

22 Catholic Education Commission of Victoria, Submission 22, p. 6; Save our Schools Australia,

Submission 3, p. 6; and National Catholic Education Commission, Submission 15, p. 6.

23 Catholic Education Commission of Victoria, Submission 22, p. 7.

24 Australian Education Union, Submission 20, p. 9.

25 Australian Education Union, Submission 20, p. 9.

26 Australian Council of State School Organisations, Submission 4, p. 4.

27 Australian Education Union, Submission 20, pp. 6-7; and Save our Schools Australia, Submission 3,

p. 6-9.

28 Australian Education Union, Submission 20, p. 9.

29 Independent Schools Council of Australia, Submission 7, p. 5.

30 Independent Schools Council of Australia, Submission 7, p. 5.

13

possible elements of the new model [was] impossible' and that 'no input or advice was able to be provided on possible issues or areas for concern with the CTC methodology'.31

2.16 Submitters also contrasted the work on the development of the current SES methodology, which took over three years to develop, test and validate, with the work to develop the DMI methodology, which took one year.32 Submitters implied that insufficient testing has been conducted on the new methodology and its impact on schools.

2.17 ISCA also noted that throughout the development of the DMI methodology, confidentiality arrangements were in place, which prevented broader discussion of the proposed changes.33 Similar concerns were raised by the independent school sector such as ISV, who recommended that the confidentiality provisions be lifted to enable timely advice to be provided to schools.34

2.18 The department outlined that the 'final settings for the [DMI] were developed through extensive consultation over a 12-month period'.35 The department acknowledged that the Working Group was only provided with papers covering the theoretical aspects of the new methodology, but noted that the group provided advice on 'the statistical merits, strengths and weaknesses of each option'.36 The department advised that the group 'considered refinements to the direct measure, including the consideration of income type, the treatment of missing data and account for family size'.37

Impact on regional schools and boarding schools 2.19 A number of submitters asserted that regional schools and boarding schools will be disproportionately impacted by the change in methodology.38 The Association of Independent Schools of New South Wales (AISNSW) claimed

that 'the application of the new methodology, which relies solely on parent or

31 Independent Schools Council of Australia, Submission 7, p. 11-12.

32 See for example: Independent Schools Council of Australia, Submission 7, p. 5; and Coalition of

Regional Independent Schools Australia, Submission 13, p. 5.

33 Independent Schools Council of Australia, Submission 7, p. 12. See also Independent Schools

Victoria, Submission 8, p. 11.

34 Independent Schools Victoria, Submission 8, p. 11.

35 Department of Education, Skills and Employment, Submission 16, p. 7.

36 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 3.

37 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 3.

38 Association of Independent Schools of the Northern Territory, Submission 1, p. 11. Independent

Schools Council of Australia, Submission 7, p. 10; Coalition of Regional Independent Schools Australia, Submission 13, p. 4; Independent Schools Victoria, Submission 8, p. 10;

14

guardian income, has created unintended consequences because it fails to acknowledge the particular circumstances of many independent regional and boarding schools'.39 AISNSW elaborated:

AISNSW analysis of the new CTC scores shows that in areas where only one fee-paying school operates, that school is impacted more greatly by the new DMI funding methodology than fee-paying schools in areas where a choice of such schools is available.

This is because students from higher income families are concentrated through a lack of choice in a community's sole fee-paying school, intensifying the impact of the new DMI funding methodology.

As a result, the CTC scores of five independent schools in regional NSW has risen by 10 points or more, with a corresponding reduction in government funding.40

2.20 The Coalition of Regional and Independent Schools Australia (CRISA) explained that an increase in the CTC score would result in a decrease in funding.41 For each point increase it was estimated that a school would lose approximately $310 per student per year.42

2.21 The CRISA noted that the worst effected school will see an increase of 18 points, from 97 to 115, which would equate to the school losing $5,600 per student per annum.43 This was contrasted with a large metropolitan school, where the DMI score increased by 13 points, from 123 to 136.44 However, CRISA explained that from 125 points upwards, the school would receive the minimum base funding and therefore the metropolitan school’s score would effectively only increase by two points resulting in the school losing approximately $600 per student per annum.45 CRISA concluded that:

The burden of funds-shifting in this proposed new system is falling disproportionately heavily on mid-SES schools, many of them regional and outer-metropolitan schools which can least afford this impost. There is not the population pressure in regional areas to shore up enrolments if a decline sets in.46

39 Association of Independent Schools of New South Wales, Submission 10, p. 2.

40 Association of Independent Schools of New South Wales, Submission 10, p. 3.

41 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

42 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

43 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

44 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

45 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

46 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

15

2.22 ISV similarly noted that large schools are able to absorb changes in their funding on a year-by-year basis, more effectively than small schools.47

2.23 Moreover, AISNSW described how incomes in rural and regional areas can be subject to severe fluctuations compared to incomes in urban areas.48 AISNSW suggested that the DMI methodology should be adapted to respond to this volatility.49 AISNSW stated:

In a severe downturn, regional families' incomes would be impacted immediately - several years before a school's 'rolling average' can be adjusted to adequately reflect the change.

An alternative measure therefore needs to be developed for regional and boarding schools that responds sooner to income volatility and restores educational attainment and occupation to the measure of advantage.50

2.24 In relation to the impact on boarding schools, Independent Schools Queensland (ISQ) stated that boarding schools appear to be 'extremely negatively affected by the changes to the CTC settings'.51 ISQ advised that Queensland boarding schools will have an average CTC score increase of eight points and nearly 70 per cent of boarding schools will see an increase in their CTC score.52

2.25 The Isolated Children's Parents' Association of Australia (ICPA) commented that there is often a misconception that students attend boarding school to obtain an 'elite' education. However, ICPA explained that it is not uncommon for rural locations to not have a middle school or high school, and in remote locations, the only option available is distance education. 53 Because most boarding schools are independent or private schools, many rural and remote students must board at independent boarding schools.54 ICPA concluded:

For rural and remote families who have limited access to schooling other than independent boarding schools, an increase in fees may make an education even further out of reach for students from rural and remote areas as families are unable to afford the increased fees. This would be exacerbated by the effects of drought and other rural hardships on families

47 Independent Schools Victoria, Submission 8, p. 9.

48 Association of Independent Schools of New South Wales, Submission 10, p. 3.

49 Association of Independent Schools of New South Wales, Submission 10, p. 3.

50 Association of Independent Schools of New South Wales, Submission 10, p. 3.

51 Independent Schools Queensland, Submission 11, p. 5.

52 Independent Schools Queensland, Submission 11, p. 5.

53 Isolated Children's Parents' Association Australia, Submission 12, p. 2.

54 Isolated Children's Parents' Association Australia, Submission 12, p. 3.

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when they are already struggling to pay fees to continue their children’s compulsory education.55

2.26 With respect to the claim that regional schools will be disproportionately impacted by the new DMI methodology, the department advised the following:

There are 55 non-systemic independent schools where funding will reduce over time to 2029. The majority of these schools are located in major cities and had an average fee schedule of $20,000 in 2017 (weighted by enrolments). Schools in regional and remote areas will continue to receive higher per student funding than metropolitan schools.56

2.27 On 2 March 2020, Minister Tehan announced the following measures to further assist the transition to the new DMI methodology:

 Under the Choice and Affordability Fund, the state-based Catholic Education Commissions and Associations of Independent Schools will flexibly administer the fund, including quarantining a percentage of funding that will flow directly to regional and remote schools.  A robust review process will be established by July 2020 to address

unexpected or unique circumstances affecting the financial capacity of a school’s community.  The National School Resourcing Board will examine the Schooling Resourcing Standard (SRS) loadings as they impact students and

schools in regional Australia. I will be taking the Terms of Reference for this work to the next COAG Education Council. The review will commence by June.  Further work will be undertaken in consultation with the ABS and the sector to investigate what additional data could be used to further refine how the capacity to contribute is calculated.57

2.28 The announcement was welcomed by the independent school sector.58

Use of median income 2.29 Recommendation two of the Board's final report recommended that '[t]he capacity to contribute for a school be determined based on a direct measure of median income of parents and guardians of the students at the school'.59

55 Isolated Children's Parents' Association Australia, Submission 12, p. 3.

56 Department of Education, Skills and Employment, Submission 16, p. 7.

57 The Hon Dan Tehan MP, Minister for Education, Media release: More accurate method to calculate

funding for schools, 2 March 2020, https://ministers.education.gov.au/tehan/more-accurate-method-calculate-funding-schools (accessed 13 March 2020).

58 Independent Schools Council of Australia, Submission 7, p. 13; and Independent Schools

Queensland, Submission 11, p. 3.

59 National School Resourcing Board, Review of the socio-economic status score methodology: Final report,

June 2018, recommendation 2, p xii, https://docs.education.gov.au/system/files/doc/other/national _school_resourcing_board_ses_review_final_report.pdf (accessed 13 March 2020).

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2.30 Some submitters raised concern that the use of the median income would significantly disadvantage regional schools and boarding schools.60 ISCA explained that the use of the median income usually provides a lower number than the use of the mean, but that this is not true when there is a broad distribution of income:

Statistically, the use of the median mitigates the impact of outliers and generally provides a lower number than the use of the mean however using a single number as the reference point for the calculation of the CTC scores also fails to take other factors into account.

…The use of the median for schools with a very broad distribution of income will significantly disadvantage the large number of families below the median if the DMI CTC score is higher than the SES CTC score. That disadvantage increases the further below the median the family is placed.61

2.31 As stated by ISQ, '[t]he use of the median is potentially flawed, as by definition 50% of parents with children enrolled at a school will be below the median'62 and therefore will have difficulty in paying the school fees.63

2.32 Submitters explained that a reduction in funding would result in an increase in school fees or a reduction in programs offered, or both.64 ISQ stated:

A real danger under the DMI methodology is that schools with a bimodal distribution will be required to increase their fees with a resultant reduction in the number of families below their median income being able to continue at the school. This would ultimately drive their median income to an even higher level.65

2.33 It was also observed that the use of the median income and a decrease in funding could place a school into a downward spiral towards the closure of the school.66 CRISA explained:

Fee rises will cause families with more modest incomes to withdraw from the school. This will force the median income of the school up, which will

60 Rockhampton Grammar School, Submission 6, p. 2; Independent Schools Victoria, Submission 8,

p. 8; Independent Schools Council of Australia, Submission 7, p. 10; Association of Independent Schools of the Northern Territory, Submission 1, p. 6; and Association of Independent Schools of New South Wales, Submission 10, p. 3.

61 Independent Schools Council of Australia, Submission 7, pp. 9-10.

62 Independent Schools Queensland, Submission 11, p. 4.

63 Independent Schools Queensland, Submission 11, p. 5.

64 Rockhampton Grammar School, Submission 6, p. 2; Anglican Schools Corporation, Submission 5,

p. 2; Independent Schools Queensland, Submission 11, p. 5; Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

65 Independent Schools Queensland, Submission 11, p. 5.

66 Association of Independent Schools of the Northern Territory, Submission 1, p. 11; and Coalition of

Regional Independent Schools Australia, Submission 13, p. 4.

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in turn result in further loss of funding, leading to more enrolment losses. Hence the school is placed in a downward spiral towards closure.

At a national level, this will ultimately push the mid-fee regional schools either to be small, high-fee schools, to cut programs and become low-fee schools, or to cease to exist as a choice for families in these areas.67

2.34 To replace the use of the median income, submitters suggested that an alternative measure be used for regional schools and provided the following range of options:

 the first quartile value;68  the quartile average value (that is, the average of the first, second and third quartile family income in each school);69 and  mean or mode.70

2.35 The department advised that stakeholders and technical experts were consulted on whether the median income would be a reliable measure to determine income distribution within a school.71 Furthermore, analysis was undertaken with stakeholders to consider a range of alternative measures.72 The department stated:

On balance the Government decided to use the median as this was recommended by the Board as the most fit for purpose statistical measure for use in the direct measure of income. Further, the use of the median expands the range of options available to reflect the circumstances of low income earners.73

2.36 In addressing the need to assist schools to transition to the new methodology, the department advised that it will continue to work with the Australian Bureau of Statistics (ABS) to assess 'whether additional data can allow a school's CTC score to be calculated using a mean as opposed to the median parental income for the school'.74

67 Coalition of Regional Independent Schools Australia, Submission 13, p. 4.

68 Coalition of Regional Independent Schools Australia, Submission 13, pp. 3 and 8.

69 Catholic Education Commission of Victoria, Submission 22, p. 5.

70 Independent Schools Queensland, Submission 11, p. 4.

71 Department of Education, Skills and Employment, Submission 16, p. 5.

72 Department of Education, Skills and Employment, Submission 16, p. 5.

73 Department of Education, Skills and Employment, Submission 16, pp. 5-6.

74 Department of Education, Skills and Employment, Submission 16, p. 8.

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Data matching rates and missing data 2.37 Some submitters raised concerns in relation to missing data and matching rates used to determine the CTC score.75 The current SES/CTC methodology requires a 95 per cent data match rate to produce the SES/CTC score.76

However, the proposed methodology does not include a similar safeguard to produce a DMI/CTC score.77

2.38 The ISCA acknowledged that a high matching rate is not necessarily required to calculate a valid score when a school community is fairly homogenous because missing data can be imputed.78 Conversely, this same approach cannot be adopted to produce an accurate score where the school community is not uniform.79 ISCA contended that this will significantly disadvantage small schools, rural and remote schools, boarding schools, and schools with high numbers of disadvantaged students.80

2.39 A number of submitters provided examples of the low data matching rates, asserting that they are not high enough to accurately calculate the school’s capacity to contribute.81 For example, AISNSW noted that one New South Wales independent school whose SES score will increase by seven points, has a data matching rate of 57 per cent.82 ISQ advised that it has been provided with the linkage rates of family details to taxation records for independent schools of between 67 per cent and 97 per cent.83 It concluded that 'the validation process has not been sufficient'.84

75 Association of Independent Schools of the Northern Territory, Submission 1, p. 8; Association of

Independent Schools of South Australia, Submission 14, p. 1; Independent Schools Council of Australia, Submission 7, p. 9.

76 Association of Independent Schools of the Northern Territory, Submission 1, p. 8; Independent

Schools Council of Australia, Submission 7, p. 9.

77 Association of Independent Schools of the Northern Territory, Submission 1, p. 8; Independent

Schools Council of Australia, Submission 7, p. 9.

78 Independent Schools Council of Australia, Submission 7, p. 9.

79 Independent Schools Council of Australia, Submission 7, p. 9.

80 Independent Schools Council of Australia, Submission 7, p. 9.

81 Association of Independent Schools of the Northern Territory, Submission 1, p. 8; Independent

Schools Queensland, Submission 11, p. 6; and Association of Independent Schools of New South Wales, Submission 10, p. 4.

82 Association of Independent Schools of New South Wales, Submission 10, p. 4.

83 Independent Schools Queensland, Submission 11, p. 6.

84 Independent Schools Queensland, Submission 11, p. 6.

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2.40 ISQ acknowledged that the reason for data not successfully linking is unclear.85 The Association of Independent Schools of South Australia agreed, adding that:

[i]t is not clear at this point what level of volatility there will be with the move to the rolling averages as no modelling has been released on the year on year changes. It is further not clear whether this analysis has been undertaken by the department.86

2.41 AISNT proffered the view that it was highly likely that income data for their most disadvantaged students, particularly indigenous students from remote and very remote communities, were not being matched, resulting in an inflated CTC score for the school.87 AISNT provided the following case study:

An example of this from Table 6 above, is School 3, which has had a large increase in the DMI CTC Score, calculated using a matching rate of 83%. The student cohort comprises of 19% Indigenous students from remote and very remote communities and highly disadvantaged backgrounds. It is the view of AISNT that the missing 17% of data is comprised mostly of the school’s Indigenous population and the school’s CTC score is overstated.88

2.42 ISV recommended that more information be provided to schools about how their DMI/CTC scores have been calculated, including the specific data underlying these calculations.89 This view was shared by ISCA who acknowledged that the appeals process is currently being developed, however, raised concerns that it was not clear what consultation would take place with the non-government school sector.90

2.43 The department advised that improvements have been made to link the names and addresses of parents and guardians with other data.91 The department explained that in 2017 the Board used data that linked with student addresses only.92 Addresses that were not linked were excluded from the school population for the purposes of calculating the median income.93 Analysis

85 Independent Schools Queensland, Submission 11, p. 6.

86 Association of Independent Schools of South Australia, Submission 14, p. 1.

87 Association of Independent Schools of the Northern Territory, Submission 1, p. 9.

88 Association of Independent Schools of the Northern Territory, Submission 1, p. 9.

89 Independent Schools Victoria, Submission 8, p. 11.

90 Independent Schools Council of Australia, Submission 7, p. 11.

91 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

92 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

93 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

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indicated that regional addresses were more likely to be excluded due to a failure to find an exact match.94

2.44 In 2018 and 2019, address collections included the names and addresses of parents and guardians, thereby creating more opportunities for data to be linked.95 In relation to the 2019 address collection, the department advised:

 names and addresses of 2.5 million parents/guardians for 1.3 million students attending non-government schools was collected;  6 per cent of students had one parent submit;  94 per cent of students had two parent/guardian records submitted, of these:

− 63 per cent had both parents/guardians successfully linked to 2016-17 tax returns; − 19 per cent had one parent/guardian linked, but not the other; and − 12 per cent had both parents/guardians not linked.96

2.45 The department explained that a range of data is used to link names and addresses of parents, including data related to low-income concession cards.97 According to the department:

Parents who reported lower income in the Census are more likely to be missing from personal income tax. The use of concession card data provides significant improvement in coverage for those in low-income brackets whilst PAYG improves coverage of mostly moderate to high-income individuals.98

2.46 The department advised that it 'will continue to work with the ABS to explore the use of additional data sets that could further improve the quality of the CTC methodology'.99

2.47 The department also addressed concerns raised with respect to the impact that funding volatility could have on schools.100 The department explained that a three-year rolling average of scores would reduce funding volatility and would provide schools with the likely trend in the following year.101 The department advised:

Analysis indicates that after applying a three year rolling average, CTC scores for the vast majority of schools would be stable over time, however

94 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 4.

95 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 5.

96 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 5.

97 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 5.

98 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 6.

99 Department of Education, Skills and Employment, Submission 16, p. 8.

100 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 6.

101 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 6.

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CTC scores of some very small school would still be volatile. Between the 2018 and 2019 single year DMI scores, 14 small schools characterised as having less than 200 students changed by more than 6 points, which means CTC scores for these schools could change by more than two points year on year. To provide additional stability on top of the rolling average, CTC score changes for small schools will be capped at two points from 2022.102

Transitional arrangements 2.48 Submitters were generally supportive of the inclusion of transitional arrangements.103 As outlined in chapter one, these arrangements include:

(a) a phased implementation of the DMI methodology which allow schools until 2022 for their CTC score to be based on the best of one of three options; and (b) a two year extension (until 2029) for schools to transition down to 80 per

cent Commonwealth share of their Schooling Resource Standard (SRS).

2.49 ISV commented that schools would feel the full impact of the new DMI/CTC methodology after 2022 when the proposed transition provisions cease to operate.104 ISV recommended that suitable transition arrangements be implemented for schools who's CTC scores change beyond 2022, and that schools be provided their CTC score at least 12 months in advance of it being used to determine funding.105

2.50 The ISCA similarly recommended that each of the proposed transition periods for schools be extended by two years 'to allow time for improved road testing of the model and development of suitable alternatives'.106

2.51 In contrast, some submitters such as the Australian Council of State School Organisations (ACSSO) questioned the need for a transition period, arguing that the timeframes are 'excessive' given that schools have been 'reaping excessive funding for years if not decades'.107

2.52 As stated earlier the government announced a Choice and Affordability Fund, consisting of $1.2 billion over 10 years (from 2020 to 2029), to the Catholic and independent school sector, to further assist schools, particularly regional and remote schools, with the transition as proposed by the bill and Regulation.

102 Department of Education, Skills and Employment, Submission 16, Attachment 1, p. 7.

103 National Catholic Education Commission, Submission 15, p. 6.

104 Independent Schools Victoria, Submission 8, p. 8.

105 Independent Schools Victoria, Submission 8, p. 8.

106 Independent Schools Council of Australia, Submission 7, p. 13. See also Anglican Schools

Corporation, Submission 5, p. 2; Independent Schools Victoria, Submission 8, p. 9; and Association of Independent Schools of New South Wales, Submission 10, p. 4.

107 The Australian Council of State School Organisations, Submission 4, p. 5.

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2.53 However the ISQ considered that it was unlikely that the fund would be sufficient to assist schools affected by the new DMI methodology.108 This view was supported by ISCA who explained the limitations on the fund:

As announced by Minister Tehan, a portion of this funding will be used specifically to assist regional and remote schools requiring transition assistance. This amount is currently set at 9% of the Fund in the Guidelines however the Independent sector is working with government to increase this proportion. The Guidelines also require that funds be utilised to assist non-regional schools requiring transition assistance and also special circumstances funding.

While the Choice and Affordability Fund was initially set up to address a range of priorities, It is highly likely that a significant proportion of the Choice and Affordability Fund will go towards assisting schools to transition as a result of the introduction of the DMI CTC methodology.109

2.54 However, ACOSSA argued that the government should not be relying on the sector to distribute funds to schools, particularly when it is introducing a methodology to assess the financial need of individual schools:

Of particular concern is the mode of distribution. If you are going to introduce a formula that identifies the financial need of an individual school, it is essential that [the] allocated [amount] for that school reaches that school directly. Providing it to a centralised bureaucracy (a sector) with power to distribute as they see fit will only result in some schools being over funded whilst other schools continue to be short changed. This practice has been evident, particularly in the Catholic system for some time - what guarantee can the Federal Government give that it won’t continue - transparency in funding is key to truly addressing need.110

Details in regulation 2.55 As outlined in chapter one, the details of the proposed DMI methodology and CTC score, as well as the transition path for non-government schools, will be contained in Regulation.

2.56 The AEU argued that this would give the Minister 'unprecedented powers to change school funding without having to pass legislation', and that this 'sets an extremely dangerous precedent for the determination of school funding in Australia'.111

108 Independent Schools Queensland, Submission 11, p. 7.

109 Independent Schools Council of Australia, Submission 7, p. 9.

110 Australian Council of State School Organisations, Submission 4, p. 6.

111 Australian Education Union, Submission 20, p. 5.

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2.57 Responding to this concern, the department advised that the approach will 'enable refinements to the methodology to be implemented as new data becomes available'.112

Funding to non-government schools verse government schools 2.58 Although peripheral to the bill, some submitters expressed concern that non-government schools continue to receive more funding than government schools.113 The Federation of Parents and Citizens Association New South

Wales argued that more funding should be provided to government schools given that 65 per cent of students attend a government school.114

2.59 ACSSO observed that funding for government schools will only reach 95 per cent of their SRS due to agreements with state and territory governments.115 This concern was shared by the AEU who stated:

The government’s 20% cap on commonwealth funding of public schools will ensure that a tiny minority will reach 100% of SRS by 2023, whereas the inverse applies for private schools - the Commonwealth Government’s promise to deliver 80% of SRS to private schools by 2023 will mean that the vast majority of private schools in Australia will exceed 100% of SRS in the next four years.116

2.60 Conversely, the independent school sector asserted that a 'strength of the independent schooling sector lies in the rich mix of education choices and opportunities'.117

2.61 Mr Chris Curtis provided a different perspective arguing that Australia's school funding model should be completely reconsidered.118 Mr Curtis maintained that any capacity to contribute model would segregate students by class. 119 Mr Curtis explained:

The consequence of this funding policy will be to further socially stratify our schools because it says the more you earn the less your child gets. Thus, the wealthy, the upper middle, the middle middle, the lower middle and the poor all have to concentrate in their own schools because the funding system segregates them. A school that wants to take both middle-class and poor students will not be able to because the presence of

112 Department of Education, Skills and Employment, Submission 16, p. 4.

113 Federation of Parents and Citizens Associations New South Wales, Submission 2, p. 2; Australian

Council of State School Organisations, Submission 4, p. 6;

114 Federation of Parents and Citizens Associations New South Wales, Submission 2, p. 2.

115 The Australian Council of State School Organisations, Submission 4, p. 6.

116 Australian Education Union, Submission 20, p. 3.

117 Independent Schools Queensland, Submission 11, p. 2.

118 Mr Chris Curtis, Submission 21.

119 Mr Chris Curtis, Submission 21, p. 3.

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middle-class students will cut its government funding and thus push its fees up and thus drive out the poor, who will end up at the government school.120

2.62 Mr Curtis recommended that the capacity to contribute model be removed and replaced with a more needs-based model, such as those that operate in England, Finland and New Zealand.121

2.63 The department advised that despite the Australian Government not being responsible for operating schools, the government has a role in education funding and policy.122 Accordingly, funding of schools is shared between the Australian Government and state and territory governments.123 The department stated that funding for government schools 'will continue to grow by 4.8 per cent on a per student annual average over 2018 to 2029'.124 Moreover, the Australian Government has committed to providing record levels of recurrent funding for schools from $17.5 billion in 2017 to $32.5 billion in 2029.125

Committee view 2.64 The bill and corresponding Regulation will introduce a more accurate method of determining a school community's capacity to contribute to the funding of non-government schools. For most non-government schools, the new

methodology will result in an increase or no change to their funding from the Australian Government. In addition, the bill will allow for a phased implementation to the new methodology and allow adjustments to be made to the transition pathway for non-government schools that will be financially adversely affected.

2.65 The committee has considered the concerns raised by submitters. Particularly concerns in relation to the new DMI methodology, the disproportionate impact the methodology may have on regional schools and boarding schools, the use of the median income of parents of schools, low matching rates in relation to the data use to determine a school's CTC score, and the transitional arrangements.

2.66 In response to concerns that regional schools will be disproportionately impacted, the government announced that a review process will be established to address unexpected or unique circumstances affecting the financial capacity

120 Mr Chris Curtis, Submission 21, p. 4.

121 Mr Chris Curtis, Submission 21, pp. 2-4.

122 Department of Education, Skills and Employment, Submission 16, p. 6.

123 Department of Education, Skills and Employment, Submission 16, p. 6.

124 Department of Education, Skills and Employment, Submission 16, p. 6.

125 Department of Education, Skills and Employment, Submission 16, p. 6.

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of a school community. Additionally, the Board will commence a review in June to examine the SRS loadings and its impact on students and schools in regional Australia.

2.67 With respect to improvements that could be made to the DMI methodology and the matching of data, the committee is reassured with the improvements the department has made to capture relevant data to link with the names and addresses of parents and guardians. Moreover, the department advised that it will continue to work with the ABS to further improve the quality of the CTC scores for individual schools. The committee is supportive of the department's commitment to continue to investigate ways to improve the quality of data used to assess a school's CTC score.

2.68 The committee acknowledges the concerns raised by submitters in relation to the appropriateness of using the median income of parents at schools to determine the CTC score of the school. However, the committee notes that the use of the median income was a direct recommendation of the Board. Furthermore, the department advised that analysis was undertaken with stakeholders to consider a range of measures, including that the median income would be a reliable measure to determine income distribution. Having regard to this information, the committee considers the use of the median income to be appropriate.

2.69 The committee is of the view that the bill will ensure that school funding to non-government schools will be allocated according to the needs of individual schools and distributed to schools fairly and transparently. Accordingly, the committee recommends that the bill be passed.

Recommendation 1

2.70 The committee recommends that the bill be passed.

Senator the Hon James McGrath Chair

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Labor Senators' additional comments

1.1 The changes proposed in this Bill implement the recommendations of the independent National Schools Resourcing Board to move to a more accurate direct measure of income to calculate a school community's capacity to contribute to the funding of non-government schools.

1.2 Labor Senators note that the more direct and accurate new methodology should allow better needs-based targeting of Commonwealth funding for non-government schools.

1.3 Labor believes that government funding for schools should always be guided first and foremost by need. This Bill is another example of a missed opportunity for this Government to deliver fair, needs-based funding to public schools.

1.4 Labor highlights the AEU’s evidence that:

The Government’s 20% cap on Commonwealth funding of public schools will ensure that a tiny minority will reach 100% of the SRS by 2023, whereas…the Commonwealth Government’s promise to deliver 80% of SRS to private schools by 2023 will mean that the vast majority of private schools in Australia will exceed 100% of the SRS.

1.5 The Government’s funding arrangements also include loopholes that allow states to underfund public schools by a further 4% by artificially counting funding for items such as capital depreciation and school transport costs as part of recurrent expenditure.

1.6 The Government’s funding arrangements are not needs based. The Government has entrenched inequity between school systems, turning their backs on public school students and parents.

1.7 This Bill does nothing to address the under-funding of public schools; instead, it commits an additional $3.4 billion to deliver targeted funding to private schools.

1.8 Public schools educate 82 per cent of the poorest students in Australia. They teach 84 per cent of Indigenous students, and 74 per cent of students with disabilities. Instead of directing new funding to the schools and students with the greatest need, the Government is locking in disadvantage.

Transparency and scrutiny of proposed arrangements 1.9 Labor Senators note that the inclusion of amendments to provide authority to make GST-inclusive payments to non-government schools has prevented extensive scrutiny of this Bill. If changes aren’t passed promptly, thousands of

schools stand to lose long-standing GST payments. Attaching this time-sensitive amendment to a Bill that proposes major changes to recurrent school

28

funding has limited opportunities for detailed scrutiny of the proposed changes. This has compounded concerns expressed by a number of submitters that the Government’s development of the DMI methodology has been rushed and relied on limited consultation.

1.10 Scrutiny has also been undermined by the decision to remove substantial detail regarding the CTC methodology from the Act and place it in the Regulation. Labor does not consider justifications provided in the Department’s submission to be adequate and calls on the Government to release the proposed regulations and consult widely to improve transparency.

1.11 Labor Senators also note that various submitters raised concerns about lack of detail regarding the proposed appeals process and the related Choice and Affordability Fund guidelines. Further, the Government is yet to publicly release the proposed guidelines related to Ministerial determinations on ‘majority Aboriginal and Torres Strait Islander schools’ or the refined area-based method for very small schools.

1.12 The Bill allows the Minister to depart from the methodology prescribed in 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 persons responsible for children at the school to contribute financially to the operation of the school. Where there are genuine issues with a school’s CTC score matching the demographics of its community this is appropriate; however, ministerial discretion should not provide a “blank cheque” to top up the funding of any school that requests it.

1.13 Labor Senators recommend strengthening transparency around the appeals process and use of own-initiative Ministerial determinations on CTC scores. When Ministerial determinations are made, whether by own-initiative or on application, they should be published within 28 days on the Department of Education, Skills and Employment website. This would make clear all schools for which applications have been lodged or own-initiative determinations made; years for which determinations are made; reasons for determination; and any CTC score adjustment.

1.14 Labor Senators also note that a number of submissions suggest that a significant proportion of the related Choice and Affordability Fund will go towards assisting schools to transition as a result of the introduction of the DMI CTC methodology. Labor notes that transition funding should support schools to transition to their accurate funding level, not top up or sustain their existing funding in perpetuity. Labor Senators call on the Government to clarify whether funding under the Choice and Affordability Fund will be allocated across all five priorities identified in the relevant guidelines.

1.15 A number of submissions have suggested that further refinement of the DMI methodology is needed, particularly in relation to data matching and the

29

appropriateness of proposed arrangements for regional and boarding schools. Labor supports the ABS undertaking further investigation of ways to improve the quality of data and appropriateness of the methodology in these cases.

1.16 Notwithstanding concerns regarding scrutiny and transparency in this Bill, Labor Senators accept that the proposed arrangements will deliver a more robust, direct and accurate measure of a school community’s capacity to contribute to the financial operation of the school. This will lead to the delivery of more targeted needs-based funding within the non-government school sectors. Labor will therefore support this Bill.

Recommendation 1

1.17 Labor Senators recommend that the Regulation enabled by this Bill specify that the outcomes of Ministerial determinations, whether by own-initiative or on application, are published within 28 days on the Department of Education, Skills and Employment website.

Senator Louise Pratt Deputy Chair

31

Australian Greens Senators' dissenting report

1.1 The Australian Education Amendment (Direct Measure of Income) Bill 2020 is a $3.4 billion handout of public money to private schools. It is yet another instance of the Liberal and Labor parties working to please the private school lobby at the expense of public schools.

1.2 The Bill fails to take into account the actual needs of Australian students, schools and communities. The Bill changes will increase Commonwealth recurrent funding for non-government schools from $13.1 billion in 2020 to $19.1 billion in 2029. This is yet another shameful display of the bipartisan commitment to entrenching educational inequality in Australia.

1.3 The Australian Greens support the universal right of every child to access education and believe that, with public money, the 2.5 million children in public schools have to come first. Public schools teach the majority of Australian children, including a majority of those who come from the most disadvantaged backgrounds. Handouts of public money to private schools like this Bill must be scrapped.

1.4 The $3.4 billion contained in this bill is additional to the $1.2 billion ‘Choice and Affordability’ slush fund for private schools, both of which formed part of the Coalition Government’s $4.6 billion special deal for private schools ahead of the 2019 Federal election.

1.5 This Bill will only serve to further increase the educational inequality gap in Australia, locking in private schools’ structural advantage in school funding all the way to 2029.

1.6 As the Australian Education Union (AEU) states in its submission, “The current situation with regard to the funding of school education is untenable. For decades it has been widely recognised that Australia’s school funding is among the most inequitable in the world” and “Recent years have seen the Commonwealth Government continually prioritise the appeasement of the Independent and Catholic school lobbies over the maintenance of the provisions of the Australian Education Act 2013.”1

1.7 An ABC analysis highlighted the gross inequities in Australia’s education funding system. It showed 85 per cent of private schools receive more public funding than any similar public school, up from 58 per cent in 2009. 2 The same

1 Page 2, AEU Submission to the Inquiry into the Australian Education Amendment (Direct

Measure of Income) Bill 2020 (Provisions).

2 ABC News, Counting the cost of the education revolution - Online at:

https://www.abc.net.au/news/2018-11-22/counting-the-cost-of-the-education-revolution/10495756

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analysis showed that the median funding gap has grown to a shocking $970 per student.3

1.8 The Australian Council of State School Organisations noted in their submission, “that much of this bill is a special deal and we feel it undermines the principle of fairness we expect”.4 In their submission, Save Our Schools called the Bill a special deal for private schools and one for which the Commonwealth has provided no justification, saying “the additional $3.4 billion in funding for the switch to the direct income measure has all the hallmarks of another special deal for private schools.”5

1.9 With this legislation the Government has once again passed up the opportunity to prevent 99% of public schools from being underfunded by 2023. In addition to overfunding private schools at the expense of public schools, the Liberal government has restricted federal funding for public schools to 20 per cent of the Schooling Resource Standard (SRS). This is an untenable situation for public school students, staff and families, leaving them with no avenue for reaching 100% of the SRS.

1.10 While the Bill goes some way to improving the accuracy of the capacity to contribute score through a direct measure of income, its failure to account for the income, wealth and assets of private schools in assessing a school’s socio-economic status leaves it fundamentally flawed.

1.11 The Australian Education Amendment (Direct Measure of Income) Bill 2020 will leave Australia with decades more of unfairness because of special-deal politics rather genuine needs-based funding. Instead of focusing on lifting underfunded public schools to the national standard and the infrastructure and curriculum reform that can ensure an accessible, quality education for all our children, the Government is firmly in the business of placating the private schools lobby. This Bill should not proceed.

1.12 The Australian Greens thank all of the submitters to the inquiry, and acknowledge their efforts given the extremely short submission period. We maintain our disagreement with the decision to shorten the duration of this inquiry and the short time period allowed for submissions. Both decisions hampered the committee’s ability to consider this important issue in detail and unnecessarily restricted public scrutiny of this $3.4 billion handout of public money to private schools.

3 Ibid.

4 Page 3, Australian Council of State School Organisation (ACSSO) Submission to the Inquiry into

the Australian Education Amendment (Direct Measure of Income) Bill 2020 (Provisions).

5 Page 2, Save our Schools Submission to the Inquiry into the Australian Education Amendment

(Direct Measure of Income) Bill 2020 (Provisions).

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Recommendation 1

1.13 The Australian Education Amendment (Direct Measure of Income) Bill 2020 should not proceed.

Senator Mehreen Faruqi Member

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Appendix 1 Submissions

Submissions 1 Association of Independent Schools of the Northern Territory 2 Federation of Parents and Citizens Associations New South Wales 3 Save Our Schools Australia 4 Australian Council of State School Organisations 5 Anglican Schools Corporation 6 Rockhampton Grammar School 7 Independent Schools Council of Australia 8 Independent Schools Victoria 9 Principal’s Association of Victorian Catholic Secondary Schools 10 Association of Independent Schools of NSW 11 Independent Schools Queensland 12 Isolated Children's Parents' Association 13 Coalition of Regional Independent Schools Australia 14 Association of Independent Schools of South Australia 15 National Catholic Education Commission 16 Department of Education, Skills and Employment 17 Australian Association of Christian Schools 18 Australian Secondary Principals' Association 19 St Paul's Grammar School 20 Australian Education Union 21 Mr Chris Curtis 22 Catholic Education Commission of Victoria 22.1 Attachment 1: confidential 23 Confidential