Means testing education benefits

The richest 20% of Australia’s households receive up to 12% of social assistance benefits, which include public education and healthcare.  While most cash transfer benefits are means tested, some in-kind benefits are not.

In the case of education, a wealthy family with three children can enjoy total government benefits over their schooling years ranging between $143,000 for a wealthy private school, and $585,000 for a public school, to cover recurrent costs only.  Yet by definition, wealthy parents in our society should not need such help.

So let’s proceed, first, by revisiting the idea of introducing some level of user charges for better-off parents who patronize Australia's government schools.  That would seem to be the most obvious challenge facing advocates of means testing.

Two years ago, Tim Hawkes, headmaster of Sydney’s Kings College, and Brian Caldwell, a former dean of education at Melbourne University, proposed that wealthy parents pay something towards their children’s education, just like parents of students in private schools.

Their idea drew a riposte from a former Victorian Minister for Education, who argued (SMH 20 June 2011) that society faces a high price if we take the ‘free’ out of education: "Underlying these proposals is the provocative contention that government should not provide free education for all.  They are arguing that future public provision of schooling should be means tested and would remain free only to those in most need".

This traditional view of public education funding is clearly indifferent to the large benefits that it confers on rich parents.  And it contrasts with the widespread acceptance of means testing of subsidies given to private provision of schooling. 

At present, the federal government determines its subsidies to the most wealthy private schools to be 13.7% of a construct called 'Average Government School Recurrent Cost'.  In 2011, this AGSRC was $10,583, and the related subsidy for 'wealthy' schools was therefore $1,450 per student, which was more than five times smaller than the equivalent subsidy intended for the 'poorest' schools.

While the federal government’s method of varying subsidies between private schools is controversial, its intended purpose is to means test them.

State and Territory subsidies on the other hand are not as remarkable in their distributional aims.  For ease of exposition, let's just add the average State and Territory recurrent cost subsidies for all private schools in 2010-11 to the above $1,450.  This would bring average public assistance to wealthy private schools to about $3670 per student, which would have helped lower such schools' minimum tuition fees to perhaps $20,000.     

In contrast, well-off parents of children who patronized a government school in 2010-11 enjoyed  average recurrent cost subsidies of $15,002 per student.  Their fees were virtually nil.

Translating these figures into family-sized benefits, public subsidies given to a wealthy family educating three children over 13 years of schooling totalled $143,000 for private schools and $585,000 for public schools, the latter exceeding the former by $442,000.

At $442,000 each, only 2,262 such families are needed for this extra government funding to reach $1billion.

Surely, in any circumstances, but particularly in these times of protracted government budget deficits, there is a case for reducing this $442,000 bonanza by debiting some charges to wealthy parents who use public schools.

In more normal times of public finance, there is a case for debiting such parents in exchange for lowering personal income tax rates. 

Beyond these steps, there is also a case for phasing out all education subsidies eventually for all wealthy families, whether it be through fees or some other way.

If the case for means testing these subsidies appears so obvious, how did they ever begin?  For this, let's now revisit the arguments of Attorney General Mr James Stephen, who sponsored the idea of free education for the rich in Victoria's Education Bill of 1872.

Having presented first his case for compulsory education to the Legislative Assembly, Stephen moved on to the question of free education: "Education being made compulsory, a fortiori,  it would be sheer tyranny to fine a man who cannot send his children to school because he has not money to pay the school fees." (Victoria Parliamentary Debates).

For Stephen, the alternative of excusing poor people from school fees, in line with previous practice, degraded them.  And so he concluded, "Once admit that all children whether rich or poor, ought to be educated and it seems to me to follow, as a matter of course, that the State must pay for the education of those children".

If this wasn't sophistry, it became so when combined with his earlier argument for compulsion. 

Less than 20 sentences before arguing for free education, Stephen had drawn attention to two classes of children absent from school: “the waifs and strays found in all large cities”; and children in remote districts. Acknowledging that poor school attendance of the latter was partly an unintended consequence of government’s pro-settlement policies, Stephen claimed:  “It will require something more than the simple inducement offered by free education to cause these people to send their children to school, and that something more is a compulsory provision" (emphasis added). 

So the intellectual case for legislating huge government benefits for rich folk these past 140 years rested on arguments that: the ineffectiveness of a free education provision in combating truancy called for a compulsory provision; and the inequity of a compulsory provision in combating poverty called for a free education provision.