Government hasn't dug itself out of school funding hole with PIT yet

The Australian Government’s announcement on 20 September 2018 of new funding arrangements gives independent schools certainty for the period 2019 to 2021. Although the focus of the announcement has been the $4.6 billion in additional funding for non-government schools over the next decade, little examination has been made of the significant change in the funding arrangements involving the replacement of the long-standing measure to determine the capacity of parents to contribute – the Socio-economic Status or SES score – with a new measure – Parental Income Tax (PIT).

The new measure of PIT will be implemented from 2022, although schools will be given the option of being funded under the PIT methodology from 2020 should it result in a better outcome for them compared to SES.

The implementation of PIT, on current information, involves significant uncertainty for schools post-2021.

As independent schools are now discovering, it is not currently possible to determine the impact PIT will have on an individual school’s future funding. Further, clarity about PIT scores at the school level is not likely until mid-2019 at the earliest.

Not only is there incomplete and insufficient data available on PIT as it applies to individual schools at the current time, there are many policy and technical questions in relation to the PIT measure that need to be urgently examined.

In the past, funding models for schools have been thoroughly researched and validated prior to their adoption. It is surprising that this new PIT measure has been accepted for implementation prior to any rigorous validation and testing.

The replacement of SES by PIT results from the recommendation of the National School Resourcing Board (NSRB) as outlined in their report Review of the socio-economic status score methodology.The review of SES was established as part of the passage of legislative amendments to the Australian Education Act in 2017 to provide for the Gonski 2.0 funding model under the Coalition’s Quality Schools, Quality Outcomes package.

The PIT links each student’s address to parental income through Australian Taxation Office data.

It is hard to argue that a direct measure of parental income, such as PIT, will not be a better measure of parent’s capacity to contribute than an area-based methodology such as SES.

However, a key policy issue is whether using a direct income measure is appropriate to set a school per student funding rate. In other areas of Government payments where direct income measures are used, such as early childhood, the funding goes directly to the parent and therefore can be linked directly to the individual’s capacity to pay. Ideally under the PIT methodology, each parent would receive a level of Government funding commensurate with their level of income as opposed to the current system where each parent receives a level of Government funding based on the income of the entire parent population of the school.

This would mean a “voucher” type system. Unfortunately, consideration of any such concept does not appear to have featured in determining the new funding arrangements. population of the school. This would mean a “voucher” type system. Unfortunately, consideration of any such concept does not appear to have featured in determining the new funding arrangements.

On the current proposal, parental gross income will be used to determine the PIT score. Is this a more appropriate measure than net income (i.e. after deductions for tax purposes)? Or further, should the measure be about disposable income (i.e. after-tax income) which is ultimately what parents have available to spend on school fees?