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Getting school funding right

By Andrew Leigh - posted Wednesday, 2 April 2008

Of all the policy debates in Australia, school funding is perhaps the feistiest. If you have children at school, you’re an instant expert. If not, you can always talk about how things were when you went to school. So even the merest whiff of change is guaranteed to prompt a barrage of talkback calls and bagfuls of letters to the editor. Add a dash of religion and a pinch of class warfare, and you have all the ingredients for a first order political barney.

Yet as Julia Gillard’s recent entry into the debate illustrated, school funding is an area that desperately requires reform. Indeed, it may be that the best way of delivering on the promise of equality of opportunity is to get school financing right.

The last revolution in school funding occurred with the Howard Government’s 2001 shift to fund private schools based on parents’ socioeconomic status. Introduced by then education minister David Kemp, the so-called “SES formula” aimed to ensure that schools with more students in poor neighbourhoods got more money.


Unfortunately, the 2001 reforms also included a guarantee to all private schools that if the SES funding formula made them worse off, then they would receive their year 2000 funding amount, adjusted for inflation in the education sector. Seven years later, this “grandfather” clause applies to about half of Australia’s private schools; making a mockery of the notion that private school funding is needs-based.

Another odd feature of the current school funding scheme is that private schools do not adjust their fees to take account of differences in the “voucher amount” that parents bring to a school. For example, high school students in the most advantaged suburbs last year brought their schools just $1,333 in federal funding, while those in the most disadvantaged suburbs were worth a whopping $6,807 apiece. Yet the typical high-end private school did not offer a $5,000 discount to poor parents.

Rather than arguing over particular policies (which themselves often reflect the oddities of historical compromises), the best way of moving the school funding debate out of the ideological mire might be to see whether we can reach agreement over the basic principles that should guide the debate. Here are four core notions that I think all sides should be able to agree to.

First, the wellbeing of children is more important than anyone else. Teachers and school administrators matter, but the top priority of education policies is to help kids, not adults.

Second, we should not penalise parents for spending more on their children’s education. To the extent that education has “positive externalities” (higher productivity, more social capital, better civic engagement), we should encourage it. There is a real difference between a policy that says “the richer you are, the less the government should give your child” and one that says “the more you spend on your child’s education, the less the government should give you”. The former targets resources to those who need them most, while the latter operates like an education expenditure tax.

Third, schools should be judged on outputs, not just inputs. At present, the federal government allocates billions of dollars to private schools, but asks little in return. Taxpayers who fund these schools have a right to demand that they provide empirical data such as test scores, dropout rates, or parental satisfaction surveys.


Fourth, funding should be transparent. Parents should know precisely how much government funding they bring to their child’s school.

Acceptance of these four basic principles could lead to better reform of our education system.

Recognising that kids come first, we might agree that it is good for a child to move to a better school (though we might still argue about how to help those who remain).

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This article was first published in the Australian Financial Review on March 25, 2008.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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