Money For Parents — Or Education?

Are education rebates the best way to cut the cost of living for families and make inroads into the education budget? Ben Spies-Butcher weighs it up

Thus far, the election campaign has been fairly dull — so it was almost a relief when the Coalition tried to inject some policy provocation into the public arena with a proposal to increase the Education Tax Rebate. Unfortunately, this proposal is an example of exactly what not to do if you are serious about saving money for the government and for families.

The promise builds on a scheme introduced by Labor after the 2007 election. Rudd went into the election promising a 50 per cent rebate for low and middle-income families on costs associated with their education, such as computers, internet connections and textbooks. Under Labor, this rebate will be extended to uniforms in a couple of years.

The Coalition is promising to increase the amount that can be claimed by parents as well as to extent the range of items that can be claimed. It sounds like a good idea, doesn’t it?After all, we know that cost of living pressures are a huge issue for families. And surely helping with education is exactly the sort of thing that governments should do. Isn’t it?

The thing is, this is the wrong way to go about it. As Adam Stebbing and I point out in ‘Getting Value for Money’, our chapter in More Than Luck, subsidising individual purchases runs is rarely the best way to go.

For a start, we’re talking about a 50 per cent rebate. Now that is a lot better than the tax concessions that we have for super and negative gearing, because at least everyone gets the same benefit. But you still need to pay a dollar to get 50c. Those struggling the most are least able to do this, and so may not benefit at all.

Some features of the initial scheme did somewhat reduce this inequity. Capping the amount you can claim means that those with more disposable income cannot claim enormous rebates. The scheme is also currently restricted to those claiming Family Benefit Part A, meaning high income earners are excluded. But some inequity will remain.

The reason governments do not want to pay the whole cost of education expenses like these is that they fear it might lead parents to spend the money on wasteful or unnecessary items. But subsidising only part of the cost does little to control costs.

The problem is that giving lots of people more money to spend on certain items is likely to push up the cost of those items. This is less likely under the current scheme, because parents only make up a small part of the market for the things you can claim the rebate for (computers, the internet and books). But the proposed changes undo this, because they extend the rebate to many more items.

Christopher Pyne, the Shadow Education Minister, argues that the rebate should extend to school fees — after all, they are the main education cost for many parents. But if we give every private school parent extra money to spend on school fees, what is likely to happen? Those fees will go up — and they will gobble up much of the rebate.

In effect, Abbott’s policy is a backdoor way to increase funding to private schools. Chris Bonner has explained why there are real problems with the current funding support to private schools. But if you are going to do it, at least do it directly. Giving parents money to then give to private schools might make good politics, but it pushes up prices, reduces government oversight and costs more in tax revenue.

The alternative is to provide funding directly to the service. If we want to lower the costs of education, then the cheapest and most efficient way is to have government provide quality public schools. But that doesn’t fit with the Coalition’s pro-private school agenda. Alternatively, simply increasing funds to private schools is more controversial, because it plays into a public vs private debate.

So best to give parents money to give to the school, and let the schools raise their fees, it seems.  It makes the parents feel like they are getting something, and it increases funding to the private schools you want to fund. And it all happens through a mechanism that’s a bit complex, so many people won’t notice. But for a party campaigning on public debt, it shows they cannot be that serious about fiscal discipline.

More Than Luck is a collection of ideas for citizens who want real change edited by Mark Davis and CPD Executive Director Miriam Lyons. A to-do list for politicians looking to base public policies on the kind of future Australians really want, More Than Luck shows what’s needed to share this country’s good luck amongst all Australians – now and in the future. Click here to find out more. Like what you’ve read? Donate to help make good ideas matter.

Blog Comments

Hi Ben,
In relation to school funding, based on 2008 Productivity Commission figures, state and federal governments outlay $12,639 per student at a state school, the figure for a non-government school student is $6,606. Every student that attends a non-government school saves the taxpayer approximately $6,000. By some estimates, this amounts to over $7 billion a year.
Over the years 2003-04 to 2007-08 government funding to state schools increased by 1.6% a year in real terms , the figure for non-government schools was 0.65%.
Non-government school parents pay taxes for a system they do not use, in addition to school fees. It’s also the case that the current SES funding model is means tested, the wealthiest non-government schools only receive 13.7% of the cost to government of educating a state school student, needier non-government schools receive 70%.

Thanks Kevin,

This isn’t really a post about private school funding, but rather about the way we fund things. If the price of something is rising, and the government simply gives all of the consumers of that product more money, it only adds to inflation. That is what happened with the first home buyers grant, and I suspect what will happen if this rebate is extended to school fees. If the Coalition thinks we should increase funding to private schools, then it would be more transparent and efficient to do so directly, rather than through these backdoor mechanisms. But I suspect that would be far more controversial electorally. Of course, there is more to this debate than simply numbers, particularly when price becomes a determinant of your ability to access essential services like education and health. If paying for schooling buys status as well as education the case for public subsidy is less clear. But I suspect that is an argument for another page of this site.

It’s true, Kevin, that “non-govt school parents pay taxes for a system they don’t use.” So do childless people, non-car owners, workers with a disability who can’t use public transport, people who never get sick, and several other groups of citizens. That’s what happens when democratically elected governments are entrusted with the responsibility of allocating revenue from taxation to meet the comprehensive needs of the whole citizenry.

But, it also has to be said that non-Govt school parents can claim access to the public school system at any time they decide they need it. Just ask the families whose children, for one reason or another, have been ‘sacked’ from non-Govt schools but who need to complete their school education.

Unlike the non-govt schools, the public system is there for all who need – or chose – to use it. It therefore needs to be developed and maintained at the highest possible standard. Unless you can think of a mechanism for enabling separately funded parents voluntarily to pool their separate allocations so as to produce a robust system of schooling capable of taking on all comers, then funding the systems has got to be a better course of action than funding individual parents.

If allocation of tax revenue back to individual tax payers is such a good idea for schooling, why don’t we do it for water? Or fire protection? Or policing? Or defence? For vital services where very large groups in the community are potential users, strong, high quality systems that are universally accessible are what’s needed.

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