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.