Dozens of Victoria’s private schools stand to lose $1m in budget cuts if a controversial payroll tax is implemented next year, the state’s peak body for independent schools has warned.
Announced in the Victorian Budget on 23 May, the measure will apply to roughly 110 of the state’s wealthiest high-fee private schools, who will now lose their payroll tax exemption from July 2024.
The move has caused uproar across Victoria’s independent and Catholic sectors, with principals writing to parliament and urging lawmakers to intervene – and this week, their calls were heard when Opposition Leader John Pesutto pledged to block the tax, which he said “targets hard-working, aspirational Victorians”.
“The new tax would impact schools with fees as low as $7,500 per year. The additional cost would be borne by school communities and ultimately result in reduced services or increased fees,” Pesutto told The Educator.
“This would disproportionately affect low- and middle-income families, sending the wrong message to Victorians who believe in school choice. The Liberals and Nationals will therefore oppose Labor’s regressive schools tax and commit to repealing it if elected to Government in 2026.”
Massive budget cuts loom
“We’ve surveyed more than half of the 110 Victorian Independent schools most likely to be affected. Based on their responses, the median impact will be a $1 million cut in their annual budgets. For some it will be more,” Green told The Educator.
“Most schools surveyed fear they are likely to increase fees to pay for it. One third fear they will have to cut staff. They warn it will have an impact on families who are already struggling with the rising cost of living. A quarter say they will likely have to cut programs and classes.”
Are Independent schools overreacting?
Premier Andrews has downplayed the Independent school sector’s concerns, saying “preferential” payroll deals have been in place for some time and that only the most “elite” schools would be impacted.
“[Independent schools] have had a preferential tax treatment for a long time, and they’re running businesses,” Premier Andrews said.
“These schools have always been judged to be in a unique category. They have not been eligible for our other support. They are not low-fee schools. They are very high-fee, elite schools, and therefore they’re in a very different position. And they have now a tax treatment that recognises their profitability.”
However, Green said this is “nonsense”.
“This tax on learning has never been imposed on Independent schools. Nor is it imposed on any non-government schools interstate. Schools were exempt because they are not-for-profit organisations that provide a social good,” she said.
“The government has provided only sketchy details, but it will apply to almost half of our 230 member schools, many of which have moderate fees and have limited resources to set aside to pay for it.”
Green said while the state’s independent schools wait for the government to work out how the tax will be assessed, which schools will be taxed and which will be exempt, principals in the sector are uncertain and anxious about the impact it will have.
“The legislation currently going through Parliament doesn’t make this any clearer, except that it gives the Education Minister the power to determine which schools will go on the payroll tax hit list.”
What about public schools?
The Australian Education Union’s Victorian Branch President Meredith Peace said the Victorian Opposition Leader is concerned about the state’s schools getting their fair share of money, he should commit to funding public schools to 100% of their School Resourcing Standard (SRS).
“Opposition Leader John Pesutto is quick to promise that some private schools in Victoria won’t pay payroll tax. But where is his promise to fully and fairly fund public education?” Peace said.
“Public school students are only funded to 90.4% of the governments’ own funding benchmark, while private schools are overfunded far beyond their minimum SRS levels every year. Private school funding is increasing at six times that of public schools – a shameful statistic.”
Peace said that by refusing to commit to fully funding public schools, the Victorian Opposition is “sending a clear message to public school students, parents, teachers, support staff and principals – that their needs are secondary.”
“If Liberals truly care about Victoria’s students and their education, the task ahead is laid out for them plain and clear: commit to fully funding public schools to a minimum of 100 per cent of the SRS.”
Speaking to Guardian Australia on Wednesday, Emma Rowe, a senior lecturer in education at Deakin University, said the Victorian Government is simply removing a tax exemption that independent schools have enjoyed for a long time but which public schools don’t have.
“This is not a loss – it’s just making the playing field far more equitable. The fear that private schools are going to be financially hurt from this is a ludicrous argument,” Rowe said.
‘This can be a dangerous spiral’
However, Green insists many of the “targeted” schools have very limited capacity to absorb the tax.
“Some have particular circumstances - related to factors like their enrolment numbers and the financial strain that parents are already under - that make them vulnerable, especially if they have to increase fees, as many say they will,” she said.
“What’s sometimes forgotten is that not all so-called ‘high fee’ schools have large financial reserves. That means they have limited capacity to absorb the financial shock that this tax entails.”
Green said while independent schools are still in the dark about how the tax will operate, many of the ISV’s member schools are considering the potential impact – including worse case scenarios.
“If, for example, increased fees force parents to withdraw their children, this can have a compounding effect on a school, especially ones with smaller enrolment numbers,” she said.
“Reduced income makes it difficult to maintain programs, services and staff, so more parents might be forced to consider another school, disrupting the education of their children.”
Green said it would also have an effect on the government school system that would have to take those children.
“This can be a dangerous spiral.”
‘Serious implications’ for Catholic sector
Meanwhile, the National Catholic Education’s Executive Director, Jacinta Collins, said the Victorian Government’s “payroll tax grab” could impact around 20,000 Catholic school students and their families.
Collins warned of “serious implications” for the federal funding model, which carefully delineates the capacity to contribute of families who choose to send their children to a non-government school on a scale between 10-80%
“The model is an agreed long-term funding arrangement between federal and state governments established in 2013. The $8,000 threshold is at the midpoint of minimum fee expectations, impacting on schools who are only charging moderate fees,” Collins said.
“Most of our Catholic schools set fees moderately above the minimum fee expectation so they can provide fee relief and other support for families in need. The Victorian Government needs to seriously rethink this impost on non-government schools and their families.”