On 27 February 2020 the Senate referred the provisions of the Australian Education Amendment (Direct Measure of Income) Bill 2020 (the bill) to the Education and Employment Legislation Committee (the committee) for inquiry and report by 1 May 2020. The committee subsequently resolved that it would table its report on 23 March 2020.
Conduct of the inquiry
The committee advertised the inquiry on its website and wrote to relevant persons and organisations seeking submissions by 12 March 2020. The committee received 23 submissions, which are listed at Appendix 1 and are available on the committee's website.
The committee did not hold any public hearings.
The committee thanks all individuals and organisations who contributed to this inquiry.
Scope and structure of the report
This report comprises two chapters. The remaining sections of this chapter provide background to the bill and an overview of the bill, including its purpose and key provisions. Chapter 2 outlines the principal issues raised in evidence and presents the committee's views and recommendation.
The Australian Education Act 2013 (the Act) is the primary legislation for the provision of Australian Government funding to government and non‑government schools across Australia. While delivering school education is the responsibility of states and territories, schools receive funding contributions from Commonwealth, state and territory governments pursuant to the Act. The remainder of schools funding is obtained from the school community, that is, the parents and guardians of students who attend the school.
Part 3 of the Act outlines the formula to calculate the amount of recurrent Commonwealth funding for non-government schools, which takes into account the school community's capacity to contribute to the funding of the school. The funding model is based on the Schooling Resource Standard (SRS), which measures the total public funding a school requires to meet the educational needs of its students. The Commonwealth's share of the SRS is 80 per cent for non-government schools and 20 per cent for government schools.
The SRS amount for a school is calculated by reference to a base amount for every student and six loadings that provide extra funding for disadvantaged students in the school. The SRS funding amounts in 2020 are $11 747 for primary students and $14 761 for secondary students.
For most non-government schools, the base amount is discounted by the capacity to contribute percentage (CTC percentage). All government schools and 'majority Aboriginal and Torres Strait Islander schools' are exempt from this reduction as their CTC percentage is set at zero.
The CTC percentage is calculated by reference to the socio-economic status (SES) score of the school. The SES scores are determined in accordance with the methodology set out in the Australian Education Regulation 2013 (the Regulation). This uses an area-based SES measure, which averages the particular characteristics of all people residing in a certain geographical area and not just families of students attending the school.
In June 2018, the National School Resourcing Board (the Board) completed a review into the SES score methodology—Review of the socio-economic status score methodology—and made six recommendations. On 20 September 2018, the government announced its response to the Board's review and agreed to the six recommendations.
The bill seeks to implement a number of the Board's recommendations.
Purpose of the bill
The Explanatory Memorandum outlines the objective of the bill:
The purpose of [the bill] is to introduce a new, more accurate direct measure of income methodology (DMI methodology) for calculating a school community’s capacity to contribute financially to a non-government school. To ensure that schools are not adversely affected financially by these changes the Bill also enables adjustments to be made to the transition pathways of non-government schools to a nationally consistent Commonwealth share of the Schooling Resource Standard (SRS).
The Minister for Education, the Hon Dan Tehan MP, acknowledged that the new methodology for calculating a school community's capacity to contribute was the result of recommendations made by the Board.
The bill proposes the following changes:
amend terminology from 'SES score' to capacity to contribute or 'CTC score';
enable the Regulation to prescribe a new method for calculating a non‑government school's CTC score by reference to a direct measure of income of a school community;
enable the Regulation to alter the way in which the Commonwealth share for a non-government school is calculated, and alter the period over which that transition occurs, in order to manage any adverse financial impacts arising from the change in CTC score methodology;
broaden the definition of a 'majority Aboriginal and Torres Strait Islander' school and enable the Minister to make a determination that a school is likely to be a majority Aboriginal and Torres Strait Islander school for the year to avoid any unintended application of the capacity to contribute methodology; and
amend the Act to provide clear authority and appropriation to make GST-inclusive payments, where necessary.
The key provisions in the bill and the proposed amendments to the Regulation are summarised below.
Direct measure of income methodology and capacity to contribute score
The bill proposes to amend the methodology to determine a school community's capacity to contribute from an area-based SES measure, to a 'direct measure of income' (DMI) methodology. This would be achieved by repealing the definition of, and references to, the SES score and replacing it with a CTC score. Currently, the Act provides that the Minister must determine the SES score for a school. The bill proposes to repeal this subsection and instead provide that the Minister must determine the CTC score for a school. As the current methodology to calculate the SES measure is contained in the Regulation, the details of the DMI methodology and the calculation of the CTC scores will also be detailed in the Regulation.
Minister Tehan noted that state and territory governments and the non‑government school sector would be provided a summary of the proposed changes to the Regulation and consulted on its implementation. The Explanatory Memorandum similarly states:
…it is intended that an Exposure draft of the amendments to the Regulation will be sent directly to key stakeholders for comment as soon as possible after the introduction of the Bill.
In accordance with the Board's recommendations, the DMI will be calculated based on the income of the persons responsible for students in the school, rather than the averaging of characteristics of all people residing in a certain geographical area. The Department of Education, Skills and Employment's (the department's) website explains how the DMI score will be calculated:
The DMI is based on the median income of parents or guardians at the school (family income that sits in the middle of the range of incomes at a school). The median family income is translated into a DMI score by comparing the median family income of a school against the median family income of other schools. The data are standardised to a mean of 103 and a standard deviation of 13, weighted by enrolments.
The CTC score will determine the level of Commonwealth funding for a school. The CTC score is calculated by averaging the DMI for the school in the previous three years. However, for 2020, the CTC score will be the DMI average for the previous two years. The department's website states that 'for small and very small schools, the year on year change in CTC scores will be capped at two points'.
Multi-Agency Data Integration Project
The DMI uses the names and address of parents and guardians of school students, and links this to data collected from the Multi-Agency Data Integration Project (MADIP). The MADIP will use information disclosed to the Australian Bureau of Statistics (ABS) for linking with personal income tax data collected by the Australian Taxation Office (ATO) and ABS Census data.
The development of the DMI methodology was informed by a Working Group—the Direct Income Measure of Capacity to Contribute Technical Working Group—established in November 2018. The Working Group was chaired by the department and included:
the National Catholic Education Commission;
the Independent Schools Council of Australia;
the Australian Bureau of Statistics;
the Australian Taxation office; and
state education representatives from South Australia, New South Wales and the Northern Territory.
In August 2019, the Working Group was discontinued.
Transitioning to the new methodology
The bill provides that the CTC score determination must be in accordance with the Regulation. Non-government schools will have by 2022 to have their funding calculated using the new DMI methodology. The Explanatory Memorandum notes that the Regulation will be amended to give effect to a phased approach to the DMI methodology. The Explanatory Memorandum states:
As a result of the phased implementation arrangements, in 2020 and 2021 the CTC percentage for schools will be based on the best of one of three options (to be given effect to through amending section 23 of the Regulation):
the SES methodology using historical data (largely 2012 addresses and 2011 ABS Census);
the SES methodology using the most up to date data (2017 addresses and 2016 ABS Census); or
the new DMI methodology.
Transitioning to the Australian Government's share of the Schooling Resource Standard
Currently, the Australian Government's share of the SRS is 80 per cent for non‑government schools. The SRS funding model was introduced in 2017 and provides for schools to transition down to an 80 per cent share of Commonwealth funding by 2027.
The bill proposes for the Commonwealth's funding for non-government schools to remain at 80 per cent. However it is intended that the Regulation will be amended to give non-government schools an extra two years (until 2029), to use the DMI methodology to transition down to receiving Commonwealth funding of 80 per cent. The Explanatory Memorandum provides the rationale for this proposed amendment:
The change from the current SES methodology to the DMI methodology will require an adjustment to the rate at which a transitioning non‑government school will transition to the consistent Commonwealth share. The Australian Government intends to reset a non-government school’s transition path towards the consistent Commonwealth share of the SRS in a manner that smooths out fluctuations in funding levels by extending the transition for non-government schools whose Commonwealth share is decreasing and updating the starting Commonwealth share for all non-government schools to more accurately reflect each school’s circumstance. To ensure non-government schools are not adversely financially affected by this change, the Bill will also enable the Regulation to modify existing arrangements and timeframes for transition of all non-government schools to a nationally consistent Commonwealth share.
A non-government school below the consistent Commonwealth share will be transitioned at a faster rate than a non-government school which is above that share, when it commences transition. This is to ensure that transition continues to take place incrementally while still enabling all non-government schools to reach the consistent Commonwealth share by an extended timeframe of 2029.
Majority Aboriginal and Torres Strait Islander schools
The bill proposes to provide the Minister the power to make a written determination that a school is a 'majority Aboriginal and Torres Strait Islander school' for one year, if the Minister is satisfied that the school is likely to be a majority Aboriginal and Torres Strait Islander school. As noted in the Explanatory Memorandum, this would 'broaden the circumstances in which a school may be regarded as one for the purposes of receiving a CTC percentage of zero'.
The bill seeks to introduce a new section that allows the Commonwealth to make payments of GST-inclusive amounts of funding under the Act where the recipient of that funding is liable to pay GST on the funding. The Explanatory Memorandum notes that Government funding for non-government schools has included GST since 2000. It states:
The new provision will preserve these long-standing arrangements for the payments of GST-inclusive amounts. As the new provision simply preserves existing payment arrangements, it has no financial impact.
Reports of other committees
At the time of writing, the Senate Standing Committee for the Scrutiny of Bills and the Parliamentary Joint Committee on Human Rights had not considered the bill.
It is estimated that the financial impact of these changes is ‘$1.3 billion in Commonwealth recurrent funding over the Budget and forward estimates from 2019-20 and 2020-23, and an estimated $3.4 billion increase in recurrent funding over ten years from 2019-20 to 2028-29’.
The Explanatory Memorandum states that it is estimated that the changes will increase Commonwealth recurrent funding for non-government schools from $13.1 billion in 2020 to $19.1 billion in 2029, equating to an increase of 45.7 per cent with an average growth rate of 4.3 per cent.
Statement of compatibility with human rights
The statement of compatibility with human rights asserts that the bill is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.