The trouble with simple solutions to complex problems is twofold: often, they’re not simple and they’re not solutions. So it is with suggestions that the Goods and Services Tax (GST) be imposed on fees paid by parents with children at non-government schools.
This, it’s suggested, will boost government revenue and ease pressure on the national budget. For some proponents of the tax, there are also assumed ideological and equity benefits, in that it’s argued that it will hit the richest the hardest.
While the proposal has attracted some media attention, there’s no indication that it appeals to the Australian Government.
That might be because the issue is not that simple. Instead, the proposal represents a fundamental change in the nature of the GST, which, if enacted, would risk undermining an essential social good – the education of our children. Nor would it boost government revenues, because it would entail unintended negative consequences. And it would impose an unfair double burden on parents who, in exercising their right to choose the education that best suits the needs of their child, choose a non-government school.
Let’s start with two fundamental and related principles – one about the purpose of the GST, the other about the intrinsic value of investing in education.
The first principle involves a somewhat technical discussion about the purpose of the GST. This tax is intended to apply to ‘final’ consumption spending – not to investments and not to what are known as ‘intermediate inputs’, which are things that are consumed in the process of creating final consumption items.
That is why business investment (such as tractors and machinery) and inputs (such as fertiliser and electricity) are effectively GST-free.
Most parents might not think of it in these terms, but spending on education is an investment in human capital. That is, our society sees value in developing the potential of our children, both for their own good and for the wider good – social, cultural and economic – of our society.
If the logic behind calls for a GST on school fees was applied across the board, then the tax would also be imposed on other investments, for example by farmers and manufacturers. In the short term, the government might have more revenue but people would stop or limit their productive investment, with economically disastrous consequences.
The unintended harmful consequences don’t end there.
Approximately 1.2 million children attend non-government schools, accounting for more than one third of all school students. Despite stereotypes of these schools as the preserve of an elite, many charge low fees, while many parents can only afford to send their children to higher fee schools by making substantial economic sacrifices.
More than one third of Independent schools have fewer than 200 students; 10 per cent have fewer than 50. If a 10 per cent GST on fees led to 10 per cent of parents taking their children (about 128,000) out of these schools, it would impose a burden on the government system, which would have to employ more teachers and build more schools and classrooms. Given that many Independent schools operate on tight financial margins, an exodus would put many at risk of closure, further adding to the burden and costs on the government education sector.
As analysis by the Independent Schools Council of Australia (ISCA) shows, the risks don’t end there. ‘Many of these schools are in regional, rural and remote locations, or meet specific needs such as for students with disability or in need of special educational assistance. Their closure would impose impossible pressures upon government school systems, not only financially but also on achieving appropriate educational outcomes.’
As for the expected government revenue gains, modelling done by ISCA suggests that a GST on non-government school fees would leave a gaping hole in state and territory education budgets.
While the extra GST revenue would amount to an estimated $746 million a year, accommodating the expected influx of students from non-government schools would cost them an estimated $1.29 million – a shortfall of $546 million.
There’s also an equity argument here. Parents who send their children to non-government schools already pay taxes that fund the government education system. The amount of government funding that their children receive is far less that what they would receive in a government school.
The Productivity Commission’s Report on Government Services 2015 showed that, in 2012-13 (the most recently available data), all levels of government provided average funding of $8812 per student in a non-government school. By contrast, they provided $15,703 on average to government school students.
Imposing the GST on fees would subject parents to an additional burden. They would be taxed twice.
There’s one more easily overlooked unintended consequence: imposing the GST on education would not just affect school fees. It would also have an impact on tertiary education, adult and community education, kindergarten and childcare.
Our tax system might need reform. It might be overly complex and failing to meet government funding needs. But in fixing one problem, we should be wary of simplistic ‘solutions’ that would make things worse.