By Bridie Smith
Victoria’s private schools are pushing the federal government for more funding, arguing the hit to their bottom lines from the introduction of a state payroll tax is making the cost of educating students more expensive.
The biggest lobby group for independent schools in the state has written to federal Education Minister Jason Clare to warn that their ability to “effectively and efficiently” educate students is being compromised.
Independent Schools Victoria chief executive Rachel Holthouse says the state payroll tax has had a national impact.Credit: Joe Armao
All schools receive Commonwealth funding regardless of whether they are independent or public.
But Independent Schools Victoria claims that the introduction of Victoria’s payroll tax in July has resulted in some private schools now being underfunded because the tax had increased their costs, which the federal government does not consider when determining funding.
In a letter to the Australian Curriculum, Assessment and Reporting Authority (ACARA) and shared with Clare, the group’s chief executive, Rachel Holthouse, also raised concerns that the state payroll tax could adversely affect the funding of all Australian schools.
Holthouse said because some of the schools paying the tax were included in the sample of schools used to calculate funding, the model was now out of date.
She said the tax had increased the cost of educating students in private schools and, as a result, the average cost, nationally, of educating students had increased. Many private schools have raised their fees to compensate.
“This [tax] has implications for the way the Commonwealth and the state and territory governments calculate funding for all Australian school students,” Holthouse said.
“Payroll tax has to be included because it is a true cost.”
About 60 Victorian private schools are subject to the 4.86 per cent tax, which applies to schools with annual fees of $15,000 or more.
Many Victorian private schools have raised their fees in response to the new payroll tax.Credit: Arsineh Houspian
Collectively, these schools will pay the state an estimated $101.8 million this year.
In the letter, seen by The Age, Holthouse argues that the way funding is calculated should be updated to reflect the changes the tax has brought.
However, an ACARA spokesperson said the authority did not hold a decision-making role in setting the school funding model.
Rather, it collected and reported data relating to school funding, including the net recurrent income per student, which is used in the funding model to allocate Commonwealth funds.
‘This [tax] has implications for the way the Commonwealth and the state and territory governments calculate funding for all Australian school students.’
Rachel Holthouse, Independent Schools Victoria chief executive
The School Resource Standard is based on the 2018 Gonski review, which was designed to level the playing field for Australian students regardless of the school they attend. The standard is calculated each year by the federal Department of Education.
When working out the net recurrent income per student, a school’s income – comprising everything from federal, state or territory contributions to donations, charges, fees and fundraising – is calculated. Deductions for capital are also noted, as is whether the school is government, Catholic or independent.
Schools then receive Commonwealth funding based on an estimate of how much total public funding they require to meet students’ educational needs.
The Gonski review reported declining performance among Australian school students and revealed a gap between the highest and lowest performing students that was far greater than in many other OECD countries.
A spokesperson for Clare said school funding arrangements were designed to be nationally consistent and that Victoria’s payroll tax did not determine how the School Resource Standard was calculated.
The federal government provided about $4.7 billion to Victorian non-government schools last year. The state government is the majority funder of government schools. In 2024, the federal government gave Victorian state schools $2.79 billion.
The controversial tax – which includes COVID-19 and mental health levies – came into effect in July. Many private schools have attributed the rise in their 2025 fees to the tax and are waging a guerilla campaign to pressure the government to reverse its decision to charge payroll tax.
Announced by then-treasurer Tim Pallas in the 2023 budget, the tax will apply until January 1, 2029.
Holthouse said Pallas’ December departure had raised hopes the tax might be reassessed by new treasurer Jaclyn Symes.
“Any change within government is an opportunity to again raise the issue and convey the strong sentiments of our members that it’s not only unfair, but it’s having direct impact on families,” Holthouse said.
A state government spokesperson said while more than 90 per cent of independent schools were exempt from paying payroll tax, all government schools paid the tax.
“It’s only fair that the highest-fee private schools now also contribute,” the spokesperson said.
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