Leading tax lawyer slams Daniel Andrews’ schools tax as ‘upending’ good tax policy

The comments came as independent school principals met with the Victorian opposition on Thursday, warning that parents on modest incomes would be hit by the tax

Victorian Minister for Education Natalie Hutchins and Premier Daniel Andrews hold a press conference. Picture : NCA NewsWire / Nicki Connolly

The Andrews government’s proposed payroll tax changes for private schools up-end long-accepted principles of good taxation policy, according to a leading tax lawyer.

Gadens partner Biljana Apostolova’s comments came as independent school principals met with the Victorian opposition on Thursday, warning that parents on modest incomes would be hit by the tax.

As part of budget measures intended to help Victoria repay $31.5bn in debt attributed to the Covid pandemic, the government last month announced about 110 private schools would be stripped of their payroll tax exemption, raising $421m over three years.

But with schools still in the dark about which will be hit, Premier Daniel Andrews last week signalled a backdown on the scope of the tax, confirming it would impact fewer than the 110 initially indicated, and raise less revenue, with the threshold yet to be determined by Education Minister Natalie Hutchins.

“The proposed payroll tax legislation will give the Minister for Education complete and arbitrary discretion at any time to declare which schools must pay tax and which will be exempt, subject only to what the minister considers appropriate,” Ms Apolstolova said. “In other words, Victoria is embarking on an unprecedented tax policy based on arbitrary taxation at the hands of the minister, who will have the power to decide who to tax.

Victorian opposition leader John Pesutto said it was clear the tax would “hit Victoria’s low-fee schools the hardest and only lead to poorer educational outcomes.” Picture: NCA NewsWire /Luis Enrique Ascui

“The bargaining we are seeing play out around the school fee threshold ... further reinforces why what is proposed is inconsistent with good tax policy. The finer details of the proposed legislation show that the shrinking number of schools that may be caught by the tax should not be seen as a vindication. The scope of the exemption can be changed by the minister from time to time and so any tax relief may be short-lived.

“The changes to the legislation appear to have been made in haste and fail to align with the laws that govern school registration and government funding, which will create havoc both in administration and compliance.

“The critique of this tax measure is not about who are the winners and losers. It is long accepted that tax laws should be certain, clear and universal, with taxpayer rights a matter of legislative certainty rather than discretion on the part of executive government. The proposed legislation does not accord with those principles.”

Alongside Opposition Leader John Pesutto and his education spokesman, Matt Bach, Heathdale Christian College principal Ross Grace described the tax as a “tax on learning”.

The college has campuses in Melbourne’s western suburban growth corridors of Werribee and Melton, with fees set at just over $8000 per student annually.

“It’s a tax on learning ... the mums and dads in my area, of a moderate fee-paying school, are going to have to bear the brunt of this,” Mr Grace said.

Mr Pesutto said: “It’s clear this tax will hit Victoria’s low-fee schools the hardest and only lead to poorer educational outcomes. This is an unfair and regressive tax and a future government I lead will scrap it.”