States will struggle to find money

STATES are crying poor over the federal government's demand that they contribute to the school funding package.

STATES are crying poor over the federal government's demand that they contribute to the school funding package, with all except Western Australia struggling to get out of deficit.

The commonwealth is demanding that states lift their base school funding by almost 20 per cent across the next six years, in addition to the $4.8 billion they must invest to get all schools up to a minimum standard.

Although the package guarantees all states that sign up more commonwealth funding for schools than they get now, the additional money demanded from the states will be a stretch, particularly for NSW, Victoria, Queensland and Tasmania.

The package requires that states guarantee they will index their spending on schools by a minimum of 3 per cent and that they cover one-third of the cost of raising spending on all schools to a standard benchmark.

School education accounts for about 14 per cent of state budgets, and has been targeted for cuts by several states as they make savings in an effort to get back to a surplus.

Queensland, which has the most parlous budget outlook, with a deficit forecast to hit $6.7bn this year, raised spending on schools by only 0.3 per cent in its last budget, a cut in real terms. Tasmania, whose deficit is forecast to reach $327 million this year, large for the size of its economy, also froze its school funding in the current year.

Committing to indexation of 3 per cent a year would raise total state education spending by just under 20 per cent across the six-year period from about $26bn this year to $31bn by 2019.

The commonwealth justified the 3 per cent indexation level, saying it was what the state indexation had averaged in recent years, while it is committing to index its own spending by 4.7 per cent. That would raise the commonwealth's school education spending by one-third from $12bn to $16bn across the next six years.

As well as the promise to index spending, the heart of the package is the requirement to bring all schools up to a minimum benchmark, based on criteria such as disability, socioeconomic status and scale.

Although the commonwealth is promising to foot two-thirds of this bill, it is onerous for several states, particularly NSW, which will have to lift funding by $1.7bn across six years; Victoria, which has to find $1.3bn; Queensland, which must also find $1.3bn; and Tasmania, which must lift funding by another $130m.

Western Australia and the ACT, which are already close to the minimum benchmark, have relatively modest contributions, but still face a substantial increase from the commitment to fully index their school funding.

WA is the only state not in deficit and its budget surplus of only $140m this year would be wiped out by any fall in iron ore prices.

All states, including WA, are in the same position as the commonwealth of being able to increase spending in any area only to the extent they can identify savings.

Savings are more difficult for the states than the commonwealth, as staff costs account for more than 70 per cent of their budget. They have less latitude to achieve savings with the financial ruses used by the commonwealth, such as eliminating the 10 per cent discount for early HECs payment.