New tax to affect non-government schools with student fees of more than $15,000

Schools affected by the Andrews government’s payroll tax have vowed to fight back, arguing parents shouldn’t be “milked as a source of government revenue”. See which schools will be hit with the tax.

The Andrews Government has backtracked on its controversial schools tax in a move set to cost $100m.

May’s budget forecast $420m would be raised by removing the payroll tax exemption for about 110 non-government schools.

But education minister Natalie Hutchins said on Thursday the exemption would instead be removed from just 60 schools.

The move is expected to rip $100m from the budget over the forward estimates.

Methodist Ladies’ College in Kew is among the schools to be hit with the tax. Picture: Wayne Taylor

It followed a fierce backlash from Catholic and private schools that forced the government to commit to revising its initial plans.

Those plans were to target schools with annual fees of $7,500.

But under the new plan, non-government schools with fees per student of more than $15,000 will be affected.

The government has committed to keeping the $15,000 threshold in place until 2029.

“We’re making sure exemptions from payroll tax flow to the schools that genuinely need support,” Ms Hutchins said.

“We continue to support non-government schools through programs like a $450 million investment for new buildings and upgrades in this year’s Budget.”

A total of 54 independent schools enrolling 63,123 students will be subject to the tax from July 1 next year.

The tax will apply to Xavier College in Kew. Picture: Mark Stewart

Modelling by Independent Schools Victoria shows they will have to cough up a combined total of $78,543,093, averaging $1,155 per student.

ISV chief executive Michelle Green said the tax will “impose a significant burden on the targeted schools”.

“Schools will now have to juggle their budgets and decide if they have to cut educational programs and staff or increase fees to cover the cost,” she said.

“It will come as a financial shock to parents from a wide range of backgrounds who are already struggling with cost-of-living pressures.

Firbank Grammar School in Brighton will be subject to the new tax. Picture: Mark Stewart

“While the tax raised is far less than the government’s budget estimated, it amounts to a heavy blow for school communities, where parents are now being milked as a source of government revenue.”

Ms Green said three quarters of schools affected will now be forced to pay back more to the government in tax than they receive in state recurrent funding.

“ISV and school communities have opposed this tax right from the start, on grounds of principle and practice,” she said.

“We now have a stark picture of its likely damaging consequences.

Brighton Grammar School is on the list of 60 schools hit with the tax. Picture: Penny Stephens

“We will continue to seek repeal of the tax, while urging the government to minimise its impact on school communities and parents while it exists.

“This fight isn’t over. The repeal of the learning tax is the only truly fair outcome, and we won’t rest until that happens.”

Six catholic schools will also be forced to pay the new tax – Xavier College, Loreto Mandeville Hall, Genazzano, Sacre Coeur, St Kevin’s College and Siena College.

Catholic Education Commission of Victoria executive director Jim Miles said although the higher threshold provided some relief, no school should be subject to payroll tax.

St Kevin's College in Toorak is one of the six Catholic schools hit with the tax. Picture: AAP

“Catholic schools are not-for-profit community services working to provide the best quality education they can for Victorian children, while also remaining affordable and accessible for families who seek a Catholic education,” he said.

“Schools subjected to the new tax will face cuts to their learning and teaching programs, building and refurbishment plans, or need to increase fees at a time when cost of living pressures are already biting hard.”

Mr Miles said the increase in fee threshold showed the government recognised its original proposal was unreasonable.

“At least the decision to increase the fee threshold means that fewer families will be impacted than originally proposed,” he said.

“But we are deeply troubled that the Victorian Government will no longer fund some non-government schools. Some schools are going to pay more in payroll tax than they receive in state recurrent grants. No other state nor the Commonwealth Government has such a policy.”

Treasurer Tim Pallas said the revenue blackhole was a “manageable” figure.

“A little over $100m will fall out of the $422m that the state was expecting to get through these arrangements. That’s about 1/40th of one per cent of the revenue base of the state,” he said.

“It’s manageable. I think we’ve struck the right balance here.”

Asked why he wasn’t prepared to ditch the tax entirely, Mr Pallas said: “There’s 322 million reasons why we’d want to keep it. It still has a very substantial revenue implication. It’s important.”

But the government has no plans to recoup the money through other taxes or charges, Mr Pallas said.

“We will just acknowledge that we are getting less in terms of a return out of these arrangements,” he said.

“On an almost daily basis, we have recut our fiscal and economic aggregates (because) things change. With a budget of $390bn, thereabouts, over the forward estimates, we are talking a relatively minor number.

“Don’t get me wrong, every dollar counts in the context of effectively budgeting but only the other day the federal Treasurer just indicated he was going to give half a billion dollars … so money moves around quickly.”

While the government has committed to keeping the $15,000 threshold in place until 2029, the Education Minister has flagged that figure could change after that date.

Ms Hutchins rejected suggestions that by revisiting the tax, she had caved to pressure and anger from independent schools.

“We’ve consulted and we’ve certainly heard loud and clear from a range of parents in what I’d call the middle field schools of fees (about) the consequences of increased fees for them would be,” she said.

Ms Hutchins said the move would only impact about eight per cent of independent schools, but would importantly ensure lower fee paying schools are looked after.

“It’s only fair that a whole range of organisations across the state, including the business sector and our really high profiting high fee paying private schools are part of that payback plan.”

She said impacted schools hadn’t been directly contacted but the government spoke to relevant peak bodies before addressing the media.

“The schools will possibly know by now,” she said.

The state opposition, who have pledged to repeal the tax entirely, said Victorian families who valued educational choice were the victims of the government’s hit list.

Opposition education spokesman Matt Bach said despite the “humiliating backdown”, tweaking the threshold wouldn’t fix the “unfair and regressive” tax.

“Hardworking families across Victoria will be punished by Labor’s Schools Tax, which will add thousands of dollars to the cost of educating a child,” Dr Bach said.

“School communities should not be the ones to pay for the waste and mismanagement of the Andrews government. This is an unfair and regressive tax that the Liberals and Nationals will scrap.”

Opposition finance spokeswoman Jess Wilson said the tax threatened to push many people out of the school of their choice.

“Schools will not be able to absorb this unexpected tax hit, meaning that the only options schools will have will be to reduce educational programs, cut teachers and staff or, most likely, increase school fees for parents,” she said.

“This is an unfair tax on aspiration and educational outcomes.”

Originally published as New tax to affect non-government schools with student fees of more than $15,000