Was federal private school funding a mistake?

In last weekend’s Sunday Age Chris Berg joined the dots between some of the IPA Review‘s suggestions for our 13 biggest mistakes. One of the 13 he didn’t mention in his article was federal aid for school science blocks, including at private schools, introduced by the Menzies government in 1963. Perhaps he did not mention it because it is hard to argue that it was a mistake.

While it is true, as the IPA Review points out, that school funding is now a mish-mash of bureaucratic programs from two levels of government, this ‘mistake’ faces the same problem as the claim that publishing On Liberty was a mistake: it relies on a complex, and not very convincing, counter-factual.

Essentially, we are being asked to believe that if this policy initiative had never occurred we might have at least trialled a system in which parents had ‘real financial choice’ about which school their child attended. But the more likely scenario is that we would have ended up like the US, where about 10% of students attend private schools, or Britain, with about 5% in private schools – much less practical choice for parents than exists in Australia today.

Without the series of policy changes that began with the Menzies state aid decision in 1963, private school enrolments would probably have gone backwards from the 24% they were at then, as the Catholic Church no longer had enough nuns and brothers to teach in Catholic schools (the largest part of the non-government sector) or the money to employ enough laypeople to take their places. And because parents would have had to pay both full fees and taxation to maintain government schools, most of the remaining private schools would have been for the very rich only or struggled to provide adequate facilities.

Instead, at least partial transferability of funding from public to private schools has generated considerable growth in private enrolments, with nearly a third of students now at private schools, a proportion that increases every year. Expanding the private system has meant that the Australian school system has had better results than it would otherwise have had. And if we do the sums on the Productivity Commission’s Report on Government Services, private schools save taxpayers about $4.7 billion a year (the difference between the average per student funding in the two systems, times the number of students in the private sector).

If, as the IPA Review does with On Liberty, we are also to consider the tangential consequences, federal funding of private schools looks better still. For a start, it helped Menzies win the 1963 election, sparing us Arthur Calwell as Prime Minister (though Calwell may have saved us from a mistake not on the IPA list, the Vietnam War). It also helped ease tensions between Catholics and Protestants, as Catholics resented the lack of aid, which they rightly put down at least partly to anti-Catholic prejudice. Admittedly, those tensions have been displaced into the on-going ideological disputes about public versus private education, but this left-right faultline would exist in any case and only seriously preoccupies a small number of people.

As I said, none of this is to deny that there are problems in the existing arrangements, or that a better system can be imagined. But given the realistic actual alternatives, partial private school funding has been a big success.

30 thoughts on “Was federal private school funding a mistake?

  1. Yes, I was also very suprised by this “mistake”. We are closer to the sort of model the IPA want than the comparable countries who’s lead we are likely to follow (ie. US and UK). Indeed I would think it would be easier to argue for a voucher based system given we are already publicly funding private schools than if we are not funding them at all. The issue then is merely the method of delivery rather than whether you should be funding them at all.


  2. In the UK and the USA, the (non catholic) private schools that exist generate the best results academically.

    In Victoria, Australia, the grand state ecoles of MacRoberstons and Melbourne High, and a Jewish school (Bialik) that will take students for free if their parents are broke create the best results academically. St Kevins (catholic) in 4th place is nudging ahead of the pack towards the leaders.

    Funding the private schools in Australia has created a dilution and a decline in the highest academic standards in independent education with more emphasis being placed on money and material gain and less on thought (see Keith Murdoch and Camberwell Grammar). Too many cashed up christians in a state of delusion rather than state education ??


  3. The state of play in Victoria mentioned above probably has something to do with the quality and determination of postwar migrants when compared to the land thieves of earlier generations who had it easier in some ways and did not require education to shoot a gun.


  4. I do not support the giving of vouchers or funding of private schools that promote anti-science (thankfully the intelligent design debacle did not occur in Australia, but it certainly threatened to). Schools that accept public money should also accept public education standards, overtly religous schools should not be allowed to fill their childrens heads with rubbish (regardless of whether they are islamic, fundamentalist christian or whatever other sky pixie drives them). Once that is properly accepted, let the vouchers roll but expect a raft of unexpected consequences (like parents expecting value for money, and the more exclusive private schools being overrun with plumbers kids). Watching the sydney north shore matrons having to put up with bogans in their schools is going to be lots of fun.


  5. Private schools are as much private as ‘independent’ retirees are independent of Government transfers.

    Surely the private sector should be left to their own financial resources unless you are socializing their losses and capitalising their profits.


  6. Unlike the ‘On Liberty’ bit, I think this is a serious offering. First, to detail – the Vietnam war was not a mistake, abandoning it to communism was a mistake. Private schools should have to compete for students on both quality and price. At present they only compete on quality. As a general point, however, I agree with both Andrew and the IPA that vouchers are the best route to educational excellence – this is a stouch on how to actually arrive at that point.


  7. Sinclair – Any lost war is, in hindsight, a mistake – though I probably would have supported it at the time, but not conscription.

    Vouchers would not be my first choice. As my CIS colleague Jennifer Buckingham argues, they still leave governments with too much meddle power. Cutting taxes so that parents can afford schools would be my first preference, Jennifer’s suggestion of tax credits my second preference, and vouchers somewhere further down the list.


  8. One of the biggest mistakes when talking of government expenditure is to talk of taxpayer savings when taxpayers end up paying the cost anyway.

    Case in point is health expenditure.

    Everyone going to private health insurance saves the government from spending on health, therefore producing a taxpayer saving, but of course taxpayers still have to pay for their health insurance so there is no saving UNLESS there is more efficiency/quality introduced into the system.

    Same thing with education.

    No use saying private education saves taxpayers money, because taxpayers are actually paying more for education by going private.

    Just because something doesn’t appear on the government’s balance sheet does not mean any saving has been produced. The government is not separate from the people funding the government.


  9. Antonio – The 2 million or so taxpayers also funding private schools pay more, but the rest of us are better off. And the parents sending their kids to private schools would clearly rather pay extra than take the government service, so they are also satisfying their preferences. As everyone seems to agree, the overall situation is not ideal, but I still think it is better than the likely alternatives.


  10. I never argue against cutting taxes – but is this a solution to school funding problems? As I have argued elsewhere, most individuals net tax contribution is very minor. “Cutting taxes” for low-income and many middle-income individuals is really giving them more welfare. In effect, then, the government would be giving the school fee money to parents who would then pass it on to the school. Standard economic theory argues that giving people money is prefereable to giving them vouchers, but the countr-argument is how can we be sure the school-fees are being spent on school and not drugs, alcohol and tobacco? CAsh is fungible, whereas vouchers (legally) are not.

    I don’t want to be sidetracked into Vietnam – but voluntarily losing a war is an even bigger mistake than involuntarility losing it. Totally agree on conscription.


  11. Sinc, surely the point on Vietnam was that it was worth some cost (in lives and money), but not an infinite cost. Ex ante, we may have thought that we could win for less than our threshold amount X. Then when we got into it and spent X, we realised the prediction was wrong. So we got out. The only mistake here is the fallacy of the sunk cost, which we probably made in Vietnam (did we spend 2X? 3X?), and may well be making in Iraq.


  12. Andrew, how would tax cuts encourage socially optimal spending on education (ie reflect the positive externalities generated by primary and secondary education)? Unlike tertiary education, I’m prepared to accept schooling has significant non-private benefits.

    Also, without having read Jennifer’s work, the same issue may arise with tax credits depending on how they are developed.


  13. Rajat – Positive externalities are only an argument for subsidy if there is insufficient private benefit to encourage production. I doubt that is the case for schooling. However, there is the capital market problem that afflicts much education provision – the client group does not have any money, and their parents may not have much either. I think that is the problem subsidy is alleviating.

    The attraction of tax credits or cuts compared to vouchers is that there is no direct financial relationship between government and schools. However, in the Australian constitutional context that would only get rid of federal meddling. The states can simply legislate without providing any money.

    BTW, Jennifer now tells me that though tax credits are conceptually attractive she thinks vouchers have a better chance of success.


  14. Andrew, I disagree with the first contention in your response. The case for Pigouvian-style taxes and subsidies is that the private benefits or costs do not equal the social benefits or costs, respectively, not that production/consumption would not happen or would be unlimited without them. Taking a reverse example, the argument for a carbon tax is not that without it there would be infinite carbon emissions – people and firms limit their carbon emissions anyway because carbon-based fuels cost money to procure. The case for a carbon tax is that people use too much carbon-based fuel compared to what is (supposedly) socially optimal.

    All that being said, I take your point on the instittional benefits of keeping govt out of these decisions. This may outweigh the externalities issue.


  15. Rajat – Would it solve the problem if I rephrased the first sentence as:
    “Positive externalities are only an argument for subsidy if there is insufficient private benefit to encourage socially optimal production.” (addition emphasised).

    Perhaps it is my lack of a training in economics, but I don’t see why taxapyers should be billed for things that others will provide for free anyway.


  16. Andrew, yes, I think it would. The point is that market failure can be a matter of degree as well as a discrete and obvious outcome. So even assuming parents did the right thing by their kids and spent their tax cuts on education rather than ciggies (the whole paternalism/liberalism issue again), this may be less than the amount they should spend if they took into account the external benefits of educating their kids. So if they voluntarily paid $10k pa school fees and their kids received a 7/10 education, society may be better off if they had spent $15k pa and their kids received a 8/10 education. Overcoming the financing issue will help ensure that they will at least be able to spend the $10k pa, but it will not, by itself, ensure they spend the extra $5k pa to create the nirvana that may be achievable with vouchers (!).


  17. Rajat – But what if the effect of public subsidy is to *reduce* the amount of money parents spend? In Australia, this is probably minimal – parents who think their kids are worth more investment are sending them to private schools. But in the US or UK, public funding in combination with a commitment to free education is probably keeping school spending *below* optimal levels and *below* the level the market would settle on, because politicians have many competing spending priorities while parents are usually devoted to their kids.


  18. In spite of saying you did not wnat to bring up Nam.. You have expressed opinions which could fail examination.

    Sinclair (and Norton), look at the million or so children in Vietnam today congenitaly missing limbs due to Agent Orange being poured on their parents and land by Australians. There is no accounting for this as collatoral damage, this was the real loss.
    No wonder RMIT is the lowest in Australia for academic standards, RMIT should not really be over in Vietnam with campuses in Hanoi and Saigon either if you think the Vietnam war was a good thing.

    Communism in IndoChine presented an alternative to French, US and other western imperialism, any alternative would have seemed preferable to the people there. The Khmer Rouge murders were a mass psychological reaction to French laissez faire imperialism and the Vietnam war. Communism did not inspire Pol Pot to kill, it was years of right wing imperial war that caused the initial damage.

    Your articles about the petrol driven car as the future of Melbourne’s CBD are stuck in 20th century left/right economic stagnation and drought which is dragging Australia down the league tables. There is such a thing as spot reduction in terms of global warming.


  19. Andrew, the UK/US cases you are talking about don’t seem to reflect a voucher regime (at least as I understand it) in which parents are free to ‘top up’ the voucher. If the government simply determines how much can be spent on education and insists on parents not paying any more(because primary and secondary education ought to be ‘free’), the government is not subsidising education as much as providing it directly.

    Under a top up voucher scheme approach, I guess many parents would spend less on education than they would under no government funding and lower taxation levels – this would reflect diminishing private returns to education spending. But aggregate spending on education should still be higher than under no subsidy and lower taxation. I can’t prove it though – maybe Mark has done some work on this (?!).


  20. Rajat – We were perhaps at cross-purposes; I was referring to the general argument for state investment in education, on the grounds that it produces ‘positive externalities’.

    I would argue that direct provision lowers the positive externalities while increasing cost to taxpayers (though decreasing it to parents).


  21. Actually, having thought about this a bit further, I think that a voucher scheme would only result in more aggregate education spending than no government spending (assuming no financing issues) if it provided a variable subsidy that was positively related to how much parents spent. For example, the voucher could be worth $1 for every $1 spent by parents, reflecting the fact that 50% of the benefits of education accrued to society at large. A fixed dollar voucher (eg $10,000 pa per child) would probably simply ‘crowd out’ private spending by the same amount because like a lump sum tax, it would not change the privately optimal level of the activity. For example, if prior to the voucher parents found it privately optimal to spend $10k pa on their child, this implies that they didn’t think it was worthwhile to spend $10,001 on education. If with a voucher they now can get a $10k pa education for their child for ‘free’, it doesn’t change the fact that spending even an extra $1 pa is not privately worthwhile (ie the 10,001th dollar spent has a PV of


  22. Sorry, Andrew, got carried away…

    I agree that State provision is likely to lead to lower quality education and also lower positive externalities, to the extent they exist.


  23. why is it that some many people who are ‘right wingers ‘ or support ‘private enterprise’ are so keen for private schools to eat on the taxpayers teat?

    Closet National party supporters!


  24. Well, Homer, I guess I fall into that category. I support subsidies (or tax rebates, etc) in cases where there are clear positive externalities from an activity. I understand there is strong evidence that primary and secondary schooling does confer such externalities, but I am more sceptical about tertiary education. I would prefer all schools to be private, but that’s probably a long way away. I’m also less sanguine than other liberals that parents, if given enough tax relief, will choose to spend it on their children’s education. A voucher scheme provides greater confidence this will happen.


  25. Homer – This is the absolute vs relative political positions again. If the ‘right’ had held out for its preferred position we’d probably have ended up like the UK or US. Given that alternative, some state funding of private schools is the preferable alternative.


  26. closet socialists!!

    The only reason why private schools cost less are the huge fixed costs of the public sector ie the buildings and other infrastructure that the state has spent on providing education to all children. ( Incidentally Rajat your hope will never be realised as there will always be parents who cannot pay for private schools.)

    Has anyone ever taken out these costs as we are told to do in accounting 101?

    It has been some time since I looked at (expensive) private school students getting into University but my memory has it that in NSW it was far far better to put your student into a selective high school than a private school.

    One other thing. Private schools can decide on who comes to their school whilst public schools cannot.
    This is the main reason for the perceived discipline problems.


  27. Homer you can’t “put someone into a selective school” you have to sit an exam. From memory selective schools tend to get about the results you would expect from the quality of students going into them, they aren’t doing anything exceptional.


  28. The studies done by the Australian Council for Educational Research show that private schools still get better results even after you control for all the non-school factors know to affect educational outcomes – for the kids who aren’t already in the top few percent (those who go to selective schools) there is likely to be value in private school education, on average.

    Total resources vary significantly around the non-government sector. From memory, the Catholic schools on average spend less per student than government schools, but other private schools on average spend more.


  29. I know that Steve but that it is the nearest comparing apples with apples I can think of.


    Thanks but that ties with the above comment I made.

    When public schools can choose thir own pupils then you can do a decent survey or private schools must accept pupils that public schools do.

    The spending on ‘perceptions reminds me of a heated debate one had with Con sciacca on veterans affairs.
    Despite there being NO difference in cancer rates between those exposed to agent Orange and those of the general population the Government spent money on the veterans because the veterans thought there was!


  30. Homer,
    agent orange, white, pink etc all contained dioxins which are well known to cause cancer. How do you know more than 100 years of international medical research?
    Is it because you know the great man Jason Soon??
    Well I have done some research into the history of the Soon family and their business on the Malay peninsula and I have some footage that will shock you all and explain a lot about the moral dilemmas that many have faced through exposure to Catallaxy. All will revealed in a week or so..

    BTW Balwyn High School (a non academically selective state school) is one of the worst schools in Australia for being choosy about students, many social workers complain about it. The private schools take just about anyone with the dosh, even JC’s offspring.

    In English, the word private derives from the term deprived, meaning deprived of public exposure. Given the transparent walls Kennet placed on the Monash freeway overlooking Scotch it is not really private or deprived in most senses of the word. This is why the English public schools are termed as such.
    Once we get the terminology up to date with the contemporary situation in Australia then we can get on with an accurate debate. Tally Ho!

    Can homeschoolers pocket the vouchers as cash and get carbon credits for not driving the kids to school Brocky style??


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