Do private schools save taxpayers $4.9 billion a year?

As reported in today’s Australian, the Association of Independent Schools Victoria today released research showing that private schools saved taxpayers $4.9 billion in 2004-05, reflecting the lower subsidies paid on behalf of students at private schools compared to students at government schools. That’s very similar to a claim I made in a post last year.

Having done a lot of work on ‘big government’ since, I am no longer sure that this is quite the way to look at it. This is because while technically all students at private schools are entitled to more heavily subsidised places at government schools, we cannot assume that all students would switch even if private schools received no government money at all. Before state aid for private schools was introduced in the first half of the 1960s, nearly a quarter of students were in private – mostly Catholic – schools. It was trending down, and the Catholic schools were facing serious problems as the supply of brothers and nuns prepared to teach for a pittance shrank. But we cannot assume private school enrolments would have inexorably dropped without state aid. Not all private schools at the time even took the money straight away.

Nearly half a century on, in a much more affluent society, in which education is of greater significance for a child’s future, there would surely be considerable demand for private schools even without any subsidy. Some private schools recieve subsidies that are a fairly small percentage of government school subsidies in any case, and a smaller still percentage of total revenue per student.

A more accurate way of expressing the point would be that to fund private schools on the same basis as government schools would in 2004-05 have cost taxpayers another $4.9 billion, which is why I do not support a standard Friedmanesque flat voucher scheme. Sometimes there are tensions between introducing markets and keeping taxes down.

68 thoughts on “Do private schools save taxpayers $4.9 billion a year?

  1. “At least our political processes aim to have fairness as an outcome,”

    Yet surely the poor outcomes for low SES students condemn the public school system, even by your own measures?


  2. Andrew Leigh wrote:

    best attempt at answering the ‘do higher salaries buy better teachers?’ question. (Shorter AL: yes).

    It’s an interesting paper Andrew but doesn’t really address the issue of whether paying for your child’s education (in order to access “better teachers”) has any benefit i.e. it’s compelling in understanding why people might become teachers, but not why they stay teachers.

    From my understanding, you’ve demonstrated a possible link of overall teacher salaries to the attractiveness of the occupation (hardly surprising I suppose – intuitively we might expect that result) but my contention is that because teaching as a whole is poorly paid, prospective “better” teachers don’t end up in the private OR public systems, and paying school fees buys you access to a subset of teachers from the same pool.

    Now I know Andrew Norton wants to abolish government run education (I assume because, as usual, his tax bill gives him the dry horrors), but without some mechanism for lifting overall teacher salaries it won’t matter a damn who’s providing it.

    Rajat, will markets really work better than better than politics? Overwhelmingly, where parents have a choice of schooling, they use their peers for information rather than a price list. I find it hard to believe that school fee pricing (generally reviewed annually) could be anywhere near as efficient as a whispering campaign amongst parents.


  3. David has a point which I have often made to voucher advocates: that in the medium term we have to make do with most of the teachers we have already, as even if better salaries attract higher quality people to teaching it would be 20 years before they were the ‘typical’ teacher.


  4. David R: Perhaps you hadn’t noticed this, but not all teachers are the same. There are no doubt good and bad ones, as there are in any distribution of almost anything. Even if the overall distribution is poor, I can’t see why it stops private schools taking the good end of it.
    Its easy to see via example. One of my friend’s friends is a maths/physics teacher. She is apparently very good at her job. She joined one of the “elite” schools in Melbourne, and earns about 20K more than her previous job. She is obviously not going to trade that in for a public school job. Hence the rich private school gets the rather rare good maths teacher, despite the overall shortage (let alone shortage of good teachers in that area)


  5. David, I’m not sure what you are getting at by referring to price lists and whispering campaigns. Markets are first and foremost about decentralised decision-making. Prices signal relative scarcity, which may indirectly signal quality. But parents tend to have a range of criteria for choosing their child’s school – prices, reputation, curriculum, location, etc. There is nothing about school choice that prevents parents from making choices based on a range of criteria. In fact, it is axiomatic that without choice, there is no ability to choose on the basis of any criteria.


  6. “Yet surely the poor outcomes for low SES students condemn the public school system, even by your own measures?”
    Yes, they point to faults, which need fixing. They aren’t necessarily an argument for moving to your proposed solutions.


  7. Rajat Sood wrote:

    There is nothing about school choice that prevents parents from making choices based on a range of criteria. In fact, it is axiomatic that without choice, there is no ability to choose on the basis of any criteria.

    My experience here is that there is already an incredibly robust market based entirely on information, at least for those parents who don’t knee-jerk either way (i.e. two ends of the spectrum are shoving kids into local school without consultation, or send them to the school you went to yourself). School reputations are built in the little covens of parents waiting to pick up their kids after school: within minutes you’ll know which teachers are bad and good, which kids are causing trouble and what the other schools are like. No money and no privatisation involved (i.e. the information source is already outside government and always has been).


  8. “School reputations are built in the little covens of parents waiting to pick up their kids after school: within minutes you’ll know which teachers are bad and good, which kids are causing trouble and what the other schools are like. No money and no privatisation involved”

    What I think the classical liberals would like to see is parents having the ability to act on that information. That’s where the question of funding arrangements becomes relevant.


  9. Dave R, just because parents maybe aware of which (state) schools are the best, doesn’t mean they have the freedom to act on that information unless they are prepared to relocate. Housing costs and school performance do tend to correlate, although what the relation is is not strictly clear. Do high housing costs indicate that parents from the upper middle class socioeconomic end of the spectrum value education more and are therefore more likely to agitate for good schools and pay more attention to their children’s performance, or are housing prices higher because parents are attracted to good schools? Both come into play.

    With state education, the agitators you value as marginal agents choose with their feet or their wallets, relocating to suburbs with better schools or scrimping to send their children to private schools. This also results in poorer suburbs, since socio-economic diversity decreases as aspirational families cloister themselves off in better suburbs, denying the poorer suburbs of the active marginal agents. Family and community ties become weaker as people foresake them for better opportunities for their kids.

    With a fully private system, although location will still have an impact, the need to relocate to send your children to a better government school will disappear. Private schools don’t care where you live, so long as you can pay. Parents who previously couldn’t afford expensive private schools, nor move to get into a better school catchment, will have freedom to move their children between schools that cater to their budget, putting competitive pressure on the schools.

    Under state schooling, all they could do is agitate at a single school, they had no choice, since the state system must divide up access to resources somehow, and by geographic region is the way the schooling system has developed. There really is no other way other than some sort of lottery perhaps.

    Saying that all schools should be equal denies the complexities inherent in organising any activity. Just compare the quality of fast food restaurants between richer and poorer suburbs. Now McDonalds pride themselves on uniformity, but even they can’t make a restaurant in Red Fern a more pleasant experience than one in Paddington.


  10. Brendan,
    I get the idea that not everybody has access to good public schools (or is willing/able/can find one/wants to move to it). My situation is different in that these things are easier in smaller towns (compared to Sydney it’s a breeze for example). If we were still in Sydney, the girls would probably still be in the crappy school they were in despite the fees, simply because it’s harder to get info on the local school when so many of the kids go straight from there to after-school care because mum and dad are working and won’t be home until after 6.

    What is missing from the debate about schooling and quality is that sense of community that enables the kind of information flow that allows parents to make reasonable choices. My town is relatively small and has lots of schools – they don’t tend to insist on geographical boundaries as cutoffs for school choice to anywhere near the extent that happens in large cities: it allows parents to choose their school. If you live outside of town, none of the notional boundaries apply in any way. If you live in town, the boundaries are treated as rough guides and are not hard and fast.

    I’d like to see that flexibility extended to more parents. The idea that merely ponying up the cash to choose a school will solve difficult problems of incomplete information doesn’t apply very well to schools. The prices do not change quickly enough (and parents to not get to choose often enough) for the prices to reflect quality in the way you might expect of a consumer good. Perhaps if they regularly auctioned places at the end of each term (disruption to the kids would be horrible, but hey, efficiency must always be job #1 for libertarians, right?)

    Andrew Leigh’s paper indicates that there is a potentially serious problem with the quality (not the quantity) of available teachers which may be addressed indirectly in a fully private system, but where exactly will the pressure come from? The “best” schools are rarely chosen on academic performance – more what your wife hears outside the school or down at Woolies.

    There is possibly one very simple way to fix the issues with (say) the ability for Principals to pick their own teachers and assign performance pay as many are agitating for: abandon schooling in regional areas. I’m not sure how many Australians are willing to make that trade off.


  11. Who said anything about auctioning off school places? And what does afterschool care got to do with school performance?
    If a personis going to pick their children’s place of education on the basis of gossip at Woolies, then perhaps they don’t value education very much.
    Believe me, privatised schooling will be judged on the basis of cost and performance, like everything else you buy, and at every budget level.
    The reality is that bureaucracies like state education can’t operate without setting geographical limits on school catchments. If it is the case that rural schools are able to bend the rules more, then that is probably got more to do with their distance from the power base.
    Your solution of mobility of school selection fails to address the need to allocate resources. If there are three schools and one of them has much better performance, not all students can attend it. You still have to say no to someone. How do you decide?


  12. brendan halfweeg said:

    You still have to say no to someone. How do you decide?

    First come, first served. The catholic school system operates that way with their non-catholic places and it works OK for them.

    After school care has a big effect on communities – if you aren’t regularly and informally seeing the parents of the local school, you can’t tap into the information about the school. The pick-ups from after school care are too spread out to foster any kind of regular stand-around group who are waiting for a bell to ring and the kiddies to pour out. Car based communities are crap for maintaining local ties – and a school system where everybody drives different directions to take kids to school is a recipe for further isolationism and alienation of families from their own streets and suburb, not to mention the extra issues of increased obesity levels of kids who aren’t walking.
    Don’t discount the value of gossip – the most efficient way of finding a good tradesman isn’t the yellow pages, it’s asking the neighbour.


  13. “The catholic school system operates that way with their non-catholic places and it works OK for them.”
    Last I heard, Catholic schools were in the private domain. Do you really think a state system would be considered fair if it arbitrarily cut of people because of their place in the line? What is the coherent argument in support of rejecting one out of wo equal students from a public school on the basis of who got in line first? Say both families are equal in all other respects? Go on, I’m really interested in seeing how you can justify such a system.
    As for a private system, well, randomness is more acceptable, primarily because the parents involved haven’t already paid for said super school.
    Why shouldn’t parents feel an entitlement to send their children to the best state school? Why shouldn’t all parents be outraged at such injustice?
    First come, first served? You sound like a capitalist!


  14. No kids Brendan? The public schools use first-come, first-served on out of area kids as well. No rioting occurred. Nobody considered it unfair just because money didn’t change hands. Resources are funny things – they aren’t just money. Some people value time, or knowledge. Some people couldn’t be bothered finding out how things work and insist somebody else “fix” them so they don’t have to do any investigating themselves. It’s lazy.


  15. Andrew, to answer the original question posed by the post, I’ve generally taken the view that if it weren’t for the de facto private school voucher system operating in Australia, we’d have the US level of private school attendance, which is about 10% (Australia’s is about 30%). So my best guess at the amount that private schools save taxpayers would be 2/3rds of $4.9 billion, or $3.3 billion.


  16. Andrew – You could be right, but two points:

    1) I think path dependency plays a role in education (as in many other things) and the fact that we had high private school enrolment prior to state aid suggests that this would have been maintained. For example, more than 60% of people who themselves went to private schools send their oldest child to a private school, suggesting that ideas about appropriate schooling are shaped by the school experience of parents.

    2) Even if your assumption is correct, that $$$ number mayoverstate the savings, since the kids who would stay in private schools without any government subsidy are disproportionately likely to be in schools that receive relatively low government funding now.


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