A Tax on Learning

In last week’s state government budget, the Andrews government introduced changes to Victoria's payroll tax arrangements.  It particularly targeted independent schools. Widely described by government officials as only having an impact on “very high-fee, elite” schools, it was immediately evident that this change impacts a far greater number of schools and includes schools that would never be described as elite.  Unfortunately, we believe DCC will be included in the list of schools required to pay the tax.

There was a significant absence of detailed information at the time of announcement; since then, ministers have provided little comfort, there has been considerable obfuscation when challenges to their positioning have been presented, and it is apparent that this legislation is being hurried through both Houses of Parliament in Victoria with the prospect of little or no alteration.

Key points:

• Previous legislation provided the total exemption of schools from the obligation to pay payroll tax on wages and salaries ‘in relation to the provision of education in that school’. It was an unambiguous and unqualified exemption, consistent with long-standing policy in Victoria, and in all Australian jurisdictions. It recognised that education is a public good, and that non-government schools are not-for-profit institutions. Under the Act, a person providing educational service is someone providing that service in connection with the curriculum of a school. That includes support and administrative staff, as well as teachers.
   

• 109 independent and private schools are set to be hit with a reported 4.85 per cent payroll tax in the state's budget from next year.     
  • This represents almost 50 per cent of this group of schools, not the 15 per cent described by the Treasurer and repeated by the Premier
  • The rate of tax paid will actually be 5.85 per cent, as there are two levies – a COVID-19 levy and a mental health levy – added to the charge applied to the school.
  • The Opposition has immediately committed to repealing this legislation, should they form Government during the next decade. 
     
• I, along with many other principals, have vocally condemned the measure as unfair.
  • The decision was made without consultations.
  • As a school (DCC) which falls over the line of average annual fee calculation by less than $2000 per student, we are being treated the same as those schools whose average annual fees per student exceed the cut-off by more than 10 times that ($20,000 per student).
  • In well run schools (such as ours), planning for building programs and further educational program development over the next five years (and submitted to VRQA for registration purposes in the last twelve months) are now completely compromised.
  • The amount that this tax digs into the surpluses we have been planning for is dangerously significant. For some schools, this means their forward projections now have deficit budgets. 
  • The use of the collected funds is solely for COVID-19 debt relief; it is NOT being redistributed into other areas of education funding.
  • The most affected group of schools (those just above the line of cut-off – like us) are low-fee faith-based schools. This group of schools have large student and staff numbers and as a result, will see well-structured financial planning become irrelevant as they seek ways to offset this tax. 
     
• The government has not yet released which schools will be impacted by the changes. Some lists have been published by media outlets. They are not comprehensive.
   
• There is not one school Principal that I have spoken with since the Budget was released (more than 40 now), whose school is affected by this change, who has not said that they will have to offset this tax impost with a fee increase, just to cover the payroll tax alone.

Premier Andrews defended the move in the wake of criticism he received. "They've had a sweetheart taxation deal and we cannot afford to continue that," Mr Andrews said. "They are very high-fee elite schools, and therefore they're in a very different position, and they have now a tax treatment that recognises their profitability." 

Minister for Education Natalie Hutchins said on Thursday the move was aimed at getting independent schools to contribute back into the state. "Government schools have been paying payroll tax as part of their contribution, and the time is now for us to ask the most wealthiest (sic) private schools in the state to do the same thing, and to step up," she said.

Key points:

• Victoria is the first state to impose a payroll tax of any sort on not-for-profit independent schools. The “sweetheart” deal could similarly be described for many, many not-for-profit organisations across the country whose primary reason for existence is to provide education for young people. 
   
• The arbitrary nature of choosing $7500 (or even $8000 – a new figure mentioned by Mr Andrews some days later) as a cut off for the annual fee charge per student contradicts his use of the words “very high-fee, elite”.
   
• Any surplus (not profit) that our schools make is poured back into the development of better and more suitable educational facilities, or the introduction of needed support programs within our educational offering. 
   
• One of the costs not acknowledged by the state government is the cost they will bear as students move back into the government school sector following fee increases at independent schools – currently, Donvale and all other independent schools educate 40% of all students in the state of Victoria – the parents of whom all pay fees from their after-tax dollars. This is a second tax on those parents.
   
• When the education minister (and indeed the Premier) cites as an example that government schools contribute payroll tax to the state’s coffers, she fails to mention that state government schools receive more than 95% of their funding from the state government. As such, this is a series of circular payments, where the government contribute fully to the school the funding which is needed to pay them back their payroll tax!
   
• Independent Schools Victoria’s analysis of the 109 schools they believe will be affected at the $7,500 fee threshold suggests that 88 per cent of State government funding these schools receive will be returned as a tax payment, leaving only 12 per cent of the state funding allocated to these 109 schools available to be used by the affected schools.

In conclusion

We, along with all schools affected by this new and unexpected tax, will now face into a time of considerable rethinking of what we can continue to do.  We, at DCC, will seek to continue to provide the high-quality Christian education that we have committed to and for which we have become known.

If I consider the decisions we will need to contemplate, I ask you to pray for wisdom and guidance for all decision makers. This includes all members of our Board, our Senior Leadership Team and our Primary and Secondary school year and faculty leaders.  All of us will be impacted in terms of what we had been hoping for, as we plan for this new economic future for our school.

For clarity, what is at risk are the significant and exciting forward movements we have made in terms of our programs and facilities at Donvale Christian College over the last decade. This includes:

• Sound pedagogical practices which depend on appropriate planning time release and the freedom to adopt a collaborative approach by teachers
   
• Learning support programs – their staffing and further additions
   
• The development of further innovative facilities that enrich our educational offerings
   
• Enhancements such as camping programs, special interest clubs and broader subject offerings, especially in the senior years.

We commit to maintaining as much as we possibly can.  We are confident that our Lord God will provide miraculously. We do not yet know how, but we trust in that, and we ask you – as part of our DCC community – to join me and all the school’s leadership in this prayer.

Pray as a family and pray with other DCC community members.  We will apply with energy for an exemption – some will be given, if the Treasurer’s and Education Minister’s promises are delivered; we will continue to petition government officials and members of parliament to work against this change.

In the end, we will need to trust God to act where we are unable to or cannot.  Whatever He has as a plan for us, as a lighthouse for Him on the site we occupy – we will join His mission for our community and those around us. So we pray for clarity in this. 

Whilst the actions and words of members of the governing party in our parliament might be unpredictable and changeable, we know we trust in an all-powerful and unchanging God, who is good and all-knowing.

Shalom.