DANIEL:

Mike, how large was the castle at your high school growing up?

MIKE:

Haha, I'm afraid I'm a state school boy, there was no castle. You know, I spent a certain amount of time in demountable classrooms. This was in Brisbane in summer; no aircon; roasting. So nothing like the sort of facilities that we've seen at Scots College.

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DANIEL:

From Schwartz Media, I’m Daniel James, this is 7am.

Mike Seccombe is the national correspondent for The Saturday Paper and a proud state school boy.

I ask him an absurd question because we are in an absurd situation, all of our own making.

The divide between Australia’s richest schools and our poorest keep getting worse.

Mike has looked into the void and what he found was a system where rich parents are able to leverage huge tax breaks through charitable donations to their child’s school. All in order to build facilities a feudal King would be happy with.

It’s a practice that goes way back and, many argue, is outdated.

Today, calls for an overhaul of the charitable giving system that delivers some kids castles.

It’s Friday, April 18.

This episode was originally published in July last year.

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DANIEL:

Mike, you’ve been looking into a big redevelopment plan for Scots College, a particularly wealthy private school in Sydney’s Bellevue Hill, what can you tell me about it?

MIKE:

Yeah, for sure. It's been quite a saga.

Back in 2019, this elite boys school in Sydney announced that it was going to have a new library. And they had a perfectly serviceable, functional library but they decided it needed to be upgraded for, quote, contemporary teaching, unquote.

Audio Excerpt - 2GB Radio Host:

“So Scots, at Bellevue Hill, has just spent almost $80 million on knocking down their library and building a Scottish baronial castle.”

MIKE:

The design they went with was made to look like a Scottish castle. You know, with turrets and battlements and all the rest of it and it was supposed to be opened in 2021.

Audio Excerpt - 2GB Radio Host:

“It is as gaudy and tacky as those gold open-necked Gucci shirts that people wear with the gold chains and everything. Honestly, talk about ostentatiousness.”

MIKE:

Things didn't quite go to plan and so, all these years later, the library is still under construction due to various delays and apparently it was quite difficult for them to acquire sandstone and slate from Scotland.

Audio Excerpt - 2GB Radio Host:

“Now it’s cost the school three times what they thought it originally would. So whoever the project manager is should be clearly highly embarrassed at the incompetency.”

MIKE:

You know if you're going to build a Scottish castle, mate, you've got to have Scottish slate, right?

DANIEL:

$80 million for a library, that is extraordinary by any standard, but particularly Australian standards in 2024. How did Scots fund this?

MIKE:

Well, actually it's not that extraordinary, I hate to say, but, you know, there's a bunch of stories of opulent facilities at elite private schools. You know, these stories are legion. Wealthy parents and alumni kicking money to build these new facilities. Few are perhaps as conspicuously kitschy as the library at Scots but, you know, there's any number of indoor swimming pools and, you know, all sorts of sporting facilities and other stuff that they have that are funded through these tax deductible building funds.

So, you know, I guess mocking Scots for, you know, building this outlandish Scottish castle for their boys seems like pretty easy sport but really, it's not funny. When you decide to donate to a private school, you're a wealthy parent or grandparent or old boy or old girl, you get a tax break for it. You can claim up to $0.47 in the dollar, because kicking into private school building funds is considered to be a charitable action. And so it attracts what they call deductible gift recipient status, DGR status. So, as things stand now, donors to non-government schools, who are overwhelmingly wealthy parents, are benefiting to the tune of some $100 million per year at the expense of government revenue which ultimately means other taxpayers, most of whom could never afford to send their children to elite private schools.

DANIEL:

We've seen public schools around the country that don't have air conditioning, they don't have grass, they have demountable classrooms, and they definitely don't have castles, that's for sure. The inequity is pretty stark. So how is the Labor government justifying having such inequity between students, especially when they pride themselves on being the party of the fair go?

MIKE:

It's a very good question and you're entirely right. The contrast between the elite private schools and state schools is extraordinary, you know, very stark. The Australian Education Union, which represents public school and early childhood and TAFE teachers and staff, pointed out in a recent report that, you know, while Scots is building its Scottish baronial library, elsewhere in New South Wales state school students are taking lessons in demountable classrooms. So that's one indicator.

Another thing that the AEU did in its study, it looked at capital works expenditure in Australian schools and reported that in 2021, the amount spent by just five elite private schools for the benefit of their 10,294 students was greater than the total spent by 3372 public schools who were trying to educate almost 850,000 kids. So 82 times as much per student on Capital Works was the way it worked out. The inequity is outrageous.

And now the Productivity Commission, in a major report to government on how to reform the entire charitable philanthropic sector, has recommended that the tax break for private school building funds should be scrapped.

DANIEL:

So, will the government act? That’s after the break.

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DANIEL:

Mike the inequity between government and elite private schools has become increasingly entrenched. It's easy to say when you compare a Scottish castle to a demountable. So how do we get here?

MIKE:

Let me take you back in history because the Productivity Commission did quite a good job of that in its report. The decision to allow a tax deduction for donating to building funds for non-government schools was taken 70 years ago, back in 1954. And back then, of course, such schools were fewer in number, they were far less well-funded and, of course back in those days, education was solely the responsibility of the states.

So the decision happened at a time also when there was considerable sectarian divide in the country. There was opposition to government funding for non-government schools, and there was even uncertainty about whether the federal government should be involved at all in education. The federal government did get involved and a decade later the Commonwealth began providing capital funding for non-government as well as government schools. So that was back in the mid-sixties.

But here's the thing, the tax break advantage in private schools continued. In 1970, the Commonwealth began giving recurrent funding to non-government schools. Four years, I might add, before it started providing recurrent funding to state schools, and still the non-government schools kept getting a tax deduction for building funds.

So we're in this situation where Australia has two levels of government funding schools to a different degree. We have 90% of state and territory funding for education goes to government schools, and more than 60% of the corresponding federal funding goes to non-government schools. We're talking big bucks here, this year recurrent funding from the federal government for schools total something like $29 billion, and only about a third of that, that's 11.3 billion, goes to government schools notwithstanding the fact that they educate almost two thirds of students. Catholic schools get about 10 billion and other non-government schools, which is where of course the really elite schools tend to be concentrated, they got just over $8 billion. And, of course, despite all this the tax deduction for contributing to private school building funds continues. Despite the fact that the circumstances that pertain 70 years ago no longer apply.

DANIEL:

Have there been calls to change this arrangement?

MIKE:

Well, yes, there have. For a long time, you know, from education unions, from others, it was raised by some of the feeder reports at the Gonski Report a decade or more ago. But just last week we found out that the Productivity Commission has recommended it too. Now, this is a major new report from the Productivity Commission. It went to the whole charitable sector, but it specifically recommended the thousands of charitable funds that benefit private schools, there's something like 5000 of them, and their wealthy donors should be stripped of their tax deductible status. It found that the building funds that are set up by the non-government schools to pay for capital works do not meet the appropriate criteria for charitable activity and they should not be accorded, what they call, deductible gift recipient or DGR status.

The Productivity Commission set out in some detail the criteria that should apply to be registered for DGR status, and they found essentially that the private schools didn't meet any of them. It's as simple as that. To give one example of one of the criteria, no private benefit should attach to charitable giving. But, in the case of private schools, what happens is if you give to these building funds you get a tax deduction for it. If you pay school fees you don't get a tax deduction. So what the Productivity Commission found was that there was a trade off going on whereby people were kicking into building funds which gave the kids great facilities, but also meant that they could reduce the fees they charged for access to those facilities.

DANIEL:

We're seeing the tax system used to thinly veil middle to upper class welfare in this country, how does the private schools experience compare with other charities?

MIKE:

Well, that's another interesting aspect of this report from the Productivity Commission. They found that other more needy and more worthy, in their view, charitable endeavours miss out under the existing DGR regime. There are something like 60,000 charities in Australia, but only about 40% of those have tax deductible status. And the report explicitly says, and I'll quote it again, The DGR system creates inefficient, inconsistent, and unfair outcomes for donors, charities, and the community. So whack, you know, you could hardly get a more swinging indictment of the current regime. And of course, they chose the private schools as the exemplar of all that was wrong. So the nation's 5000 odd school building funds just serve as a case study of the randomness and the incoherence of the current system.

DANIEL:

So has the government responded? What are they going to do if anything?

MIKE:

Well, I called the Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, and asked him about this last week and he said the government was quite open to considering all the report's recommendations bar one. And that one recommendation that they have said they won't pursue is the recommendation around private school building funds, he said. To quote him, that was in the interim report. We consulted widely on it and we have opted not to pursue that.

DANIEL:

Consulted widely is one way of putting it. What does it say that the government won't even consider changes to this?

MIKE:

To be frank, the private school lobby in Australia is a bit like the gun lobby in the United States. It's hugely politically powerful. It is protected by rich well-connected parents who are very keen to protect the privilege of their kids. Furthermore, our politicians come disproportionately from non-government school backgrounds, and overwhelmingly both sides of politics send their own children to non-government schools.

Despite all this, all the research shows that private schools actually serve to make Australia not only a less equal, but a less well-educated society overall. If you look at the international comparisons of educational attainment, Australia has one of the largest gaps in the world between our top achievers who are globally competitive, and the educationally underprivileged who are falling way behind and falling further behind over time. And those tend to go to state schools in low SES areas. So that's an indictment.

I worry also that they also make this country less socially cohesive because, you know, rich kids are cloistered, poor kids are ghettoised. And I feel we're in a vicious cycle whereby middle class parents feel compelled to pay for private schools simply because state schools are so poorly resourced. And yet, we see wealthy parents getting a tax break for building opulent facilities. I'm with the Productivity Commission, I think it's outrageous and it should be scrapped.

Indeed, if it were up to me, I would do as they do in some other countries and say well, you're welcome to have a private school but if you charge fees you don't get government money. If you don't charge fees, you get the same resourcing as a state school. So level the playing field.

DANIEL:

Mike, thank you for your time.

MIKE:

Great pleasure.

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And

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I’m Daniel James, this is 7am. Enjoy your Easter Break.