Victorian Private Schools to Foot an Additional $7M Under State Tax Changes

A photo shows the main entrance to the exclusive Melbourne Grammar school in Melbourne, Australia on Sept. 14, 2004.WILLIAM WEST/AFP via Getty Images

Victoria’s peak body representing the state’s independent schools has “expressed alarm” over the Andrews government’s payroll tax levy that could see private schools pay up to $7 million (US$4.5 million) in additional tax per year.

This follows Victoria’s state budget, in which Premier Daniel Andrews said private schools have had “a sweetheart taxation deal” that was unaffordable under the state’s current debt.

From July 1, 2024, high-fee private schools in Victoria will lose their payroll tax exemption, in addition to paying the mental health tax levy and having a temporary increase in the payroll tax.

Chief Executive of Independent Schools Victoria, Michelle Green, said in a statement that the news of the Andrews government’s “looming tax imposition” is a “shock” to independent schools and to parents who send their children to independent schools.

“Independent schools, which are not-for-profit operations, have been exempt from payroll tax for decades in recognition of their long-standing contribution to the community,” Green said.

“It was made without consultation and is based on an arbitrary definition of a ‘high-fee’ school. It is likely to have a damaging impact on the operations of many Independent schools, with the potential to disrupt the education of their students.”

The budget decision is expected to affect more than 130 independent and Catholic schools in Victoria. According to the Victorian government, schools that charge more than $7,500 per year are defined as high-fee, and will be ineligible for government support programs.

High-Fee Independent Schools ‘Running Like Businesses,’ Premier Says

Premier Daniel Andrews said that independent schools have had “preferential treatment” for “a long time,” and said they were “running like businesses.”

“These schools have always been judged to be in a unique category. They have not been eligible for our other support. They are not low-fee schools. 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.”

Premier of Victoria Daniel Andrews speaks to the media following the branch stacking allegations in Melbourne, Australia, on June 17, 2020. Darrian Traynor/Getty Images

However, Green said the Andrews government’s classification of “high-fee schools” assumes that schools that charge more than $7,500 per year have the funds to navigate through these changes without cutting services or raising fees.

“Either course of action will be a major cause of concern for the growing number of parents who make significant financial sacrifices to send their children to an Independent school,” Green said.

“We’ll be seeking urgent talks with the government to establish the rationale—and to point out the implications—of this decision, which will require legislative change.

“Among other things, we will seek clarity on the budget announcement that the Education Minister and the Treasurer will be able to exempt some schools from the tax.”

Meanwhile, Minister for Education Natalie Hutchins said the Andrews government was supporting “low-fee” Catholic and independent schools alongside public education throughout the budget, with $450 million for a grants program to build better facilities.

One Independent School Says New Tax ‘Unreasonable’

Independent school Caulfield Grammar principal Ashleigh Martin told parents in a note on May 24 that it was incomprehensible as to why the Andrews government did not consult with the education sector prior to its decision.

“With the previously exempt payroll tax of 4.85 percent, plus the COVID impact and mental health levies estimated to total one percent, initial analysis suggests Caulfield Grammar School’s costs will increase approximately $6-7 million annually to cover the increased tax and levy,” Martin said, reported The Australian.

“Considering the material impact on independent schools, it is difficult to comprehend that no consultation occurred prior to the announcement. To expect independent schools to be able to budget for such an unanticipated cost burden by July 2024 is completely unreasonable.”

The funding formula for non-government schools has also changed, with students’ parental income being assessed rather than the socioeconomic profile of a school’s postcode. As such, many independent schools lost funding, particularly in regional and outer suburbs.

Shadow Minister for Education, Matt Bach, said that the Andrews’ Labor government is making life harder for Victorian families and punishing schools and students for their “incompetence.”

“The tax announced in yesterday’s state budget will add thousands of dollars to school fees by forcing independent schools to pay a tax of up to 5.85 percent of their payroll,” Bach said on May 24.

“Taxing independent schools is a step in the wrong direction and will only make life harder for Victorian families.

“The Andrews Labor Government must explain to the community which schools they intend to hit with their new school’s tax and how much fees will rise as a consequence.”

In addition to the tax changes applied to independent schools, the Andrews government has added new taxes on Victorian housing investors and businesses.

The Victorian budget handed down by the state’s Treasurer on May 23 revealed a 10-year plan to repay the state’s $31.5 billion COVID-19 debt.

The 2023–24 budget forecasts Victoria will post a $1 billion surplus in two years—$100 million more than predicted before the November state election—and another of $1.2 billion for 2026–27.

Meanwhile, net debt is expected to hit $135.4 billion at the end of the next financial year before rising to $171.4 billion by mid-2027, equating to 24.5 percent of gross state product.