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The Andrews government has walked back plans to charge 110 high-fee private schools payroll tax and revealed the debt-busting measure will rake in less money than the Victorian budget forecast just 10 days ago.
Treasury has asked the Department of Education to model lifting the exemption threshold to schools that charge more than $10,000 a student in annual fees – $2000 higher than expected – according to Labor sources with knowledge of the plans, who were speaking on the condition of anonymity to discuss internal matters.
Victorian Premier Daniel Andrews with Education Minister Natalie Hutchins last week.Credit: Joe Armao
Under last week’s budget, 110 non-government schools would have lost the longstanding exemption from July 2024 to raise $422.2 million over three years. The change was expected to hit those that charge about $8000 per student in annual fees – some 15 per cent of private schools.
But Premier Daniel Andrews on Friday said overall revenue from the new measure would “almost certainly” be lower than the budget forecast because fewer than 110 schools would lose their exemptions.
“I’m not in a position to confirm what it will finish up at, but [the threshold] will go up,” Andrews told the first day of 2023-24 budget estimates.
The schools that will lose the exemption are to be determined by the end of the 2022-23 financial year. Revenue assumptions will need to be revised in the mid-year budget.
“The minister for education and treasurer will determine the fee threshold for high-fee, non-government schools that will no longer receive an exemption from payroll tax, in consultation with the sector,” a Victorian government spokesperson said on Friday.
Government officials told the sector on Monday that the definition of high-fee schools was based on the same standard used to decide eligibility for the COVID-19 tutoring program.
Access to that program was limited to schools that charged less than $7500 in student fees. Factoring in indexation for inflation, the Department of Treasury and Finance said schools that charged fees of slightly more than $8000 a year were likely to lose their payroll tax exemption.
But Andrews said the state budget made that assumption because it was the only threshold that already existed.
The measure angered private schools, which warned the threshold would not solely capture wealthy institutions and could force some to cut programs, services or staff, or increase fees.
Michelle Green, chief executive of Independent Schools Victoria, on Friday welcomed the premier’s willingness to lift the exemption but said she was deeply concerned about the “learning tax”.
“The premier’s comments to the committee raised more questions than answers, especially about the criteria on which the threshold will actually be determined,” she said.
Catholic Education Commission of Victoria executive director Jim Miles said it was a welcome first step and looked forward to further consultation.
Shadow education spokesman Matt Bach said Labor should scrap the policy entirely. “After a week of chaos, this is simply an admission of the huge pain Labor’s schools tax will cause so many Victorian families,” he said.
Liberal MP Nick McGowan, who sits on parliament’s Public Accounts and Estimates Committee, told Friday’s hearing that the policy caused confusion and principals needed certainty to determine fees for next year’s enrolments.
The change means many private schools will, for the first time, pay two other levies on top of their new payroll tax obligation: the mental health levy that was introduced last year and a new temporary increase to payroll tax that was also announced in the budget.
The schools will have to pay 4.86 per cent payroll tax and the additional two levies, which will each add between 0.5 per cent and 1 per cent to the tax bill of affected schools, depending on their size.
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