A “radical” overhaul of tax-deductible donations could prevent wealthy private schools using the system to fund “lavish” facilities.
Research by Save Our Schools has shown that 10 of Australia’s wealthiest schools received more than $200m in donations over a five-year period – income that does not affect the level of government funding they receive.
A draft report on philanthropic giving released by the Productivity Commission at the end of November has recommended stripping tax-deductible status from “school building funds”, many of which are run by religious schools.
Most, but not all, charities have “deductible gift recipient” (DGR) status, which allows people to get the tax back on money they donate. But the rules governing who gets it have been described as a “dog’s breakfast”.
The commission’s report said the DGR rules were “not fit for purpose … poorly designed, overly complex and have no coherent policy rationale”.
Giving DGR status is a way to “steer donations” to certain charitable activities and away from others. Donors may also see it as a sign of “legitimacy, quality or effectiveness”, the report said.
“There is no explicit policy rationale justifying why some charitable activities are within scope, but others are not.”
There are animal welfare, LGBTQ+, and injury prevention charities, for example, that the Australian Tax Office has not endorsed as DGRs, but the system is “ad hoc”. Schools as a whole are not endorsed, but can set up school building funds (SBFs) and other fundraisers that are.
School building funds were given DGR status in 1954 when government support for non-government schools was “very limited”, the report said.
“Since then, government support for non-government schools has expanded considerably”, but the indirect support through DGR status “is not prioritised according to a systemic assessment of the infrastructure needs of different schools”.
The commission also warned that the tax-deductible donations could be “directly converted into lower fees”, giving people a tax break on their school fees.
Save Our Schools says donations contribute to the over-funding of private schools.
“At the very least, income from donations and investments should be included in the assessment of the financial need of private schools,” the organisation said in a statement earlier this year. Their data does not distinguish between school building funds and other donations.
The proposed change would affect about 5,000 school building funds.
In the Australian Tax Forum journal earlier this year, Melbourne Law School professor Ann O’Connell looked at DGR statistics for entities that “do not need, or alternatively it could be argued, do not deserve taxpayer-funded support”.
“We not only have a system that is not fit for purpose, but could be described as ‘a dog’s breakfast’,” she wrote.
“The system has been added to in fits and starts over time, often at the whim of a politicians, and certainly not as the result of carefully considered tax policy.”
She wrote that the system was put in place to help low-fee, poorer, often Catholic independent schools, but has now ballooned.
“There are numerous examples of private schools using the funds to build lavish facilities rather than the basic infrastructure that was a concern in the 1950s,” she wrote.
She also said parents were pressured by schools to make donations, and may not realise the payments are voluntary. “These pressures may [also] include perceptions that their child may be disadvantaged if they fail to make a ‘donation’,” she wrote.
The Association of Heads of Independent Schools of Australia chief executive, Chris Duncan, said the majority of independent schools were not wealthy, and that many relied on donations to build facilities.
“It’s a fairly radical change in the system,” he said.
“It will take in everyone.”
And he said that regulations prevented people from obtaining a private benefit such as lower fees by donating to an SBF.
“That can’t happen … to be subsidising fees … I just don’t think that’s true, and I haven’t seen it,” he said.
“You can see in theory how someone might be attracted to make a tax deductible donation to get a discount, but it’s fundamentally illegal.”
Duncan said he would also argue that there are “enormous public benefits” to be gained from schools in terms of shaping civic virtues and values and engaging in philanthropic work.
“We would reject the argument that independent schools don’t provide a public benefit … and it’s a bit of an attack on altruism,” he said.
Most funding for independent schools was recurrent, he said, and could not be used for buildings, which is why the SBFs were necessary.
The Australian Council of Social Service (Acoss) said tax concessions including DGR came at a cost to the budget, at the risk that other funding sources would be withdrawn, and a risk of “wealthy donors establishing foundations that influence public policy processes in a way that is not consistent with government transparency and accountability”.
Public hearings will begin in February, with the commission to deliver its final report in May.
