Religious Schools Oppose Victorian Government’s Plan to Impose Payroll Tax

The display board outside All Saints Catholic College is seen in Sydney, Australia, on July 12, 2021. (Mark Kolbe/Getty Images)

Religious and independent schools in the Australian state of Victoria are opposing a new revenue-raising policy compelling many local education providers to pay payroll tax.

In the 2023-2024 state budget, the Victorian Labor government proposed to remove the payroll tax exemption for non-government schools with high tuition fees to raise money to help repay the massive $31.5 billion debt caused by its COVID-19 measures.

Currently, only government schools are required to pay payroll tax, while all religious and independent schools in the state are exempted.

However, under the new policy, non-government schools with an annual tuition fee of above $8,000 (US$5,280) will have to pay payroll tax from July 1, 2024.

The state government said the new measure would ensure that only schools that “genuinely” need support would benefit from the exemption.

It also expected that the changes would affect the top 15 percent of the schools by fee level, which would raise around $135 million in 2024-25 and $422.2 million over the forward estimates.

It is worth noting that no other Australian state or territory is imposing a payroll tax on Catholic or independent schools, putting the Victorian government at odds with the rest of the country.

Religious Schools Push Back on the Measure

Following the budget’s release, the Catholic Education Commission (CEC) has written to Victorian MPs and warned them about the impact of removing the payroll tax exemption on private schools.

The peak body said up to 20 Catholic schools with around 21,000 students in Victoria might lose as much as $1 million a year in operating budget due to payroll tax.

CEC executive director Jim Miles said the government’s move would cause student fees to increase, inflicting more pain on family budgets amid the living cost crisis.

“Our principals in these schools are asking why the families in their diverse communities are being punished to help balance the state budget,” Miles wrote.

A general view of St Charles Catholic Primary School, Waverley in Sydney, Australia, on June 23, 2021. (Jenny Evans/Getty Images)

The commission urged Labor MPs to take action to scrap the proposal or significantly raise the tuition fee threshold for the payroll tax.

Meanwhile, the Australian Association of Christian Schools (AACS), representing over 100 Christian schools across the country, called on the Victorian government to review the changes as it feared students would bear the brunt of the reform.

“Our member schools have told us they will be forced to make some tough decisions to afford this new tax, such as raising school fees, cutting staff or putting a stop to new building projects,” AACS executive officer Vanessa Cheng said.

“With the rising cost of living starting to bite with increased interest rates and rising inflation, many parents will be simply unable to afford an increase in school fees.

“We are concerned it is students who will be most hurt by this new tax, particularly if they are forced to change schools because their parents can’t afford an increase in school fees.”

Opposition Says Private Schools to Be Hit with ‘Tax Triple Whammy’

While the payroll tax exemption rule has caused great concerns among private schools, the Opposition claimed that the new measure would expose those schools to even more taxes.

Under the tax reform proposed in the latest budget, Victorian businesses with national annual payrolls of more than $10 million will need to pay an extra COVID-19 levy from July on top of the mental health levy introduced in 2022.

Opposition education spokesman Matt Bach said that by removing the payroll tax exemption, the Victoria government would expose non-government schools with payrolls of more than $10 million to both the COVID and mental health levies.

“This will simply mean that they won’t just have to pay the initial schools tax–they will have to pay a triple whammy of taxation,” he told reporters.

Bach also allegedly said that the Labor government must have already had a hit list of schools as it forecasted the measure would raise $422.2 million.

“They’ve got to release that information right now so the schools can have at least some certainty as they start to budget,” he told reporters.

The opposition had confirmed that it would vote against the tax reform legislation when it was tabled to the upper house this month.

It also vowed to reinstate the payroll tax exemption for high-fee private schools if elected in 2026.

Victorian Government’s Response

Meanwhile, Victorian Premier Daniel Andrews said the opposition was “scaremongering” by claiming non-government schools would face a triple tax hit.

“That’s not right. All of those matters are being worked through. We want to communicate with the schools first,” he said.

The premier also clarified that fewer private schools would lose their payroll tax exemption than originally thought, saying the government would lift the fee threshold for those schools.

“I’m not in a position to confirm what it will finish up at, but it will go up,” he told the budget estimates hearing on June 2.

In addition, Andrews emphasised that the state’s education minister would consult with the sector on the new threshold and that schools would find out whether they would be exempt from the payroll tax by September 2023.

“Therefore, the revenue and the coverage assumptions that the treasury department have made off the current system will have to be revised,” he said.