ISNZ PricewaterhouseCoopers Report

29 October 2001

Independent Schools Sustainable For Less Than Another Two Dollars Fifty Per Child Per Day

ISNZ schools represent over 80% of the children who are currently being educated in independent schools. There are 42 member schools ranging from the Bay of Islands to South Canterbury. These schools are described on the ISNZ website www.isnz.org.nz.

ISNZ (Independent Schools of New Zealand) recently contracted PricewaterhouseCoopers (PwC) to update the benchmarking study first published in 1999. That study concluded that there would be an ongoing cost of $79M - $85M a year if all independent schools integrated plus one off integration costs. "This conclusion still holds," says Joy Quigley, Executive Director, ISNZ..

The current capped Government subsidy is $41.175M a year. This latest study confirms that 42% of this subsidy is returned to the Crown as GST on tuition fees. Other sources of revenue that independent schools rely on are also taxed. By operating as businesses, the independent schools also contribute significant amounts of tax through GST on goods purchased and operating costs, through PAYE from employing staff and other associated taxes.

Recently the Minister of Education gave support to the above comments when he stated that: ".it is the view of the Government that it is cheaper to fund private schools than to integrate them or to have the children involved transfer to state schools. Most private schools are in a position where they would close without the state subsidy. We also collect GST. The taxpayer is a net beneficiary of having private schools."

The initial focus of this review was the funding that independent schools receive from the Crown and the financial sustainability of schools belonging to ISNZ.

"In the 1998 to 2000 period, besides the increase in per student Government funding (compared to the 1995 to 1997 period), the most notable change was the greater reliance on other revenue sources such as fundraising. The concern going forward will be the ability of schools to continue to rely on such sources of revenue to supplement tuition fees."

In their 1999 report, PwC noted that: "The education sector has two roles - the provision of education and buildings and property where education is provided.

Joy Quigley says it is important to reflect on those comments from 1999, as at that time it was obvious that schools would have to invest heavily in their buildings in order to undertake outstanding capital expenditure plus ensure their facilities continued to attract parents who did have other choices for their children.

PwC has concluded from this year's investigation that: "The proportion of participating schools that failed to achieve a sustainable level of operations has increased from 61% for the 1995-1997 period to 65% for the 1998-2000 period. A deterioration of the average school's performance of this magnitude was expected, given the increase in capital expenditure, as forecast in the 1999 Report. Schools have invested heavily in capital expenditure for new facilities but have had to finance these through increased borrowings. This resulted in significant increases in deficit performances. If this trend continues, the planned capital expenditure programs and the reliance of schools on debt financing suggest the proportion of unsustainable schools is likely to increase dramatically in the short term."

Government funding has increased over the period 1998 - 2000 but from 2001 has been capped at 2000 levels. With the potential for increasing rolls and the increasing number of new schools opening, this will result in a decrease in per student funding received from the Government in future years. The disparity in funding across age groups remains unexplained by the Ministry.

Scenario analysis of Government funding levels indicates that a modest increase in per student funding would help lift the sector to a sustainable position. An increase of $2.50 a day per student regardless of age group would generate sufficient revenue to support current tuition fees and allow independent schools to move towards sustainability. Although this estimate is the same as was found in the 1999 study, it reflects different trends: (1) the decrease in sustainability, (2) the long-term increased short fall has been met by an increase in tuition fees from an average of $4,600 to $5,700 per student."

In conclusion, the PricewaterhouseCoopers report recommends that there is scope for the Government to further develop the funding formula that applies to the funding of students at independent schools so that it relates more directly to the equity issues and sustainability of the schools. Options include increasing the proportion of operating costs funded by the Government, to tax credits for parents who pay both taxes and school fees. These changes in the amount the Crown resources independent schools would still result in a significant saving to the taxpayer.

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