The indexation of Australian Government recurrent funding for schools is through increases in the School Resource Standard (SRS) which is considered to reflect changes in prices and, therefore, costs in schools.The SRS is indexed each year by the higher of 3% or a percentage derived from a combination of changes in the Wage Price Index (WPI) and the Consumer Price Index (CPI). With the CPI now running at around 2.4% and the WPI at around 3%, schools should not expect grant indexation rates much higher than 3% in the coming years.
The difficulty for schools is that cost increases in recent years have been higher than CPI. Figure 1 shows that whilst the annual CPI increase for the March quarter 2025 was 2.4%, the secondary education component of the CPI increased by 6.4%. This is principally driven by the increases in salaries. Whilst the annual WPI for the March quarter 2025 was 3.4%, the education component of the WPI was 3.8%.
Figure 1: Trend in Australian indexation factors reflecting school costs and influencing funding.Whilst the Australian Department of Education projects that SRS indexation for the period 2026 to 2029 will remain at just above 3%, economic predictions have WPI at 3% and CPI at around 2.5% for the next couple of years. If this is the case, SRS indexation is more likely to be at the minimum level of 3%. Based on the above, this indicates the gap between SRS indexation and school costs may continue to narrow.
Similarly, I understand New Zealand Independent schools have experienced significant salary increases and funding has been reducing on per student basis for years, although, I note a welcome funding increase in the 2025 New Zealand budget.
To maintain sound financial health, schools may need to increase fees higher than “normal” and/or endeavour to keep cost increases to around 3% — a challenging task given the likely increases in teacher salaries driven by teacher shortages, public sector teacher salary increases, the remuneration impact of more Highly Accomplished and Lead Teachers and the genuine desire to reward our teachers at high levels.
Strategically, independent schools need to maintain the value proposition so that parents/guardians can clearly see the value in the fees they pay i.e. provide a fantastic service. Long term research indicates that the value proposition for parents includes good academic and wellbeing outcomes which requires quality teachers. But the research also indicates 70% of parents said their choice of school was totally or highly influenced by the quality of facilities, and as we know building costs have skyrocketed in recent years. So financial sustainability is an interesting mix of operating efficiently but effectively whist generating an annual operating surplus sufficient to fund debt servicing and facility improvements.
Get your Annual School Financial Health Checkup
The Financial Survey for Schools (FSS) Reports are available in a few days. To date over 300 schools have logged in to complete 2024 school-year data. Preliminary results indicate operating surplus are contracting. To be financially sustainable, schools need annual operating surpluses adequate to meet debt servicing and campus reinvestment, whilst maintaining cash reserves sufficient to pay debts when due.FSS participants can use the Financial Sustainability Planner to set a target operating surplus which is different for all schools depending on debt servicing and asset replacement needs.
We recommend annual FSS participation and use the Historical Report to assess trends in your school’s enrolments, operating surplus, debt, debt servicing, asset replacement and cash reserves to highlight changing risks.
Then Use the Financial Performance Report to compare income, expenditure and staffing with similar schools to identify strengths and improvements. From this information develop strategies and forecast their financial effect using the Somerset Key Indicator (SKI) Report and SKI Scenario Report.
The FSS is truly a one-stop financial health check helping schools identify financial problems early so they can be confident about the future. Prevention is much preferred to cure, but if you are concerned about your school’s financial health right now, the FSS can help triage and plan a cure. And with our new data upload service, participation is relatively painless.
Next steps
For more information about the FSS or our budgeting and reporting tools, please contact Cathy our survey Administrator at survey@somerseteducation.net or call 1300 781 968 (international +61 7 3263 5300).We look forward to your ongoing support, or if new to the survey, we warmly welcome you joining in.
Q | Any questions?
For more information about the FSS or our budgeting and reporting tools, please do not hesitate to contact Cathy or Jessica at survey@somerseteducation.net or call 1300 781 968 (from outside Australia +61 7 3263 5300).
If I can help in any way with the financial governance of your school, please contact me at john@somerseteducation.net or mobile 0417 618 899.
We look forward to your ongoing support, or if new to the survey, we warmly welcome you joining in.
