There are approximately 2 million public school students in Australia and 1 million private school students. The Federal and State governments combined spend approximately $24 billion on public education and $6 billion on private education per year. Private schools raise an additional $6 billion from fees per year.

Parents elect to send their children to either:

i) Public schools were their child receives $12,000 worth of education for free or

ii) Private schools were they pay a subsidized price of $0.50 education for every $1 of education.

Assume that public and private schools are equally efficient and that $1 of funding to either system has the same effect, i.e. that the only quality of differences in student outcomes occurs from differences in funding per student.

a) For what minimum income level would a household never choose private education? Is there a maximum income level at which a household never choose public education?

A spokesperson from a think tank has advocated that the all government education funding to both public and private schools should cease and instead be channeled into a voucher system. Under this scheme parents would receive a voucher that would be used to purchase education from any school they choose at price of $1 for every $1 of education. The spokesperson claimed, “All households will be better off and be able to afford to invest more into their children’s education resulting in better level of education for Australian students”.

b) Evaluate and discuss the think tank’s spokesperson’s claim.

Supporters of public education argue that all government funding to private education should cease and be invested into public schools. The supporters claim “This reform would improve the quality of public education and raise the average level of education of Australian students and make all but the wealthiest household better off”.

c) Evaluate and discuss the claim by supports of public education.