The colonies that sprang up around Australia in the late 18th and early 19th centuries gradually developed their own schooling systems. They were initially church-run and by the mid-19th century had various levels of state funding. The church-run schools were eventually joined by some state-funded public schools and their numbers grew with the population. During this time there was a lot of dissention between the churches (primarily Catholic and Protestant) over who had the right to educate the children. The states, fed-up by this often bitter arguing, one by one withdrew funding until all states had ceased funding church run schools prior to Federation in 1901.

For the first half of the 20th century, there was no direct state funding for non-government schools although Queensland provided a limited number of student scholarships to a few Grammar schools (old-establishment private non-denominational schools)from early in the century until 1962 and some states provided allowances and subsidies to private school students for things like visual aids and transport.

Commonwealth aid for schools did not become a pressing issue until after the Second World War when funding the rapidly expanding education system became a national crisis within the states (the ACT and Northern Territory schools were primarily funded by the Commonwealth until they became self-governing – the ACT in 1989 and the NT in 1978). The first federal funding for the states came in 1964 when all Australian secondary schools, government and non-government, received science grants. Library grants followed..

Several state aid lobby groups formed in the 1960s and there was some federal support for funding state-run schools but a lot of dissention over the funding of non-government schools. Following the election of the Whitlam government in 1972, the Schools Commission was established to assess the education needs of all children and funding formulas were worked out for both government and non-government schools.

Today, school funding comes 91 per cent from the states and territories and 8.9 per cent from the Commonwealth. The education departments of the states and territories manage a vast range of state funded programs. Funds go to such things as teacher and support staff salaries, equipment, capital works, training schemes, transport, distance education, indigenous programs, special needs schools and disadvantaged student schemes, scholarships and bursaries.

All states and territories provide some funding for non-government schools. The amount of assistance has grown incrementally over the past forty years and is now around $2 billion annually. The states and territories use a variety of methods for calculating and allocating funds which can be for both recurrent and capital purposes. Funds may come as direct grants, loan assistance, living away from home allowances, free or subsidised transport and tax exemptions.