The Abbott government is pushing ahead with a religious-only school chaplaincy scheme following a cabinet debate over whether secular welfare workers should be included in the program.
The ACT government has responded saying it will not administer the scheme unless schools can choose secular counsellors.
ACT Education Minister Joy Burch said the territory was willing to negotiate with the Commonwealth and welcomed any additional funding for schools.
But she said she had a "very clear" policy that schools should be able to choose religious or secular counsellors and the ACT government would not accept the scheme's administration unless this was the case.
The government was forced to redesign the $224 million scheme after the High Court ruled it invalid in June for the second time in two years. The court found the Commonwealth had over-reached its funding powers by providing direct payments to chaplain providers.
In a bid to prevent another High Court challenge, the federal government will provide funding to state and territory governments to administer the scheme. This new arrangement strengthens the hand of the states and could see some demand an option for secular welfare workers or tougher qualification standards.
In a cabinet meeting on Monday, Abbott government ministers explored options to extend the scheme to include funding for secular welfare workers. This would have reversed the government's existing policy that funding should be restricted to religious chaplains.
Mr Abbott argued during the discussion that the government should stand by its existing policy. He argued the scheme's original intent was supporting pastoral care in schools and that should remain its focus. The chaplaincy scheme was also raised in the Coalition party room on Tuesday, where at least two government members argued the scheme should be broadened to include funding for secular workers.
The chaplaincy scheme was introduced by the Howard government in 2006. Labor expanded the scheme to include funding for secular welfare workers in 2011 – an option the government scrapped in this year's budget.
Both challenges in the High Court were brought forward by Toowoomba father Ron Williams, a secularist opposed to public funding for religious workers in public schools.
The government rushed forward its announcement about the new scheme on Wednesday afternoon after Fairfax Media revealed the story online. The government had hoped to avoid a distracting debate on chaplains during the introduction of its sweeping higher education changes into Parliament on Thursday.
Under the new scheme, chaplains can be of any faith, cannot proselytise and must meet minimum qualification standards.
Participating schools will be eligible to receive up to $20,000 a year in financial assistance, with schools in remote areas eligible for $24,000.
Ms Burch said all ACT public schools had access to counselling from psychologists and social workers and had a full-time youth support worker and pastoral care co-ordinator.
The Parliamentary Secretary to the federal Education Minister, Scott Ryan, said he "encouraged state and territory governments to accept the invitation of the Commonwealth to participate in the National School Chaplaincy Program and give all schools the chance to apply for funding for a school chaplain".
"The government believes that school chaplains make a valuable contribution to the wellbeing of students and school communities," Mr Ryan said.
Ms Burch said the ACT government was willing to negotiate as it would mean up to $720,000 in extra funding for these programs, but it would not be moved on having the secular option included.
Labor education spokeswoman Kate Ellis said: "It is an unjustifiable disgrace that hundreds of schools will lose valued, hard-working and qualified counsellors as a result of the Abbott government's ideology being rammed down the throat of school students across Australia.
"Determining who is best placed to support the needs of local students should be left to principals and school communities – not to [Education Minister] Christopher Pyne and [Attorney-General] George Brandis."
Australian Education Union president Angelo Gavrielatos said the school chaplaincy scheme would "undermine the secular traditions of public education".
The $224 million funding over four years should be spent on more urgent needs, such as support for children with disabilities, Mr Gavrielatos said