The High Court has upheld a challenge to the National School Chaplaincy Program, ruling the law used to maintain Commonwealth funding for chaplains is unconstitutional.
Despite the court challenge, the program was allocated nearly $250 million in this year's federal budget, to be spent over four years.
It is the second time the funding arrangements have been challenged in the High Court.
Queensland father Ron Williams won a court challenge against the program in 2012, when the court ruled the program was not being funded in a lawful way.
After the 2012 decision the Federal Government moved quickly to shore up that program, and more than 400 others potentially affected by the ruling, by passing a new law.
Today Mr Williams won his challenge over the validity of that law.
The main question examined in the case was whether the executive government had the power to fund such programs directly through local organisations.
The national body for school chaplains has said it believes the program will survive despite a court ruling against the funding arrangements, saying the payments could continue as state and territory grants.
The states backed Mr Williams in both of his High Court challenges, over concerns the Commonwealth was using the mechanism to bypass them.
Mr Williams, from Toowoomba, has said he takes issue with so-called religious missionaries being put into schools.
In 2012, when Labor's new law was being debated, then-shadow attorney-general George Brandis described Labor's legislation as a "bandaid" solution that would not "meet the tests the High Court set out" after the 2012 decision.
The program was introduced by the Howard government in 2006 and later extended by the Rudd government.
Schools received up to $20,000 each under the program to employ chaplains.
The chaplains provide counselling support for students but are banned from proselytising their faith.
In this year's budget the Federal Government scrapped funding for non-religious counsellors, who made up about a quarter of all participants under the program.
The previous Labor government allowed secular student welfare workers to be funded under the scheme, but the Coalition reversed the decision and will only pay for chaplains.
The Government has argued it is simply returning the program to how it was envisaged by the Howard government and that state governments can provide funding for secular councillors if they wish.
Signs of intelligence Aus...
Signs of intelligence Aus...
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”