Not only have some public schools lost enrolments; they have become racially segregated. In pockets of rural and remote NSW, Aboriginal students fill public schools and white students attend Catholic and other private schools in the same town. Around Sydney, the parents of some Anglo-European students are avoiding what they perceive as predominantly Lebanese, Muslim and Asian schools.

In New England, in towns such as Armidale, white middle-class students are flocking to Catholic and independent schools. In their report, principals say this is so the students can "get away from their local school". "This is almost certainly white flight from towns in which the public school's enrolment consists increasingly of indigenous students," the report says. "The pattern is repeated in the Sydney region. Based on comments from principals, this most likely consists of flight to avoid Islamic students and communities."

The report, its pages stamped confidential, was based on responses of 163 high school principals, representing a third of the Secondary Principals Council membership. It was presented to the NSW Government after it was completed in February 2006, but has not been released. Principals in New England said 56 per cent of the Anglo-European students who had left their schools had gone to a nearby Catholic or independent school. In North Sydney, 35 per cent of students who had left the public system went to a nearby private school.

The report shows the percentage of Anglo-European students in public schools has decreased by a third in western NSW, by 42 per cent in North Sydney and 37 per cent in New England. A University of Western Sydney academic, Carol Reid, has also found that one in four male students surveyed in Sydney's south and west had been involved in ethnic conflict. She had received anecdotal reports from principals about white students avoiding what were regarded as Asian schools on the North Shore and some selective high schools that had high proportions of Asian students.

Dr Reid, who is the associate head of the school of education, surveyed 350 high school students aged between 14 and 17 in south-western Sydney, after the Cronulla riots of 2005. "I've been involved in education for 30 years and I've never seen this polarisation around class, but also around ethnicity and race," she said.

"What I have discovered is principals are losing the last of their white kids to Catholic schools across the road. A principal in the Middle Eastern part of the city was saying that he had no white kids in his school. "I'm concerned that social cohesion is going to be at risk through this. I see signs of that. You have a lot of segregation going on." The survey of principals reports one saying: "The Asian students are scared off by Lebanese enrolment at our school following the Cronulla riots - we had 18 no-shows on day one in year 11, mostly Asian."

Another said: "I'm seen as a Muslim school, so I don't attract very many non-Muslims, whether Anglo or not. I've worked hard to raise the school profile and gradually increase enrolments, but the Muslim label appears to alienate other groups." Noel Beddoe, a former principal in Narrandera for 20 years who is involved in Aboriginal education, said a "de facto apartheid" had developed in some towns in the west and north of NSW, including Mungindi, near Moree, where Aboriginal students attend the public school and whites attend the Catholic school.

Busloads of white students from towns including Boggabilla cross the Queensland border every day to attend a Catholic and public school in Goondiwindi. The same is happening in southern NSW, where students are bypassing Balranald Central School and crossing the border to go to schools in Victoria. Up to 15 years ago, Boggabilla Central School, near the Queensland border, had a relatively even mix of white and Aboriginal students. The proportion of white students has dropped from around 40 per cent in the early 1990s to 10 to 20 per cent today. Owen Hasler, the NSW Teachers Federation organiser for the New England region, said: "There has been a significant movement of white Anglo students away from quite a few of the schools in the New England and Western region. It is clearly evidenced by the numbers and proportion of Aboriginal students in those schools."

He said around 8 per cent of the 1100 students at Gunnedah High School during the 1970s were Aboriginal. That proportion had grown to about 25 per cent of the 600 students now enrolled. "Public schools are becoming de facto Aboriginal schools," Mr Hasler said. "It appears to be a result of the last 10 to 15 years of funding. We can understand people making the choice to send their kids away to other schools when there is a financial incentive to do so. But is that fair to the kids who want to stay in their own local community?"

Dr Reid said policies of the Howard government and the Liberal state government that had strongly supported parental choice in schooling, including de-zoning, had contributed to "white flight". Parents were no longer restricted to schools close to home and could use generous government subsidies for transport. Boarding school allowances of up to $6396 per child were also available, making it easier for some families to avoid their local school. The Isolated Parents Association is lobbying to have the $54 million federal government boarding assistance scheme extended to more families in rural and remote areas. It is means-tested and restricted to children of families who live more than 56 kilometres from the nearest government school, or more than 4.5 kilometres from the nearest transport to school.

The association's national president, Roxanne Morrissey, said families who lived near a public school should be supported in their choice of another school that offered a wider curriculum choice. The NSW Greens MP John Kaye said the State Government spent $443 million a year on a transport scheme that "encourages travel past local public schools to private schools in other suburbs".

"It's a recipe for educational segregation," he said. Rick Johnston, director of Catholic schools in the Armidale diocese, said enrolments of Aboriginal students were increasing. In 1985 there were 6557 students in Catholic schools in the Armidale region and of these, 196 were Aboriginal. Last year there were 465 indigenous students out of 5892 students. "I am committed to improving education outcomes for Aboriginal and Torres Strait Islander students," he said. "I believe that education is the most important key to breaking the cycle of disadvantage experienced by Aboriginal and Torres Strait islander people."

Sharon Cooke, who is employed by the Catholic schools office in Armidale as an Aboriginal education consultant, said there were 25 schools within the diocese that employed 20 Aboriginal education assistants and two Aboriginal language teachers. "We are committed to increasing the number of teachers within our schools who are of Aboriginal heritage," she said.