This study measures cost inefficiency for government school in New South Wales, Australia using a two‐stage data envelopment analysis (TSDEA) model and the inefficiency‐effects model (Battese & Coelli, 1995). The study found overall primary schools are 75 per cent and secondary schools are 89 per cent cost efficient. However, cost efficiency for primary schools has decreased and for secondary schools has increased marginally over the study period. The study found that social disadvantage in primary schools exerts a strong negative impact on students’ achievement scores causing inefficient use of available resources. For secondary schools no such conclusive relationship is observed.