exexpat - in that specific situation,yes, the Catholic child has greater choice BUT only if the parents view a non-denominational school as a valid choice, which they may not, if getting their child a Catholic education is genuinely important to them. In that situation, the Catholic child who lives too far away from the Catholic school and the atheist child too far from the non-denominationalschool are equally disadvantaged.
But of course, your example is false, anyway, because the much greater number and spread of non-denominationalschools means that in practice a far more likely situation is a religious person with no faith schools anywhere even faintly within commuting distance, and those that are, incredibly over-subscribed. So they have no choice but move. Which they do - without moaning that it wasn't fair they could only get into a school of the wrong faith or no faith.
Your example also ignores what happens if the second child isn;t Catholic but jewish, or Sikh or Muslim etc etc - they have the same options as the athesist child - but neither of the schools actually suit their needs!
Because of course not everyone of 'faith' is the same faith, as you seem to picture it - unlike those lucky atheists, for whom 2/3 of schools are suitable, for those who are genuinely religious but in a minority faith, only a small number of schools across the whole country will actually be suitable!!! And yet they subsidize your 2/3 of schools without complaining.