Australia’s complicated childcare subsidy system is a nightmare – what we need is a streamlined system which boosts affordability and therefore productivity, writes Samantha Page.
Early childhood education and care must be both high quality and affordable if we are to achieve the dual objective of supporting women’s participation in the workforce and amplifying children’s development for long-term educational and productivity benefits. We should not have to choose between quality and affordability – both are important.
Poor quality early childhood services do not deliver long term benefits, and parents who are dissatisfied with the services available will delay their return to work or use a patchwork of alternative arrangements rather than use a service they don’t have confidence in. At the same time, high quality services that cost so much that low and middle income families cannot afford to access them are not delivering on social and economic policy goals.
The release of the AMP/NATSEM report yesterday served as a reminder that for many parents, long day care fees are already much too high, despite government subsidies that fund a significant proportion of the cost. This trend is set to continue, with the Federal Government’s forecasting suggesting that prices will continue to increase around 7 per cent year on year over the next four years with public investment increasing to more than $7B per annum.
This week, the Federal Parliament will spend hours debating the merits of freezing the income threshold of the Child Care Benefit as well as the cap on the Child Care Rebate – which will push up the cost of child care further for families. While the impacts of these changes are real, very few people in Australia can actually understand the subsidies.
The Federal Government has in fact increased expenditure on subsidies by around 30 per cent in the federal budget, pledging over $7 billion per annum of support to families with young children. Despite this, fees continue to rise and the real impact of government support to subsidise care is declining as child care prices exceed indexation.
Many of the problems experienced by service providers, families and the government are directly attributed to the subsidy system. The complicated two-payment system – with the child care benefit means tested but the child care rebate non-means tested – is a nightmare.
Service providers spend hours logging data through the child care management system. This, I believe, is where a lot of the ‘red tape’ is for service providers.
Meanwhile, every time a service raises its fees, the government is covering at least half the cost. Many operators are on shoestring budgets trying to keep costs down for families. However, when a ‘premium service’ chooses to offer additional services, such as foreign languages and chefs on the books cooking meals for children, the government is subsidising half the cost up to $7,500 per year. There is certainly a place for these premium services, and families are willing to pay for the very best for their children – but should the government be subsidising it?
The NATSEM/AMP Report states that “while child care subsidies have contained out-of-pocket costs, it’s likely they have contributed to an increase in the gross cost of child care, requiring greater assistance”.
What we really need is a new, streamlined government subsidy system. The Early Learning subsidy, developed by Professor Deb Brennan at the Social Policy Research Centre, proposes a merger of the Child Care Benefit and the Child Care Rebate into one means-tested payment. The scheme covers a large percentage of the daily fee for low income families and reduces for higher income families. If paid directly to services, parents will get a better idea of how much they pay for care, and it will contain out-of-pocket expenses.
The Early Learning subsidy system also seeks to determine a suitable cost of care in areas across the country, and only subsidise a proportion of the fee. In a metropolitan area, that could be $110 a day, but it would be less in rural and remote areas. That means that taxpayer funds aren’t used to subsidise the profit margin of premium services, which many parents will still pay for if they see real value for their children.
It’s paramount that we get the system right – $7 billion a year is a significant investment and it should be treated accordingly. If the government subsidy is correct, it will encourage more families to use early childhood education and care services for their children – the result being better educated children entering primary education, and higher female workforce participation.
The Productivity Commission, which is currently conducting a review of the sector, is uniquely placed to identify opportunities for major reform that can deliver the type of early childhood education and care system that will serve the national interest for decades to come.
If Australia is to improve its productivity, we must lift the participation of children in quality early education and care.
That means reforming subsidies to make early childhood education and care more affordable – because ultimately, everyone benefits.