Australian Families Spend More Money on Childcare Despite Significant Government Funding: ACCC

General view of activities in the Goodstart Early Learning Centre at Albany Creek in Brisbane, Australia, on Oct. 3, 2018. AAP Image/Dave Hunt

Market forces and the current policy environment have failed to deliver quality and affordable childcare services to the families that need them, Australia’s consumer watchdog has said in its latest report.

The Australian Competition and Consumer Commission (ACCC) published its second interim childcare inquiry report on Sunday detailing its analysis of childcare services and the government’s childcare subsidy scheme, which reduces the fees paid by parents and guardians.

It found that the Australian government has made a significantly higher subsidies to childcare fees compared to other OECD countries, at about 16 percent of a net household income with two parents on average income. The OCED average is 7 percent.

But despite this financial support, childcare in Australia is still less affordable compared to most other OECD countries, the ACCC found.

Australia ranked 26th out of 32 countries in the OECD for the amount spent on childcare as a proportion of household income.

Education Minister Jason Clare said the report highlighted that there was plenty of work required to reduce costs for parents and guardians.

He also was open to one of the recommendations in the report to name and shame childcare centres that charge excessively high fees.

“The idea of naming and shaming providers that are just charging over-the-top fees makes a lot of sense to me,” he told Sky News Australia on Oct. 1.

“I made the point when our Cheaper Child Care laws came in a couple of months ago that if people were taking advantage of this just to jack up fees out of proportion with what’s happening in the economy, then there should be pressure placed on them.”

Mr. Clare said the government will look at some of the recommendations made in the report.

“Now comes time for some serious reform about what more we can do to keep prices down, put pressure on prices, and at the same time, mate, look at what the big reforms to child care need to be in the next decade around universal access and affordable access for all children,” he said.

Australian Education Minister Jason Clare speaks during the Universities Australia Conference dinner at Parliament House in Canberra, Australia, on Feb. 22, 2023. AAP Image/Mick Tsikas

Comparing Australian Childcare to Other Countries

The consumer watchdog examined overseas childcare policies and found that many governments had lowered service costs by providing subsidies to childcare providers (supply-side subsidies) rather than focusing on financial assistance to families (demand-side subsidies).

“We have observed that many countries have decided to spend more on childcare to improve affordability and are moving towards greater regulation of childcare fees by offering low fees or free hours, supported by supply-side subsidies,” ACCC Chair Gina Cass-Gottlieb said.

Between 2018 and 2022, childcare fees when adjusted for inflation increased by 7.3 percent in Australia compared to the OECD average of a 7.1 percent decrease in fees. In gross terms, this was an increase of 20.6 percent compared to 9.5 percent.

“Internationally, we have observed countries increasing public expenditure on childcare to improve affordability for households,” the report said.

“OECD data shows that, in 2019, public expenditure on early childhood education and care for 0–5 year olds was 0.6 percent of GDP in Australia in comparison to the OECD average of 0.8 percent.”

The report found that many other countries were moving towards mandating low fees, fee caps, or free hours.

However, it noted that this needed to be supported by subsidies for service providers to ensure that businesses remain financially sustainable.

This particularly applied to childcare providers that service remote areas, which face higher labour and facility maintenance costs.

“A single policy approach may not deliver quality and accessible childcare for all Australian children,” Ms. Cass-Gottlieb said.

“A mix of different measures and supports may be needed to deliver affordable and accessible childcare for families in different locations and situations across the country.”

The ACCC recommends that the government expand its supply-side policy options, potentially even taking the role of market stewardship in areas where there is an undersupply of the service.

Labour Costs

The report found that labour was the biggest cost for supplying childcare, accounting for at least 69 percent of total costs. Second to labour was land costs, at around 15 percent.

Labour costs for large day care services have increased faster than inflation, up 27 percent between 2018 and 2022.

Last week, the Fair Work Commission granted childcare unions the right to bargain for pay rises of up to 25 percent.

“This victory will mean that early childhood educators will now have a seat at the table through their unions,” Australian Council of Trade Unions President Michele O’Niel said on Sept. 27.

“For years early childhood educators’ real wages have gone backward, forcing them to leave the job they love to put food on the table for their own families in this cost-of-living crisis.

“Over 90 percent of workers in the sector are women who in the past have been locked out of the bargaining process and had their work undervalued.”

Despite significant increases in labour costs, the ACCC found that the sector remained generally profitable.

“We find operating margins at centre-based day care services located in major cities and in advantaged areas are generally strong,” the report said.

“However, profitability can vary significantly within markets depending on occupancy levels.

“As a result, providers compete to attract and retain households—particularly on quality.”