[adning id=”12070″]

[adning id=”12070″]

Childcare affordability is a challange for employees and business owners alike

Market forces alone have failed to meet community expectations and government objectives for childcare services and policy, an ACCC report has found.

These findings arise from the ACCC’s Childcare inquiry second interim report, published today, and are based on analysis of the nature of childcare markets, the Child Care Subsidy and the role price and quality play in demand for and supply of childcare across Australia.

“As the competition and consumer regulator, we have carefully examined the childcare sector and the impacts for consumers. We have found market forces under current policy settings are not delivering on accessibility and affordability for all children and families across Australia,” ACCC Chair Gina Cass-Gottlieb said.

“Quality childcare is essential for Australian families. Early childhood education can help children reach developmental outcomes and supports parents and guardians to work and study.”

“This analysis provides important new insights into the costs of supplying services, how parents and guardians choose to use childcare and provides an evidence base for important policy discussion and consultation,” Ms Cass-Gottlieb said.


“Our report’s findings highlight areas in which changes could lead to better outcomes for the community, particularly those needing childcare in lower income households and in very remote locations. We have made draft recommendations to re-examine childcare policy settings, and are now seeking feedback from childcare providers, educators, families and interested community organisations.”

Supply of childcare services higher in advantaged areas and cities

The ACCC report found that market dynamics encourage more supply in socio-economically advantaged areas and major cities, where parents and guardians generally have greater ability and willingness to pay.

Decisions by providers to offer childcare services in a particular area are influenced by their expected viability, which in turn is driven by an area’s relative advantage, workforce participation, demographics and geographic location. The occupancy level of a childcare service is a key driver of revenues and profits.

“We have found margins are higher, on average, for most for-profit centre based day care services, as well as centre based day care services in major cities and advantaged areas and those centres providing higher quality care,” Ms Cass-Gottlieb said.

Remote communities, and locations with a higher proportion of lower income households have fewer childcare services and are relatively under-served. Areas located in the lowest three socioeconomic deciles have a greater proportion of not-for-profit providers compared to more advantaged areas.

“Our findings highlight that childcare is used by children and households in significantly different situations with vastly differing needs. A ‘one size fits all’ approach that achieves all desired outcomes is not likely to be possible,” Ms Cass-Gottlieb said.

“We recommend that the government reconsider and restate their key policy objectives and priorities, and consider further changes to the Child Care Subsidy and broader policy measures to better address government priorities and unintended consequences.”

Activity test can reduce demand for childcare because of higher costs

When parents and guardians decide how much childcare to use, price is a key consideration, as families consider their willingness and ability to pay in determining whether and how much childcare to use.

When they are then choosing a centre based day care, rather than looking for the cheapest service, parents and guardians tend to look for a service that is priced around the prevailing market price (not too high or too low) and which delivers value for money, taking into account perceptions of quality.

Despite the overall importance of prices, the ACCC found parents are generally less sensitive to small variations in price than in many other markets. The report finds that there is in fact little variance within local markets, although prices vary more between markets.

However, households in lower socio-economic areas are more responsive to price changes, as increases in out-of-pocket expenses will have a disproportionately larger impact on household income.

The activity test and a household’s eligibility for subsidised hours of care can greatly influence their demand for childcare, especially for low income households.

The ACCC report found that households with the lowest entitlements to subsidised hours of care, as determined by the activity test, also had the lowest median incomes, around $46,000 per year. Those households also used the most unsubsidised hours of childcare – more than 7 hours per week on average.

In contrast, households on higher incomes receive more subsidised hours of care and pay for fewer unsubsidised childcare hours each week.

“The current activity test means that those in low income households who seek to increase their hours of employment, and therefore need more childcare, face a higher proportion of out of pocket costs as this extra childcare is relatively more expensive for them,” Ms Cass-Gottlieb said.

Costs of providing childcare increasing, but sector is generally profitable

While costs of providing childcare have been increasing, the report found the sector is generally profitable.

Labour is the main driver of costs for supplying childcare services, accounting, on average, for 69 per cent of centre based day care costs and 77 per cent of outside school hours care costs. The cost of providing centre based day care has increased by 27 per cent on average over the past five years.

Land and related costs are the second largest driver of costs for centre based day care providers accounting for 15 per cent of total costs.

The ACCC found that large not-for-profit, centre based day care providers have somewhat lower land and related costs but reinvest these savings into their workforce, to improve the quality of their services. Not-for-profit large centre based day care providers have significantly more staff paid above award wages and employed on a full time basis than for-profit providers.

Additional and targeted support for First Nations and under-served communities

The ACCC recommends the Government consider maintaining and expanding supply side options including direct subsidies, for Aboriginal Community Controlled Organisations that provide childcare services for First Nations children.

The ACCC also supports a market stewardship role for Government in local area markets where there is an undersupply of childcare services.

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

Educators key to quality, availability and profitability of childcare services

Staff shortages and decisions by educators to leave the sector are impacting the supply of childcare in Australia as well as profitability, long-term viability and service quality.

“Childcare markets are complex and involve extremely personal decision making for parents and guardians. The educator-child relationship is incredibly important to families when choosing a service and providers compete more on quality rather than price to attract and retain families,” Ms Cass-Gottlieb said.

“The ACCC recommends that consideration be given to how regulatory frameworks can help attract and retain early childhood educators. Wages and conditions, including training demands and regulatory reporting requirements may be factors contributing to workforce attrition.”

OECD countries are moving towards supply side subsidies and increased regulation

Childcare in Australia is less affordable compared to most other OECD countries. In 2022, an Australian couple on average wages with two children spent 16 per cent of their net household income on net childcare costs, compared to the OECD average of 9 per cent.

This is despite the government contribution to childcare fees in Australia being significantly higher (16 per cent of net household income for a couple on average wages) than the OECD average (7 per cent).

These figures do not take account of increases in the Commonwealth Child Care Subsidy from July 2023.

The ACCC met with overseas government agencies and examined childcare policies and the effectiveness of price regulation mechanisms in several OECD countries.

“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,” Ms Cass-Gottlieb said.

The ACCC recommends further consideration of supply-side subsidies and direct price controls to limit the impact on the taxpayer, as the report finds any significant changes to policy settings in the childcare sector could reduce the impact of the hourly rate cap on fees and may warrant a shift to direct price controls alongside direct operating grants.


Leave a Reply

Your email address will not be published. Required fields are marked *


Get breaking news delivered
Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?