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How to make childcare affordable for working families

After a year-long inquiry, the ACCC has found that childcare markets under the current regulatory settings are not delivering on key policy objectives for all households and communities, including in relation to accessibility and affordability.

The ACCC has recommended consideration by Government of potential changes to childcare policies, such as a market stewardship role to oversee and monitor outcomes in childcare markets and respond when they are not achieved, together with the use of supply-side subsidies.

The Childcare inquiry’s final report makes eight recommendations and 31 findings, which are based on detailed analysis of cost and pricing data and extensive engagement with and feedback from childcare providers, educators, parents and guardians.

The report found that affordability of childcare services improved immediately following the Cheaper Child Care reforms that took effect in July 2023.  Those reforms reduced out of pocket expenses for all types of care, and for households across the income spectrum.  The reduction was proportionately largest for the lowest income decile group, although low income households still spend the largest proportion of their disposable income on childcare.

The report also found, however, that previous affordability benefits from changes to the Child Care Subsidy were quickly eroded by fee increases.

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We have spent the past 12 months examining how childcare markets and competition are working for different households across Australia. We find that the highly localised nature of childcare markets; the way parents select services based on availability and informal assessment of quality; and providers’ supply decisions mean in practice there are a range of market configurations and outcomes. We have concluded that market forces alone are not meeting the needs of all children and households,” ACCC Chair Gina Cass-Gottlieb said.

“While affordability has recently improved, a ‘one size fits all’ policy approach is not meeting all needs. When applied across the childcare sector, this current approach will continue to leave some households without adequate, affordable, and accessible childcare options.”

“We’ve recommended the Government consider a mix of different regulatory measures to improve outcomes for households in diverse circumstances and locations across the country, particularly for lower income families, households living in remote locations, children with disability or complex needs and culturally and linguistically diverse families.”

“Childcare is an essential service for Australian families. It enables parents and guardians to work, train or study and offers inclusive and safe early learning opportunities for young children,” Ms Cass-Gottlieb said.

Different regulatory responses needed for unserved, under-served and adequately served markets

The ACCC has identified a range of market configurations and outcomes for certain geographic and local areas as well as for certain cohorts of users.  This suggests that areas can be characterised as being either ‘adequately served’, ‘under-served’ or ‘unserved’ when it comes to childcare services.

The ACCC’s view is that the existence of these differences requires a different mix of interventions and regulatory responses if government objectives and the needs of local communities are to be met when it comes to childcare.

Additionally, the report found that providers’ profit margins are higher in major cities and more advantaged areas. There are more services in these areas, where demand is generally higher and households generally have greater ability and willingness to pay. The availability and quality of educators and staff has a significant impact on the quality, reputation and profitability of a service. Stable staff tenure and continuity also contributes to service viability.

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Low expectations of profitability are impacting supply of childcare services in some areas, particularly in regional and remote communities, where there are fewer services.

The report finds that labour shortages are affecting the supply of services to all children across Australia but that these shortages are more acute for suppliers serving regional and remote areas, First Nations communities and children with disability, complex needs or experiencing disadvantage, and children up to two years of age.

“We have recommended the Government consider providing funding or grants directly to providers to assist with the costs of supplying services in areas that are considered unprofitable, or supplying services to groups within the community where costs of providing care are higher,” Ms Cass-Gottlieb said.

“The appropriate mix of government subsidy and regulation will depend on the local area market characteristics and the particular needs of the local community.”

The ACCC’s Childcare inquiry also found First Nations children are less likely to be enrolled in childcare.

During roundtable discussions First Nations community members told the ACCC that the administrative process to receive the Child Care Subsidy can discourage First Nations households from using formal childcare services. They also said that families that have had negative experiences or ongoing trauma in dealing with government departments may be hesitant to provide the information required to receive the subsidy.

The Child Care Subsidy system does not always recognise First Nations kinship care relationships in a timely way, which may also deter families and carers from accessing the subsidy.

“Feedback from First Nations people and our market analysis about how childcare markets are working for these communities are examples of why a single policy approach will not address the needs of all children and communities,” Ms Cass-Gottlieb said.

The ACCC has also proposed a broad and flexible market stewardship role for Government, which would involve active oversight and management of the childcare sector. A market stewardship role could monitor local markets to determine the most appropriate mix of regulation and government support, monitor and oversee workforce issues and quality standards and monitor outcomes across different childcare markets.

“Market stewardship roles can be effective in care-based economies where competition-driven market dynamics do not always achieve the desired outcomes,” Ms Cass-Gottlieb said.

Government reforms improved affordability for most families

Government reforms that took effect in July 2023 reduced out-of-pocket expenses for all childcare services.

The average reduction in out-of-pocket expenses between June and September 2023 for each type of care was:

  • 11 per cent for centre based day care;
  • 8.8 per cent for outside school hours care;
  • 12 per cent for in home care; and
  • 13.8 per cent for family day care.

Despite the childcare reforms improving affordability for most families, the ACCC final report found that these benefits risk being eroded by fee increases over time.

“We have found that the Child Care Subsidy, particularly the hourly rate cap, has limited influence on reducing childcare fees. Providers of centre based day care consider many factors when setting daily fees, including competitors’ prices, costs and the willingness and ability of households to pay,” Ms Cass-Gottlieb said.

The ACCC also found the hourly rate cap has had limited influence on prices for family day care, outside school hours care and in home care, as well.

Family day care services and in home care services have significantly declined

Since 2018, the number of family day care and in home services has declined, and 116 family day care services and 19 in home care services have closed.

The decline in family day care services has disproportionately affected culturally and linguistically diverse households, low-income households, those living in very remote areas and parents and carers that work non-standard hours.

“Family day care is an important alternative childcare choice for many families as it may offer more flexible hours of care, adjustable session lengths or better cater to cultural and linguistic needs,” Ms Cass-Gottlieb said.

Other findings in the report include that low wages are a barrier to educators in family day care and in home care entering or remaining in the sector, as funding provided under the hourly rate cap for in home care is inadequate and unlikely to cover costs and recompense educators.

The report finds that the in home care sector is unlikely to appropriately serve all children and households it is intended to and recommends the Government consider new policy settings to better meet the needs of these children and households.

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