The consumer regulator is calling for governments to directly intervene in the childcare market to ensure all families can access the services they need.
The Australian Competition and Consumer Commission (ACCC) — which is responsible for stopping price gouging and protecting consumer rights — has spent the past year investigating how effectively the childcare market is working.
It says under current arrangements, child care is neither affordable nor accessible for many households and subsidy arrangements aren't helping.
That's because over time as the subsidy has been increased any savings have been quickly swallowed up by rising fees.
The federal government is expected to respond to the ACCC's recommendations around the middle of this year, along with the final report from the Productivity Commission's investigation into childcare access, which is due by June 30.
Subsidy increases eaten up by fees
The ACCC found those most under-served by the current childcare system include:
- Households in remote areas
- Households in less advantaged or low socio-economic areas
- Households with children with disability and/or complex needs
- First Nations children and households
- Culturally and linguistically diverse children and households
- Households with children aged 0–2
The ACCC said the poorest households not only spent a greater share of disposable income on child care but were also disproportionately affected by the childcare subsidy "activity test".
This test limits how much subsidised care is provided based on how much parents are working. The more hours parents work, volunteer or study, the more subsidised care they can get.
The test has previously been criticised, with parents saying they need access to subsidised care in order to work more hours.
The Productivity Commission recently called for the federal government to alter the childcare subsidy to allow all families to access up to three days of subsidised care a week, regardless of how many hours they worked.
The ACCC recommends similar changes, suggesting the system be simplified and the activity test removed, relaxed or substantially reconfigured.
"An alternative would be to consider a specific entitlement, such as a certain number of days of care," the report said.
The inquiry found that while the most recent increase to the childcare subsidy had reduced parents' costs by 11 per cent, the savings tend to be short term.
"The trend we observe is that when government subsidies increase, out-of-pocket expenses decline sharply in the immediate term, but then quickly revert to levels preceding the subsidy change," the report said.
"If current regulatory settings remain, it is likely that the trend of affordability gains through increased subsidy being eroded by increases to fees, will recur."
The Early Learning and Care Council of Australia (ELACCA), which represents some of Australia's largest childcare providers, backs changes to dump or change the activity test, according to CEO Elizabeth Death.
"The activity test is a barrier to universal access, particularly for children experiencing vulnerability and/or disadvantage who have the most to gain from accessing high-quality early education," she said.
"ELACCA supports universal access for every child regardless of their postcode, their parent/carer's engagement in the workforce or work/study status."
Paul Mondo, the president of the Australian Childcare Alliance (ACA), which also represents providers, said direct intervention could be necessary but only in specific situations.
"The ACCC report does highlight the risks of fee control mechanisms and that if not done correctly these measures can have unintended consequences," he said.
"ACA would like to emphasise this point. If any price control mechanism were to be introduced, it is imperative that the government works with the sector to ensure such a mechanism does not negatively impact service viability."
Early Learning Association of Australia CEO Andrew Cameron backed the ACCC's recommendation to simplify the system.
"The lack of cohesion in the existing Early Childhood Education and Care policy and funding models creates an overcomplicated system that hampers access for families and limits the ability of service providers to deliver quality outcomes for children," he said.
Not just about the money
ACCC chair Gina Cass-Gottlieb said while subsidy changes were important, they wouldn't be a panacea as long as childcare places were hard to find.
"Providing a subsidy into the pocket of people doesn't mean that there is care that they can access," she said.
For First Nations families, the system is frequently set up in a way that creates extra barriers for them.
"The administrative process to receive the subsidy requires identification, requires proving parenthood when there are much more extended, kinship care relationship ways [in communities]," Ms Cass-Gottlieb said.
"The administrative system just doesn't cater for or understand the differences.
"In addition, there are negative experiences and ongoing trauma in dealing with government departments, particularly in relation to children."
Cheaper Child Care reforms are working
An entire section of the ACCC's report is dedicated to analysing the impact of the federal government's changes to the subsidy — referred to as the Cheaper Child Care reforms package.
That package included increasing subsidies and broadening the rules for who could access them.
The ACCC's verdict? It's working.
"Affordability of childcare services improved immediately following the Cheaper Child Care reforms that took effect in July 2023," the report said.
"The initial impact of the changes to the Child Care Subsidy rates has been positive for childcare users, reducing out-of-pocket expenses for all types of care."
But the ACCC said the government could not afford to put its feet up.
"Ongoing monitoring of childcare prices is likely to be needed under current policy settings to help ensure the benefits of recent changes to the Child Care Subsidy are sustained," the report said.
Campaign director of The Parenthood — the peak body representing Australian parents — Maddy Butler said governments must intervene to fix access and affordability issues.
She's backing the ACCC's recommendation for governments to consider directly funding or even delivering childcare services in areas where they're not available.
"If the market won't provide, governments must step in as market stewards to ensure every single child — no matter if they live in Broome, in Cunnamulla, or in Melbourne — can access some form of early learning and care," she said.
"Governments must look beyond a one-size-fits-all approach and implement a suite of measures and interventions which support and embrace the specific needs of each area."
Director of Thrive By Five — a philanthropy group funded by mining magnate Twiggy Forrest — Jay Weatherill said the recommendations provided a good starting point for the federal government.
"More affordable and accessible early childhood education has a triple benefit. It's good for children's cognitive and social development, it's good for primary carers — usually women — who want to get back to work, and it's good for their employers," he said.
Balancing act
The report also highlighted the impact an ongoing worker shortage across care sectors was having on the supply and cost of services.
It pointed to less attractive pay and conditions than in similar sectors, increasing responsibilities and staff needing to allocate unpaid personal time for required qualifications as key drivers of staff burnout and shortages.
But it also warned the sector and governments negotiating pay increases to think about the broader potential implications on fees and affordability, noting that labour costs were the main driver of the cost of service provision.
Rob Bray from the Australian National University said while there was "no simple fix", child care could not just be left to the market.
"The biggest cost is labour and there are severe workforce shortages," Dr Bray said.
"One of the key reasons for this is the less attractive pay, the responsibilities people have and the fact they have to do all their study in their own time without any support.
"You put all those together and child care is expensive because it uses a lot of resources.
"If you want the objectives of child care to be met you have actually have to go beyond the market in some cases."
The federal government said it was open to making further changes to the sector.
"The report makes it very clear that some form of regulation or intervention is needed in areas … where the market is failing or where the market just isn't delivering," Minister for Early Childhood Education Anne Aly said.
"All of these reviews together are really going to come together and give us an overall picture of what it kind of currently looks like and where we need to make all of those changes.
"The market is not working for every child and that is why we need a system reform that is going to work for children, for parents, and ensure that every child, no matter who they are, no matter where they live, no matter what their background, has access to quality early childhood education and care."
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