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Silly rules make childcare expensive
ADAM CREIGHTON
THE AUSTRALIAN
12:00AM JUNE 17, 2016
A strong contender for worst policy announcement of the election must be Labor’s childcare ‘‘package’’, which proposes to jack up the levels of two payments that have comprehensively failed to make childcare affordable or plentiful.
The cost to taxpayers of the means-tested childcare benefit and the non-means-tested childcare rebate has snowballed from $1.8 billion a decade ago to $8bn this year. Over the next decade the PBO calculates these two child subsidies will have grown by more than 8 per cent a year in real terms, far more quickly than any other government program, except for the emerging disability insurance leviathan.
Labor now proposes to make it rise even faster, despite a recent Productivity Commission report calling for a major overhaul. It wants to lift the rebate by 33 per cent to $10,000 a year per child, and the childcare benefit by 15 per cent — at a combined cost of $3bn over four years. Never mind the $40bn-a-year budget deficit!
Meanwhile, childcare fees have been galloping ahead, rising 25 per cent over the past three years alone — more than four times as fast as the consumer price index. Operators have repeatedly gobbled up successive increases in the payment levels since the Howard government introduced them in the early 2000s. Now fees are as high as $200 a child per day in parts of Sydney and Melbourne.
If only more government policies were judged by their outcomes rather than their intentions, as Milton Friedman once wisely advised.
Michael Bryer, an expert on the childcare sector at Robertson & Robertson Consulting, reckons rates of return of about 20 per cent — far more even than the big four banks — are common in the childcare sector. “Lifting subsidies won’t make it cheaper because fees will simply go up; they are businesses and will charge what their customers can pay,” he tells The Australian.
While subsidies have undoubtedly contributed to fat returns, the bigger culprit in the cost-shortage quandary is the so-called National Quality Framework, which began in 2012. It dramatically tightened minimum qualification levels and staff-child ratios.
Think you could look after six toddlers at once? That’s too dangerous now. From January this year the maximum number of two to three-year-olds a supervisor can look after dropped from eight to five in NSW. In Queensland the maximum number of kids between three and preschool age per supervisor will fall from 11 to 10. Before the Rudd government decided to standardise childcare from Hobart to Broome, state governments set typically more lenient ratios.
The tightening of ratios took a sledgehammer to childcare workers’ productivity, and has underpinned a massive increase in centres’ costs. If workers were allowed to care for more children they could be better paid.
Even sillier, also from January, at least 50 per cent of staff have to be diploma qualified. And if childcare centres have more than 29 children they must have a degree-qualified staff member on hand at all times, too. “The lovely old ladies who used to work in the industry didn’t have diplomas or certificate IIIs, and many simply left; it’s one of the saddest things I’ve seen,” Bryer adds.
Given such a regulatory straitjacket, it shouldn’t be surprising to see supply throttled and high staff costs. Goodstart is the largest childcare operator in Australia. Its 13,500 staff cost $573 million in 2015, or 67 per cent of its total expenses; rent and property were 19 per cent. At KU Children’s Services, another large operator, staff costs were 80 per cent and rent 5 per cent.
That’s not the end of it. There must be at least 7sq m of “unencumbered” outdoor space per child, while local councils will stipulate the number of car parking spaces per child.
Looking after children requires common sense, not a forgettable foray into child psychology. The supply of childcare places should be plentiful — well over half the population have huge experience looking after children. The sector used to function well enough until government became more heavily involved. No one was ever marching in the street for tighter educator-child ratios, or more unencumbered space per child. In fact, childcare in Australia is a textbook example of government stuffing up a market that would work quite well without it.
Without the NQF, some parents might choose centres with the same or even higher staff and educational standards. But others would be more relaxed about qualifications and ratios, and enjoy cheaper childcare, making it viable for parents to return to work. Centres could instead, perhaps, be made to display their ratios against those recommended by government. Such a transition would be the best policy available for childcare, and wouldn’t cost taxpayers a cent.
For many families, increasingly, childcare fees exceed what the second earner can make.
The economic justification for such lavish taxpayer subsidies is weak. For children from poor backgrounds, exposure to good childcare can help reduce later delinquencies. But for the vast bulk of cases childcare is solely a benefit to the parents, who should bear the full cost. The huge increase in the female workforce participation occurred in the 1960s and 1970s, long before the federal government started meddling.
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