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Forget the Productivity Commission. This is what childcare should look like

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Cox, Eva
Publication Date: 
13 Mar 2015


Why was the Productivity Commission given the role of assessing the childcare sector? Childcare essentially delivers a community service, which the Productivity Commission is not best placed to measure. This became particularly clear when the recommendations in the commission's final report failed to incorporate the needs of the users - children and families - into the essential principles for the running of childcare services.

As their first priority, childcare services must value and serve the wellbeing of children, not just increase gross domestic production. Justifying some of the expenditure on care for kids because it releases mothers for paid work is fine - as long as we recognise that children's services meet wider needs, including providing quality care for all the kids that use them.

The Productivity Commission's report reveals a conflict between benefits for users versus the benefits for investors in childcare. In a free market, these factors too often conflict. That's what governments are there for - to provide and regulate services that are inappropriate for markets to provide. Childcare is one such service and is the reason we have to ignore many of the competition-based recommendations in the latest Productivity Commission report. They got it wrong.

We did once have a fairly good model for childcare, which was primarily offered by not-for-profit community organisations. It was a service first and foremost designed to support families and was federally funded from the early 1970s. After funding for fee relief was extended to commercial services in 1991 and direct funding for community organisations abolished in 1996, this sector exploded with cowboy investors. Prior to this change, part of the funding was conditional on services being located where needed, charging an approved range of fees, and employing appropriately qualified staff. This model ensured that places for particular age and needs groups were available. The move to funding parents through fee relief ended this era of careful planning.

The extension of funding for fee relief to commercial services and the loss of capital funding means expansion over the past two decades has been mainly in the commercial area. It was these commercial operators that lobbied governments for the lifting of restrictions. From early in this century, there were no more controls over where childcare centres were to be located, the types of services on offer or the age groups to be catered for. The result of the past two decades of growth is some significant maldistribution: shortages of services in high cost locations, widely different fee levels, lack of places for higher cost under two-year-olds, and the growth of focus on the investment returns for shareholders and property developers.

The idea of childcare services as community services per se has completely disappeared from the language at the federal funding level. I recognise, however, it would be hard to unwind the commercial sector which now provides the bulk of services. An alternative is a hybrid model - the reintroduction of partial control over planning and funding so that defined needs can be met at reasonable costs. This used to be called a planning model, now it's called a supply model.

The Productivity Commission has defined this new model very carefully and even offers proof of its widespread use and effectiveness, quoting an OECD review which concluded that supply-side funding mechanisms may lead to better outcomes for children and families:

The evidence suggests that direct public funding of services brings more effective governmental steering of early childhood services, advantages of scale, better national quality, more effective training for educators and a higher degree of equity in access compared with parent subsidy models.

Despite quoting the advantages of some level of direct government controls, the Productivity Commission rejects their use for no good reason, except claiming families want it without any evidence (and maybe ideological commitments to market models).

But a judicious mix of markets and government controls may still be the best way to meet the needs for accessible and affordable services in high cost areas and for children under two.

A hybrid model could work like this: the government contracts to pay the service provider an agreed proportion - say 20% - of an approved budget conditional on the agreed service mix, hours and location. This would separately include eligibility for means-tested fee relief, so the government could ensure that the communities' needs and its own were adequately met.

Services would be guaranteed an adequate return on capital and labour and retain the right to use extra funds and earnings to improve services instead of pay profits. Parents would find the services they need, and funding budgets would ensure extra resources for meeting approved higher costs needs. This model means all win ... and it will probably cost very little more than the present mess.

Entered Date: 
17 Mar 2015
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