Child care and early childhood education

Michael Klapdor and Dr Shannon Clark, Social Policy

Key issue
Child care affordability and accessibility will remain a significant issue in the 46th Parliament as the impact of the Coalition Government’s new child care funding system is examined, and with the Australian Labor Party and the Australian Greens both proposing significant changes at the 2019 Election.
Funding for early childhood education will also remain a contentious issue, with the Government continuing to resist calls from stakeholders for ongoing funding for preschools and expanding preschool funding to three-year-olds.

Child care

At September 2018, there were 1.3 million children from 931,030 families accessing child care services approved to receive the Australian Government’s Child Care Subsidy (CCS) payment. Approved services include long day care centres, family day care services, outside school-hours care services and some in-home care providers.

The Australian Government is the main source of overall funding for child care services, primarily through fee subsidies, while state and territory governments regulate child care providers and set quality standards agreed to under the National Quality Framework. The Productivity Commission found that in 2014–15, the Australian Government covered at least 63 per cent of the costs of the child care system with 37 per cent covered by fees paid by families. The Australian Government will spend an estimated $8.6 billion in 2019–20 on child care subsidies and direct support for services.

The Child Care Subsidy

The CCS is intended to assist families with the costs of child care. It is paid directly to providers, who pass the subsidy on to families in the form of a fee reduction. The CCS commenced on 2 July 2018 as part of the Coalition Government’s Jobs for Families package, which saw two previous payments replaced: the Child Care Benefit and the Child Care Rebate. A supplementary payment was also introduced at the same time. The Additional Child Care Subsidy (ACCS) provides additional assistance for children at risk of abuse or neglect, families experiencing financial hardship, those transitioning from income support to work, grandparent carers on income support, and some low-income families. The ACCS also replaced a number of previous payments.

The Child Care Benefit was an income-tested and activity-tested payment paid at set hourly rates and targeted at lower-income families. The Child Care Rebate was not means tested and provided a 50 per cent rebate on out-of-pocket child care costs, up to a maximum annual amount ($7,613 in 2017–18).

The CCS is income-tested and activity-tested. The income test assesses a family’s income and determines its rate of CCS: a percentage of either the fee charged or a set hourly fee cap, whichever is lower. The activity test determines how many hours of child care per fortnight can be subsidised by the CCS, based on the amount of time parents/carers are engaged in approved activities, such as work or study.

Impact of the new child care package

Limited data is available on the impact of the CCS’s introduction; available data only covers the first three months under the new system. The Department of Education and Training’s (DET) data shows that, compared to the previous quarter, there was a 3.7 per cent increase in the number of children accessing child care and a 5.5 per cent increase in the number of families using approved services since the introduction of the CCS. However, usage rates vary between quarters and a comparison between September 2017 and September 2018 suggests a more modest 0.3 per cent increase in the number children and 3.2 per cent increase in the number of families using approved care following the introduction of the CCS.

Modelling by the DET prior to the CCS commencing suggested that around 70.7 per cent of families would receive increased assistance under the CCS compared to the previous system. Around 24.3 per cent would receive decreased assistance and the remainder would have no change.

Unlike previous publications, the DET’s September 2018 quarterly report did not include information on costs of care before and after government subsidies as a percentage of disposable income for families in different income brackets. This makes it difficult to analyse how child care affordability has changed.

The Australian Bureau of Statistics (ABS) gathers data on out-of-pocket child care costs (the costs of care after subsidies) in the Consumer Price Index (CPI). The CPI data shows that out-of-pocket costs reduced by 11.8 per cent in the quarter following the introduction of the CCS. Compared with the same period in the previous year, costs to families in September 2018 were down by around 8.5 per cent, despite average hourly fees charged by providers increasing by 5.8 per cent over the same period. However, this drop in out-of-pocket-costs is not as significant as in 2008, when the Rudd Government increased the percentage of fees covered by the Child Care Rebate. That measure saw costs to families drop by 22.9 per cent in the quarter following the increase.

Concern for vulnerable children

Peak body, Early Childhood Australia, and the largest child care provider, Goodstart Early Learning, have both raised concerns that there had been a large drop in the number of vulnerable families claiming for the ACCS compared to the numbers claiming under the programs the subsidy replaced. They suggested that tightened eligibility criteria to access support while in temporary financial hardship, and more stringent approval processes for children at risk of abuse or neglect (such as new time limits on certificates issued by services that a child is at risk), could be a reason. The differing eligibility criteria and levels of support offered under the old and new child care schemes make it difficult to directly compare the impact of the changes on vulnerable families using just the total numbers accessing support.

Reform proposals

At the 2019 Election, both Labor and the Greens proposed significant changes to the CCS to provide higher subsidies to those on lower incomes. The Coalition did not make any commitments regarding the CCS.

Under the current CCS design, eligible families with a combined income up to around $67,000 per annum can receive a subsidy worth up to 85 per cent of the fee charged or the hourly fee cap set by the government, whichever is lower. Labor proposed increasing the 85 per cent subsidy to 100 per cent for families with incomes up to $69,000 per annum. This 100 per cent subsidy would taper down to 60 per cent for families with an annual income of $174,000, meaning that all families with incomes below $174,000 would receive a higher CCS rate compared to the current system. Labor also proposed a review of the impact of the system on vulnerable and very low-income families and in a separate policy, proposed funding wage increases for child care workers. The proposed changes to the CCS alone were expected to cost around $4.0 billion over four years.

The Greens proposal would increase the subsidy rate to 100 per cent of fees charged for families with incomes up to $172,000. The policy would also abolish the activity test. The Greens did not provide a separate costing for its CCS changes, but its entire early childhood education and child care package (which included expanding universal access to preschool to three year olds) was expected to cost $20.4 billion over four years.

Figure 1 illustrates the Labor and Greens CCS policies compared to the current CCS.

Figure 1: Comparison of current Child Care Subsidy with Labor and Greens proposals

 Comparison of current Child Care Subsidy with Labor and Greens proposals

Source: Parliamentary Library estimates.

Is the system meeting its objectives?

A key issue for the 46th Parliament is whether or not the Coalition’s Jobs for Families package is actually delivering on its objective to make child care more affordable, thereby removing a key barrier for parents and carers to participate more in the workforce. The Grattan Institute identified child care as the highest hurdle faced by women wanting to work more, particularly due to the combined effect that taxes, child care costs and the withdrawal of benefits (such as Family Tax Benefit) have on take-home earnings. Miranda Stewart from the Australian National University’s Tax and Transfer Policy Institute found that the interaction of taxes, child care and benefits can mean a second earner in a low-income family loses 85 to 95 cents of every extra dollar earned by increasing the number of days worked in a week. In some circumstances, a second earner would not take home any extra income by working more.

Another significant issue is whether the new system is providing enough support for vulnerable children to access child care services. A Senate committee inquiry into the first attempt to legislate the Jobs for Families package heard from a number of stakeholders concerned about the implementation of the ACCS and the need to ensure vulnerable children did not miss out on support. Since implementation, these same groups have noted the drop in the number of vulnerable children supported and raised concerns about the ACCS’s eligibility criteria and administrative processes.

Early childhood education

Early childhood education (ECE) services provide structured, play-based learning programs delivered by qualified teachers to children in the year or two before full-time school. They are known differently across the states and territories as preschool, kindergarten and pre-preparatory.

Providing children with access to appropriate ECE has positive impacts on children’s educational outcomes at school and helps to build foundational skills that are important as they grow older.

The ABS reported that in 2018 there were 342,479 children aged four or five years old enrolled in a preschool program in Australia. 86 per cent of four-year-olds and 21 per cent of five-year-olds were enrolled.

The Report on Government Services 2019 stated that in 2017 90.1 per cent of children were enrolled in an ECE program in the year before school, compared to 92.4 per cent in 2016. It also stated that, at 94.8 per cent, Aboriginal and Torres Strait Islander children had a higher enrolment rate compared to all children.

However, there are differences between how many children are enrolled in ECE programs and how many are attending. The latest figures from the ABS suggest that of all children enrolled in a 600-hour ECE program, around 84.9 per cent are attending (see Table 1). This goes down to 81.5 per cent for children living in areas of socio-economic disadvantage, and 72.5 per cent for Aboriginal and Torres Strait Islander children.

Table 1: Children enrolled and attending ECE program (600 hours) in year before school

Enrolled Attending %
Aboriginal and/or Torres Strait Islander children 15 755 11 422 72.5
Non-Indigenous, Index of Relative Socio-economic Disadvantage (Quintile 1) 42 614 34 720 81.5
Total children 286 634 243 291 84.9

Source: Parliamentary Library calculations; figures drawn from ABS, Preschool education, Australia, 2018, cat. no. 4240.0, ABS, Canberra, 2019.

Funding for early childhood education

State and territory governments are primarily responsible for funding ECE services. The Australian Government provides a funding contribution to ECE through national partnerships (NPs).

Since 2009, there have been a series of short-term NPs. The 2019–20 Budget provided $453.1 million over two years to extend the National Partnership on Universal Access to Early Childhood Education to cover the 2020 school year.

Under ‘universal access’ arrangements within the NPs, in place since 2008, state and territory governments have committed to providing all children with access to a quality ECE program for 600 hours per year (or 15 hours per week) in the year before full-time school. The benchmark measure for access is 95 per cent of children enrolled in an ECE program. According to the Productivity Commission’s performance reporting dashboard, all jurisdictions met or exceeded the benchmark in 2017, achieving full, or close to full, enrolment.

Extending access to preschool education to three-year-olds

Starting Strong 2017: Key OECD Indicators on Early Childhood Education and Care states that the number of years of ECE is a strong predictor of later performance in and out of school. The report states:

Programme for International Student Assessment (PISA) 2015 data show that children who attended early childhood education for at least two years perform, on average, better than others at age 15.

The report also notes that the benefits of quality ECE are particularly pronounced for disadvantaged children.

In 2017, state and territory governments commissioned an independent review—the Review to Achieve Educational Excellence in Australian Schools through Early Childhood Interventions (the ECE review)—to consider the most effective early childhood interventions. The ECE review was to complement the Review to Achieve Educational Excellence in Australian Schools.

The report of the ECE review, Lifting our Game, made 17 recommendations, including that universal access to ECE programs be extended to all three-year-olds, with access prioritised for children from disadvantaged families and communities. The report argued that ‘the evidence points to this as the single most impactful reform Australia could undertake’.

Expanding access to ECE to two years before school would require additional expenditure. However, the ECE review argued that this would be a sound long-term investment with benefits that span multiple domains, including productivity gains, health benefits and reduced costs from crime. It reported that modest estimates of benefit-to-cost ratio are returns of two to four dollars for every dollar invested in universal preschool.

The ECE review report also recommended that Australian governments work towards investing in early childhood education to at least the OECD average as a proportion of GDP.

In 2014, among OECD countries for which data was available, Australia was ranked towards the bottom on early childhood education expenditure. Australia’s expenditure on ECE was 0.2 per cent of GDP, below the OECD average of 0.6 per cent.

Labor and the Greens both proposed to expand access to ECE to three-year-olds during the 2019 election campaign.

Labor proposed to establish a new National Preschool and Kindy Program that would guarantee access to two years of ECE programs for children for 15 hours per week. Labor also committed to guaranteeing current arrangements for four-year-olds over the longer term, investing an additional $1.7 billion into ECE. This investment into ongoing funding was welcomed by the Australian Education Union as providing certainty to the sector.

The Greens also proposed to guarantee ECE access to all three and four-year-olds, increasing the number of hours to 24 per week. This was part of their $20.4 billion plan for ECE and child care.

The Coalition Government has resisted calls to extend ECE to three-year-olds, arguing that issues of lower participation rates among four-year-olds in specific communities need to be understood before considering expanding access to three-year-olds.

As part of the 2019–20 Budget measure to extend the NP, the Coalition Government committed $1.4 million over two years ‘to develop and implement strategies to increase preschool attendance rates among disadvantaged and Indigenous children’.

Early childhood education workforce

Providing high quality ECE programs requires a suitably skilled, professionalised early childhood workforce. The report of the ECE review identified remuneration as a barrier to attracting people to, and retaining them in, the early childhood workforce. With the national Early Years Workforce Strategy lapsing in 2016, the report recommended that Australian governments agree to a new national workforce strategy. Recommended areas of focus included improving leadership, pre-service training, professional development, workforce standards, attraction and retention, and workforce diversity.

Labor and the Greens both proposed to address workforce issues during the election. Labor announced it would ‘scrap upfront fees for 10,000 early education students studying at TAFE’. As noted above, Labor also promised to increase the wages of early childhood educators, stating that it would fund pay increases of 20 per cent over eight years. Labor had provisioned $537.0 million over the forward estimates for the measure.

The Greens stated their commitment to developing a workforce strategy with the sector and unions to improve pay and working conditions.

Where to next for early childhood education?

Australia is not alone in facing funding, access, participation, and workforce challenges in relation to the provision of ECE. International evidence from the OECD suggests that ‘significant public funding is necessary to support a sustainable and equitable early childhood system’.

However, the benefits are likely to be worth the investment. The downstream effects of children receiving two years of ECE before full-time school are well-established, particularly for disadvantaged children. In its report, Preschool—Two Years Are Better than One, the Mitchell Institute argues:

If Australia is to remain globally competitive into the future, it is vital that we invest in programs that promote opportunity, boost our human capital and close the disadvantage gap.

Pressure for the Australian Government to work with states and territories to expand the provision of ECE programs is likely to continue in the 46th Parliament.

Further reading

M Klapdor, ‘Impact of the new child care subsidy’, FlagPost, Parliamentary Library blog, 12 April 2019.

M Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, Bills digest, 39, 2016–17, Parliamentary Library, Canberra, 2016.

S Pascoe and D Brennan, Lifting our game: report of the review to achieve educational excellence in Australian schools through early childhood interventions, Victorian Government, Melbourne, 2017.


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