PC News - August 2014

In July 2014, the Productivity Commission released the draft report for its inquiry into Childcare and Early Childhood Learning. The Commission has assessed the accessibility, flexibility and affordability of Australia's childcare and recommended ways that it can be improved to better support both children's development needs and participation in the workforce, particularly that of mothers.

The Commission received more than 1000 submissions and comments before publishing its draft report, and found a lot that is good about the current early childhood education and care (ECEC) system.

However, the ECEC system was largely designed to meet the needs of a different era and there is much scope for improvement. More families now use formal ECEC both as a means to return to the workforce (rather than having one parent care for children at home) and in recognition of its contribution to early child development.

Almost all of Australia's 3.8 million children aged 12 years or under have attended some form of ECEC, and around half of these children regularly use formal ECEC or informal non-parental care.

ECEC is important for child development

ECEC services play a vital role in the development of Australian children and their preparation for school. Preschool has been found to be particularly important. However, children are learning and developing from birth, and except where the home environment offers very poor development opportunities or places the child at risk, some learning and development will continue even without participation in formal ECEC at a very young age.

Unfortunately, many children who would benefit most from some participation in ECEC — those who are at risk of abuse or neglect, have a diagnosed disability, or are developmentally vulnerable because of some cultural or family characteristic (such as children who are not exposed to English in their homes) — are missing out.

ECEC can improve workforce participation

There is scope to increase the workforce participation of parents, particularly mothers.

Current Australian Government assistance to families creates a strong disincentive for some parents to enter the workforce or to increase their hours of work. For some second income earners (usually mothers) who return to work and use ECEC, the combination of reduced ECEC assistance and other Government assistance, and increasing income tax rates as family income rises can result in an effective marginal tax rate of close to 100 per cent, particularly once work exceeds 3 days per week.

The Commission has estimated that there may be up to roughly 165 000 parents (on a full time equivalent basis) who would like to work, or work more hours, but are not able to do so because they are experiencing difficulties with the cost of, or access to, suitable childcare.

Government spending on ECEC continues to grow with little prioritisation

Governments in Australia provide assistance to ECEC through a mix of payments to families (figure 1), support for providers and the direct provision of services.

• Figure 1 Subsidy amounts to families by income

  

  Note: CCB: Child Care Benefit; CCR: Child Care Rebate; JETCCFA: Jobs, Education and Training Child Care Fee Assistance.

• Figure 2 Australian Government funding on ECEC has continued to rise

  Note: CCB: Child Care Benefit; CCTR: Child Care Tax Rebate; CCR: Child Care Rebate.

Overall, the Government pays around two-thirds of the cost of approved childcare and families pay the residual. However, the design of ECEC assistance arrangements is resulting in a declining proportion of assistance to low-income families. The non-means tested capped Child Care Rebate payment is this year expected to overtake the means-tested Child Care Benefit payment as the primary form of ECEC assistance.

The Commission recommends an overhaul of the subsidy system

The Commission's recommended approach to ECEC seeks to direct regulatory reforms and available Australian Government budgeted ECEC assistance to where there is the greatest potential to enhance the accessibility and/or affordability of ECEC, with the aim of moving towards an ideal ECEC system.

The Commission proposes that funding for the existing medley of Australian Government ECEC assistance programs be combined and directed to three priority areas — (i) mainstream ECEC services, (ii) services for children with additional needs and (iii) preschool services.

• Mainstream support should be a single child-based subsidy that is: means- and activity-tested, paid directly to the family's choice of approved services, for up to 100 hours per fortnight, and based on a reasonable cost of delivering ECEC for each age of child in different ECEC types (the Early Care and Learning Subsidy, figure 3).
• Children with additional needs should have access to a 'top-up' subsidy to meet the additional reasonable costs of service. Services should have access to assistance to build capacity to provide ECEC services for additional needs children (the Special Early Care and Learning Subsidy, figure 3).
• The Australian Government should continue to support the states and territories for all children to attend an approved preschool program in the year prior to school.

The Commission has proposed that mainstream support should be extended to qualified nanny services where these meet appropriate quality standards.