How much would it cost to make free childcare permanent, and would it be a good idea?
Since early April, childcare in Australia has been free to parents as part of the government’s coronavirus crisis stimulus response.
This means that childcare operators have received funds directly from the government with the amount set at 50% of their normal fees. Eligible operators also receive the jobkeeper payment, and there is an “exceptional circumstances” supplementary payment which can be applied for.
The scheme has helped keep threequarters of operations open according to the government, but has had a negative effect in areas such as family daycare.
However, the government has indicated this universal childcare access will be only temporary. The prime minister, Scott Morrison, has talked about to a “snap-back” from stimulus spending to pre-coronavirus arrangements.
The education minister, Dan Tehan originally said the arrangement could last up to six months, with a review of the scheme planned at the end of June. But more recently he said the scheme had “done its job” and the old system was effective.
The scheme is popular with parents; 36% of people surveyed by Essential Media thought it should continue beyond the its scheduled end date.
So given the opportunity to change the way Australia pays for childcare, how much would it cost to make it free to parents permanently, and would that be a good thing?
Childcare and early childhood education costs
Education department figures provided to the Senate show the temporary free childcare or universal childcare arrangement costs $131m a week. This would be about $6.8bn a year, and if it were doubled to pay centres 100% of their pre-coronavirus fees it would cost the government $13.6bn a year, assuming no growth in demand for childcare services, which is unlikely.
This compares with $8.3bn in government funding for a normal year of the childcare subsidy. As well as this, parents and carers contribute a significant amount – the Mitchell Institute at Victoria University estimates Australian families and carers spend between $3.8bn and $6.8bn on early childhood care and education a year.
However, according to unreleased modelling from the Grattan Institute, introducing a permanent universal childcare scheme could trigger a jump in demand, and the cost to the government could be at least $12bn on top of the current cost, so about $20bn or $21bn. A less-costly option also modelled by Grattan would be to add $5bn and lift the childcare subsidy to 95% of fees while still maintaining a tapered payment based on means-testing parents.
Australian families spend more on childcare than the OECD average, and public funding for childcare and early childhood education is lower than the
OECD average:
Is universal childcare a good idea?
Experts I spoke to said that although making free childcare, or universal childcare, permanent would have beneficial economic and educational outcomes, the implementation would be difficult.
Associate Prof Elizabeth Hill is a researcher specialising in the political economy of gender, work and care, and also co-convenor of the Australian work and family policy roundtable, a group of researchers which have argued for increased early childcare and education funding.
“The development of Australia’s early childhood education and care system makes it difficult to suddenly switch to a universal publicly funded system,” she says.
“But it doesn’t mean that we don’t have other options. We can recalibrate the childcare subsidy so that publicly funded early childhood education and care is available to an increasing number of households.”
Hill warns that going back to the old system too early could have a negative outcome.
“Failure to provide adequate early childhood education and care funding support during the recovery period could lead to a downward spiral in parents’ work participation, as reduced economic security or unemployment could see parents withdraw children
from early childhood education and care, which in turn could limit their capacity to find new or more work,” she says.
Outside of increasing overall funding, Hill suggests removing the activity test for the childcare subsidy would benefit both during and after the crisis.
“In the Covid recovery, extending universal access and lifting the work activity test will not only support workforce participation, but will also and critically support children from disadvantaged households and will ameliorate inequalities as a result of the crisis,” she says.
Kate Griffiths is a researcher at the Grattan Institute and has modelled the cost and economic effect of various changes to childcare funding.
“A universal scheme covering 95% of fees would boost GDP by about $27bn [a year] over the medium term through higher workforce participation,” she says.
But such a scheme would have a higher upfront cost to the government, and would not be means-tested and so would result in high income earners receiving more than they do under the childcare subsidy.
“Cheaper options, such as boosting the subsidy to 95% with a simpler, flatter taper would also have significant workforce participation benefits – $11bn – and may be more realistic in the current environment,” she says.
Note: some studies and data do not or cannot distinguish between childcare and education, such as the OECD figures, and preschool education is often assessed alongside childcare when looking at funding and costs. Where possible I’ve tried to indicate which is which.