The Productivity Commission’s report into Childcare and Early Childcare Learning reveals that the problem of increasing women’s participation is not going to be solved by small measures. The government’s insistence that any recommendation remain within the current funding model ensured the only measures the commission could recommend would be restricted.
The commission’s inquiry was an election commitment made by the Liberal Party while in opposition. Childcare was, is, and will remain even after this report, a hot political issue. But the proposal to get the Productivity Commission to investigate it was always hindered by the requirement that it only “consider options within current funding parameters.”
It meant all that could happen was the same bucket of money be moved around – less given to one sector or household and more given to another.
When the Productivity Commission released its draft report in July last year it let the government know in the subtle way in which such organisations operate that maintaining the “current funding parameters” was not the best option.
It proposed four different funding models, and its most preferred was one which provided a subsidy of 90% of childcare costs for households earning up $60,000 and then declining at a linear rate until hitting 30% for households earning $300,000 or more a year.
It estimated this model (known as the 90-30 linear model) would boost workforce participation by 2.7%, and would increase the hours worked by 3.6%. The problem is that the model is expected to cost an extra $1.3b a year.
The commission looked at Abbott’s paid parental leave scheme and suggested that “there may be a case... for diverting some funding from the proposed new scheme to another area of government funding, such as ECEC [early childhood education and care], where more significant family benefits are likely”.
The commission estimated cutting the PPL would raise $1.5bn per year. At the time, the PPL scheme remained Abbott’s “signature policy”, and thus the government’s response to the suggestion was not, shall we say, overwhelmingly positive.
And so the commission went back to the drawing board and came up with a proposal that would fit within “the current funding parameters”, but which is clearly in the commission’s view, a second best option.
The final model remains similar to the one in the draft report. It proposes combining the current three childcare subsidies into one means tested one. But the final model proposes to start at an 85% subsidy for households earning up to $60,000 before declining in a linear rate to 20% for households earning $250,000 or more:
Thus households earning under $160,000 would for the most part be better off, while those earning over that amount, would be worse off.
The PC estimates that even this model will cost around $300m more than the current arrangement.
Among the main differences from the current arrangement – which is a 50% subsidy of out of pocket childcare expenses up to $7,500 a year – is that this would be a per hour subsidy paid directly to the childcare provider for up to 100 hours a fortnight.
While the 85% subsidy sounds great, it should be noted it is based on a deemed rate of $7.41 per hour for a 0 to 35–month–old child, $7.20 for a child aged 36 months or over, $6.94 per hour for all children in family day care (this rate is also applied to approved nannies), and $6.00 per hour in outside school hours care.
So if your day care fees are higher than that, then you make up the difference – it’s why the average subsidy for families earning $40,000 to $60,000 is estimated to be 79% and not 85%.
And yes, like the draft report, the PC is again recommending nannies be included – but they must “satisfy appropriate national quality framework requirements” – with the minimum qualification being the “requirement of a certificate III in Early Childhood Education and Care”.
The model sees more funding for those on the lowest income, less for those on higher income, but also with the ability to be subsidised for nannies.
So a win-win proposal for the government to sell?
Well, not really. The sector has responded with minimal enthusiasm.
One issue is with the “deemed rate”, which is based on the median rate of childcare fees – which they suggest will mean many families will not be as well off as the commission suggests as the actual fees they pay are well above the deemed rate.
But the problem for the government is that the political picture has also changed since the final report was presented to the government at the end of October last year.
In the time since then the government has dumped Abbott’s signature PPL scheme, its polling has plummeted, and a new and more high profile minister (Scott Morrison) has been put in charge of childcare.
While the desire to keep spending under control remains, with the axing of the PPL and the need for the government to find a political win, there would appear to be more wriggle room now than in October on the “current funding parameters”.
Especially when the commission’s own estimation is that the model will increase women’s participation by just 1.2% – less than half that of the 90-30 linear model –and increase hours by just 600,000 hours a week (which sounds huge, but bear in mind in January Australians worked a total of around 401 million hours a week).
The commission estimated that starting the subsidy at 90% instead of its proposed 85% for low income families would cost an extra $580m a year, but would increase labour supply by a further 75,000 hours per week. And if they increased the minimum rate from 20% to 30% it would cost an extra $185m a year and lead to an extra 168,000 hour per week.
But while more funding would help increase women’s participation, in reality we’re never going to see the boosts that we did during the 1980s and 1990s:
Increases in participation also need cultural changes, such as occurred in the 1980s and 1990s. Back then the change was for married women to work – the move to the two income family. Men are still more likely to work than women, but the gap has narrowed over the past 30 years, although the pace of the narrowing appears to have slowed recently.
Changes to the childcare funding are necessary to keep increasing the participation rate of women. The commission’s report however shows that to make significant improvements the government will need to spend extra money, because tinkering with aspects such as nannies and shifting money around from one family to another does very little.
It will be interesting to see if the government comes up with a policy that keeps within the “current funding parameters” or decides that second best is not enough.
