Childcare report a vision of how things could be - The Centre for Independent Studies
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Childcare report a vision of how things could be

childcare2The Productivity Commission has done a relatively good job with its report on the childcare sector and put together a suite of workable policy recommendations, but it is not without serious shortcomings. And the tough part for government—and for the hip pockets of families and taxpayers—is turning this vision into reality.

The government has had this report since October, so has had nearly four months to consider its recommendations and develop its much-vaunted ‘families package’ accordingly.

The biggest changes recommended in the report are welcome. The report recommends combining several subsidies (notably the Child Care Benefit, the Child Care Rebate, and Jobs, Education and Training child care fee assistance) into one means-tested on family income Early Care and Learning Subsidy (ECLS), and introducing a ‘benchmarking’ system whereby the subsidy rate is calculated on the median cost of a particular type of care—as opposed to the fees actually charged. This means parents will no longer have their choice for high-level or luxury childcare subsidised by the taxpayer and is a good thing for making scarce funding go further.

But families expecting impending relief—or politicians anticipating a quick-fix solution—shouldn’t hold their breath. The transition to a new subsidy system is a large project that will take months at the very least. As with most policy, the devil is in the detail, which will need to be carefully considered.

The Productivity Commission estimates that its ECLS package would have cost $5.9 billion in the 2013-14 financial year (compared to actual outlays of $5.7 billion that year) and yield a small increase in the female labour force participation increase of 1.2%. The accuracy of these figures is hard to gauge when childcare fees are so volatile.

Nevertheless, it is admirable that the PC has recognised that low- and middle-income families (and women) have the most to gain from more accessible childcare. The new subsidy will range from 85% of fees subsidised for low-income earners, down to a minimum rate of 20% for all families. Wealthier families will be worse off, because it is an economic fact that people with higher earning capacities are less responsive to increases in factors like childcare fees.

However, the PC also cautions against seeing the ECLS package as a ‘magic bullet’ for female labour force participation; noting that low- and middle-income earners face significant disincentives in the form of high effective marginal tax rates (EMTRs) caused by the interaction of the tax and transfer systems. This is something the government simply must tackle given its economic reform agenda relies on increasing the female workforce participation rate.

The main disappointment is that the final report seems to have pulled its punches on its original findings about the lacklustre evidence for the National Quality Framework requirements for staff-to-child ratios and staff qualifications. My report, Regulating for Quality in Childcare: The Evidence Base found that the evidence in favour of the stricter staffing requirements in the NQF is limited, and the PC’s draft report was only slightly more circumspect. Unfortunately, it seems to matter little to the government, which has long ruled out making any changes to the minimum standards to which the childcare sector is subject (even if there is a deleterious impact on supply and prices).

The key shortcoming of the Productivity Commission’s report is that it has little to say about what to do for families who cannot even find places—for whom affordability is, by definition, a second-order issue. Small changes are recommended, such as altering visa conditions for au pairs. There are also good suggestions for more liberal planning regulations at both the state and local government level, but here the federal government can exert little pressure.

Its main contribution to increasing supply is to allow nannies and in-home carers to be eligible for the ECLS in the same way that long day care and family day care providers are. But the catch is that they will be subject to the same NQF requirements. I have elaborated before why this is a mistake. Given that parental choice and oversight in hiring nannies is far stronger, the sector should not be expected to be accountable for public funds in the same way other services are.

Trisha Jha is a Policy Analyst at the Centre for Independent Studies