Possible Decrease in Childcare Subsidies due to Rising Fees

Childcare subsidies from the government may be “eroded by fee increases” over time, as an Australian Competition and Consumer Commission (ACCC) inquiry reveals.

The inquiry found that despite the government changing child care subsidy rates in July, child care fees have increased at a faster rate than inflation and wages in Australia.

However, the report also found that subsidies from July 2023 have cut the “out of pocket expenses” families are paying for childcare services.

The changes included higher childcare subsidies starting from 90 percent for families earning below $80,000 (US$53,000).

Labour was found to be the major cost of supplying childcare, making up 69 percent of total cost for day care services and 77 percent for outside school hours care services.

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These labor costs have risen massively in the last five years, particularly for large day care providers, the report noted.

Since government reforms that reduced expenses for childcare services in 2023, costs have lowered 11 percent for center-based day care.

Meanwhile, outside school hours care costs have fallen 8.8 percent, in-home care costs have dropped 12 percent, and family day care costs have dropped 13.8 percent.

However, the ACCC warned despite these reforms lifting affordability for families, there is a risk these benefits could be “eroded by fee increases” with time.

“We have found that the Child Care Subsidy, particularly the hourly rate cap, has limited influence on reducing childcare fees. Providers of center-based daycare consider many factors when setting daily fees, including competitors’ prices, costs, and the willingness and ability of households to pay,” ACCC chair Gina Cass-Gottlieb said.

The ACCC discovered that the government’s hourly rate cap had only a limited impact on placing downward pressure on fees and reducing the taxpayer burden.

“In particular, the hourly rate cap does not act as an effective signal of high prices,” the report stated.

“Providers of center-based day care consider many factors other than the cap when setting daily fees, including competitors’ prices, households’ willingness and ability to pay, and costs.”

Childcare fees have been rising quicker than inflation and wages for all types of care since 2018.

Center-based daycare has risen 9.1 percent, family day care has lifted 7.9 percent, outside school hours care has jumped 6.4 percent, and in-home care has surged 17.5 percent during this period, the report noted.

ACCC Recommends Price Regulation

The ACCC believes childcare markets are not “delivering on all key policy objectives” for households and communities.

“A market stewardship role should be considered for government, by both Australian and state and territory governments, to monitor, regulate and shape childcare markets to ensure they deliver government objectives,” the report stated.

The report noted internationally that price regulation reforms are trending toward more regulation of childcare fees or price control.

“International counterparts are using a range of mechanisms to implement the price control and supply-side funding, such as using market fees at the time the scheme is established, benchmarking efficient costs to determine the regulated price and subsidy, undertaking competition for the market through government tenders, and providing conditional central government funding to regional authorities,” the report noted.

Overall the report made 8 recommendations, including further consultation on changes to the child care subsidy and hourly rate cap to look into unintended consequences.

Government Responds

The Albanese Government focused on the lower out-of-pocket expenses for families in its response to the report.

However, the government also acknowledged recommendations in the report, including stronger price monitoring and changes to the hourly rate cap.

The government said it would consider the ACCC’s report together with the Productivity Commission inquiry into Early Childhood Education and Care, due to be completed on June 30.

“Among other things, the report recommends changes to the existing hourly rate cap mechanism, and stronger price monitoring by government supported by a credible threat of intervention, including naming and shaming providers who massively jack up fees.”

Education Minister Jason Clare said the report shows “how much our cheaper childcare laws” have cut costs for more than one million Australian families.

“It also has a number of recommendations about where more work is needed. The government will consider these along with the recommendations of the Productivity Commission which is due to report in a few months,” he said.

Early Childhood Education Minister Anne Aly said the report, together with the Productivity Commission review, will help the government find areas for improvement in early childhood education.