Government threatens to ‘name and shame’ childcare centres gouging

It found that childcare in Australia is less affordable than almost all other comparable countries and despite government contributions being almost double the OECD average.

A family in Australia with two children in childcare and earning average wages spends around 16 per cent of their income on childcare fees compared with the 9 per cent OECD average.

The report found that the mix of private for-profit and not-for-profit and community-based childcare centres was unresponsive to market forces and as a result community expectations and government objectives were left lacking.

“We have found that market forces under current government policy settings are not delivering on accessibility and affordability for all children and families across Australia,” said ACCC chair Gina Cass-Gottlieb.

The 5.5 per cent profitability figure cited by the ACCC includes expenses across the industry but not interest on debt and taxation. At a provider level, small for-profit centres have the highest margins at just over 20 per cent, according to the report.

Childcare prices in Australia have a “rate cap” for the purposes of government subsidies at $13.73 an hour, but operators are allowed to charge more than that, with parents paying the difference. “They’re just exploding through that cap,” Mr Clare said on Sky News.

He said the cap needed reform, without specifying how it should change, but flagged government support for one of the ACCC’s other recommendations. “The idea of naming and shaming providers that are just charging over-the-top fees makes a lot of sense to me,” Mr Clare said.

The ACCC was not so blunt in its report, instead suggesting parents be given better information to compare centres’ pricing. It also floated the idea of direct price controls.

Listed childcare providers have been middling financial performers in recent years, though profit has risen at the largest listed childcare company.

G8 Education reported $15 million in profit off $455 million revenue for the last half-year, with profit up 76 per cent over the prior corresponding period.

It is trading at $1.06, down almost 70 per cent from its recent highs in early 2019.

A G8 spokesman said the company considered affordability in setting its fees, but they had been driven up by higher wages including the 5.75 per cent boost to award wages mandated by the Fair Work Commission this year.

“This was the biggest single factor behind the average 4 per cent increase in fees across G8 centres announced at the same time,” the spokesman said.

The spokesman said across the industry, profit margins for large for-profit providers like G8 were within 3 percentage points of their non-profit peers.

Mayfield Education, a much smaller ASX-listed childcare company, recorded $35 million of revenue for the half, producing earnings before a common range of costs of $5.5 million but an after-tax loss of $1.2 million.

That was in part due to the company dealing with alleged internal issues from departed personnel. The company did not respond to a request for comment.

But large private equity groups are also active in the space. Quadrant Private Equity is reportedly shopping around its Affinity Education network of centres while Partners Group owns Guardian Childcare and Education.

The New York Stock Exchange-listed Bright Horizons Family Solutions purchased the All About Children childcare chain for $450 million last year. All about Children and Affinity were contacted for comment.