Market forces in childcare have failed families: ACCC

“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.

Poorest pay most

The report also found a perplexing anomaly where the parents least able to afford childcare, with median incomes of around $46,000 a year, were entitled to the least number of subsidised hours – on average 24 hours a fortnight – and consequently paid for around seven hours a week in full without any subsidy.

This is due to the activity test, which calculates hours of subsidised care based on a formula including the number of hours in paid employment or study.

However, wealthy families were entitled to 100 hours of subsidised care a fortnight and only paid for 1.8 hours of unsubsidised care, on average.

The government also uses the childcare subsidy to pay a percentage of childcare fees up to an hourly rate cap (with parents and guardians paying the remainder as out-of-pocket expenses), the report says.

“The hourly rate cap was intended to: send a strong message about what a ‘high fee’ service is to place downward pressure on price rises and limit the financial burden on taxpayers over time,” it said.

“However, our analysis indicates that the complexity of the hourly rate cap (and the childcare subsidy in general), along with the unique characteristics of childcare markets, are limiting the effectiveness of the hourly rate cap as a price signal and constraint on prices.”

That rate is currently $13.73 an hour, with parents paying any fees above that amount out of their own pocket.

Minister for early childhood education Anne Aly said the government’s goal was to ensure all Australian families had access to high quality and affordable early childhood education and care.

“This report will inform the in-depth Productivity Commission review, helping us chart the course to universal access to early childhood education and care,” Dr Aly said.

“Children who access quality early learning go on to do better at school and throughout life.”

The report found that the hourly cap was “unlikely to influence pricing behaviour in local area markets where all providers price well above the hourly rate cap or all providers price well below the cap”.

Market failure

The ACCC found there was a plentiful supply of childcare in wealthy, inner-city areas where parents have a greater ability and willingness to pay high fees. There was a corresponding undersupply in poorer and geographically remote areas.

The ACCC found that between 2018 and 2022 the average costs for large centre-based day care providers grew 27 per cent.

Over the same period, nominal gross fees increased by 20.6 per cent. This compared with the OECD average of 9.5 per cent.

The report noted there were opportunities to learn from how overseas jurisdictions managed to keep prices under control.

Dr Cass-Gottlieb said one option would be for the government to fully cover the costs of childcare, with no or minimal cost to families in poor and remote areas, to ensure access and quality.

The report found that labour was the biggest cost, accounting for 69 per cent of expenses on average. Last week the Fair Work Commission gave childhood educators the right to bargain for pay rises of up to 25 per cent across multiple employers in the first order of its kind delivered under Labor’s new laws.

The ACCC was not able to provide a clear picture of the present childcare market since its analysis predates the introduction of new, and more generous, childcare subsidies on July 1. That analysis will be included in its final report that is due to be handed to Treasurer Jim Chalmers on December 31.