Childcare providers chase profits in richer suburbs, poorer families pay higher out-of-pocket costs: ACCC

Market forces fail to deliver on accessibility and affordability for all Australian families, the consumer watchdog found – in a blow to expected savings from Labor’s landmark subsidies.

The ACCC found childcare providers are more likely to establish centres in more affluent areas where they can increase profits, limiting access to poorer communities. ​

Market forces have failed to deliver accessible and affordable childcare, the consumer watchdog has found, revealing parents on the lowest incomes are paying the highest out-of-pocket costs.

In a damning report, the Australian Consumer and Competition Commission has called for the Albanese government to review the childcare subsidy, including the activity test, which leaves poor families paying more for the same hours of care than richer households.

Crucially, the ACCC report found that market dynamics encourage more supply in wealthier suburbs and major cities, where parents and guardians generally have greater ability and willingness to pay.

It comes as skyrocketing childcare costs are eating into expected savings from Labor’s landmark subsidies and jeopardising one of Anthony ­Albanese’s key measures to ease cost-of-living pressures, with parents reporting increases of up to $20 a day for care.

The government passed laws for cheaper childcare last year, which the Prime Minister promised would leave more than one million families better off. In 2022, an Australian couple on average wages with two children spent 16 per cent of their net household income on net childcare costs, compared to the OECD average of 9 per cent.

ACCC chair Gina Cass-Gottlieb says report suggests ways to produce better outcomes. Picture: Sam Ruttyn

ACCC Chair Gina Cass-Gottlieb said quality childcare was essential for Australian families, with early childhood education helping children reach developmental outcomes, while supporting parents and guardians to work and study.

“As the competition and consumer regulator, we have carefully examined the childcare sector and the impacts for consumers. We have found market forces under current policy settings are not delivering on accessibility and affordability for all children and families across Australia,” Ms Cass-Gottlieb said.

“Our report’s findings highlight areas in which changes could lead to better outcomes for the community, particularly those needing childcare in lower income households and in very remote locations.”

From July 1, the government increased the subsidy from 85 per cent to 90 per cent for families with a combined income of less than $80,000. This falls by 1 per cent for each additional $5000 of annual income, hitting zero at a combined income of $530,000.

But parents across the country have received letters from childcare centres informing them fees would rise, citing the rising cost of energy, wages and food.

Furthermore, the ACCC report found childcare providers are more likely to establish centres in more affluent areas where they can increase profits, limiting access to poorer communities.

“We have found margins are higher, on average, for most for-profit centre-based daycare services, as well as centre-based daycare services in major cities and advantaged areas and those centres providing higher quality care,” Ms Cass-Gottlieb said.

“Remote communities, and locations with a higher proportion of lower-income households, have fewer childcare services and are relatively under-served. Areas located in the lowest three socio-economic deciles have a greater proportion of not-for-profit providers compared to more advantaged areas.”

Anthony Albanese promised that Australian families would be better off under new childcare laws. Picture: NCA Newswire / Gaye Gerard

But Ms Cass-Gottlieb said a “one size fits all” approach that achieves all desired outcomes is “not likely to be possible”.

Instead, she urged the government to reconsider and restate its key policy objectives and priorities, and consider further changes to the childcare subsidy, particularly the activity test, which can reduce demand for childcare because of higher costs.

The ACCC report found that households with the lowest entitlements to subsidised hours of care, as determined by the activity test, also had the lowest median incomes, around $46,000 per year. Those households also used the most unsubsidised hours of childcare – more than seven hours per week on average.

This compares with households on higher incomes receiving more subsidised hours of care and paying for fewer unsubsidised childcare hours each week.

“The current activity test means that those in low-income households who seek to increase their hours of employment, and therefore need more childcare, face a higher proportion of out-of-pocket costs as this extra childcare is relatively more expensive for them,” Ms Cass-Gottlieb said.

She also called for additional and targeted support for First Nations and under-served communities.

“A single policy approach may not deliver quality and accessible childcare for all Australian children. A mix of different measures and supports may be needed to deliver affordable and accessible childcare for families in different locations and situations across the country,” Ms Cass-Gottlieb said.

“We have observed that many countries have decided to spend more on childcare to improve affordability and are moving towards greater regulation of childcare fees by offering low fees or free hours, supported by supply-side subsidies.”