Childcare costs depend on wages

While costly to taxpayers, the Albanese government’s boost to childcare subsidies, delivered in July, is designed to increase workforce participation. Amid skills shortages, that should help lift productivity. For many children, especially those from disadvantaged backgrounds, childcare and early learning offer important developmental benefits. That said, as we cautioned a year ago, “there is a real risk that the generous increase in taxpayer-funded subsidies could be swallowed by fee rises or profiteering’’.

The interim report of the Australian Competition & Consumer Commission, just released, calls for further reform. In 2022, it notes, 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. That is despite the government contribution to childcare fees in Australia, even before the latest rise in subsidies, being far higher than the OECD average.

In its draft recommendations, the ACCC leans towards greater intervention by government to contain cost pressures on families. That could include capping hourly rates and “a stronger price and outcomes monitoring role by government, supported by a credible threat of intervention, to place downward pressure on fees’’. Intervention would have its limitations, however. Labour, as the report points out, is the main driver of cost in the sector, accounting for 69 per cent of costs at centre-based daycare and 77 per cent at outside-school-hours care. Land and related costs are the other significant driver of cost for centre-based daycare providers. Not-for-profit providers have lower land costs, but savings are invested into labour.

The ongoing ACCC inquiry will accept submissions until October 29 and is offering parents the chance to take part in an online survey. It is a useful exercise in drilling down into how costs in the sector may be contained, which matters for consumers, taxpayers and the budget.