Flat fee for childcare ‘fraught with danger’

The introduction of a $10-a-day flat-fee model for childcare risks repeating the mistakes made in aged care, a milestone report has found.

The government’s idea of a flat fee for childcare would send many operators bust, a new report warns. Picture: Getty Images

The introduction of a $10-a-day flat-fee model for childcare currently being considered by the Albanese government risks centres being forced to close their doors and dooming the sector to repeat mistakes made in aged care, a milestone report has found.

Despite warnings from the Productivity Commission that a flat-fee model would cost more than $8bn a year and benefit mostly higher-income families, Labor is mulling over the implementation of capped fees over the subsidy model currently in place as part of its long-term goal of achieving universal childcare.

But research commissioned by the Australian Childcare Alliance – which represents 3000 small to medium family-run childcare businesses – found that the move to a supply-driven funding model over the current demand-driven system would see operators become financially unviable in a repeat of the crisis that had mounted in the aged-care sector over the past decade.

“Aged care offers a cautionary tale for a poorly designed supply-side funding model,” the report, conducted by Dandolopartners, states.

“If funding levels are set too low, the implications for early childhood education and care are likely to be very similar to those observed in the aged-care sector.”

As part of an effort to put the aged-care sector back on a financially sustainable footing, the Albanese government introduced sweeping reforms earlier this year that will see elderly Australians with means charged more for their daily living costs. It followed figures showing more than half of aged care providers had been ­operating at a loss.

Several Labor backbenchers told The Australian earlier this month they favoured a flat-fee model, before exploring the idea of placing childcare in the public school system in the long term.

The push towards a flat-fee model and universal childcare has raised concerns over the impact to the workforce, with Jobs and Skills Australia in September finding the sector is already facing a 21,000-staff shortfall, which would be exacerbated under a universal model.

The Dandolopartners’ report also concludes the implementation of a flat fee in the childcare sector would face significant challenges, such as accurately estimating costs of delivery, ensuring sufficient returns to support capital growth and substantial costs when it came to transitioning to a supply-side system.

Writing in The Australian on Tuesday, ACA president Paul Mondo urged Labor not to “put our children’s future at risk”.

“The debate about how to address this issue tends to focus on two basic approaches: ‘supply-side funding’, where childcare centres are directly funded by government; or ‘demand-side funding’ along the lines of the current system of families receiving childcare subsidies,” he said.

“Here in Australia, a ‘one size fits all’ approach will not cater for the broad diversity of our community, and if we adopt an approach that will take years to properly introduce it will impact on how quickly families will benefit. Families need help now.”

Mr Mondo pointed to the Canadian government’s decision to start funding childcare centres directly, which saw some centres forced to close, quality standards drop and waitlists explode.

“That was three years ago, and the system is still recovering,” he said. “In an early childhood education context, such a mechanism (of a flat fee) threatens the high-quality and qualified care that parents have rightly come to ­expect.”

Associate commissioner and co-author of the commission’s report into childcare Deborah Brennan said on Monday the ­affordability of childcare was “not the end of the story”.

“We consistently heard that removing cost as a barrier was a necessary but not sufficient condition for increasing access. For that reason, we give a great deal of attention to quality inclusion and the expansion of supply,” she said.

“It’s vitally important that the conversation about ECEC is not limited to affordability.”