Childcare changes: blatant vote-buying, ignoring the evidence

Anthony Albanese holds baby Maise, 3 months, after delivering a speech at the Morningside Panthers AFL club in Brisbane. Picture: NewsWire/Glenn Campbell

A highly subsidised and regulated industry dominated by private provision is about to get even more taxpayer money thrown at it. And users will be expected to contribute less and do less to qualify. This is the scenario for the childcare industry.

Anthony Albanese has flagged his intention to make childcare the centrepiece of his campaign for re-election.

During Labor’s first term in office, additional resources have been committed to subsidising childcare fees and subsidies have become available to more parents. The government is also directly funding higher pay for childcare workers.

This year, $14.5bn will be paid out in childcare subsidies, making it among the top 20 government programs by expense. Families with combined incomes of up to $530,000 per year are eligible for childcare fee relief, albeit on a sliding scale. In addition, the government has committed $3.5bn over two years to cover the higher wages of childcare workers awarded by the Fair Work Commission.

Now most sensible people would think enough is enough, but when a prime minister is in the hunt for votes, spending more taxpayer money looks like an easy option. Albanese clearly thinks that he is on to a winner, albeit with a quite narrow group of voters, offering guaranteed subsidised childcare for three days per week with parents no longer required to meet an activity test. The cost of the change is estimated at $430m over five years.

There have been vocal support groups campaigning for the abolition of the activity test for a long time, notwithstanding the lack of any strong evidence.

Why would children from disadvantaged backgrounds be excluded just because their parents don’t meet the activity test? Think of the benefits for children of attending childcare. These are the arguments.

There are several responses to this. Let’s be clear here: the current activity test is very easy to meet. It includes job search, education and training, and volunteering as well as paid employment.

The majority of those taking up subsidised childcare places easily meet the activity test. The incentive for parents to meet the activity test is a positive force, leading to better labour force and financial outcomes for the parents in the longer term.

Given limits on the supply of childcare places, will it make any sense for employed parents to be denied childcare spots for their children only for them to be taken by children whose parents are not working? This is a net loss for the economy.

As for the benefits for children, it partly depends on the age of the children. Preschool seems to have a beneficial impact for most children. For those aged 0 to 2, the impact of long day care on children is very unclear. High-quality Canadian studies point to net negative effects, including higher rates of anxiety, hyperactivity and anti-social behaviour, effects that last well beyond the childcare years.

The Prime Minister has also announced that 160 new centres will be funded in currently under-served areas. The plan is to spend $1bn either in partnership with not-for-profit providers or as direct government ownership. We have seen these types of plans falter in the past – recall Kevin Rudd and Julia Gillard were going to build lots of childcare centres in school grounds.

The much bigger ticket item that Albanese is now contemplating is whether to introduce a low daily flat-fee model for all childcare users – his version of universal childcare. In terms of the evidence and the costs, he would be crazy to do so, but that probably won’t stop him.

At a minimum, it will cost at least an additional $8bn per year in childcare subsidies – it is currently estimated that $15bn will be spent next financial year – and will overwhelmingly benefit those in the highest income quartile.

It would have a negligible impact on workforce participation. It was not a recommended option by the Productivity Commission.

It would also be a logistical nightmare because of the additional demand for childcare places in the context of slow supply responses, particularly in certain areas, as well as shortages of qualified staff.

The government would effectively have to underwrite the least efficient centres to achieve the higher number of places. This could end up a very costly process.

The Canadian experience with this approach has been telling, with numerous problems encountered and fiscal costs blowing out. Ironically, many children from disadvantaged backgrounds continue to miss out altogether.

The reality is that Albanese is always keen to subsidise a unionised sector using taxpayer money while potentially gathering in votes for Labor at the election. It’s not as if the federal budget position is well placed to accommodate even more billions of dollars of outlays, given forecasts of years of deficits into the future. But at this point, he doesn’t seem to care, either about the fiscal implications or the evidence.