Jumbled mess: spending up 300 per cent for no return

HERE’S a quiz: what’s something on which the government can increase real spending by more than 300 per cent and get virtually nothing in return?

The answer is childcare.

In 2000, the government handed out $900 million in childcare subsidies. Last year, the figure was $6.5 billion. In this financial year and the next three, government spending on childcare will total $28bn.

Why is the answer nothing? If you take the labour force participation of women with young children as the key criterion, the upward trend that was prevalent until the mid-2000s has been flatlining ever since.

In the past decade, childcare fees have risen by an average of 10 per cent a year, meaning that fees are now 150 per cent higher than they were 10 years ago. Daily fees of $160 a day at childcare centres are not uncommon in Sydney and Melbourne. In the past six years, net childcare expenses have grown faster than household income.

The combination of the (frozen) childcare rebate, which is set at a maximum of $7500 a child per year, and steeply rising childcare fees means that the number of hours in which working mothers maximise their take-home pay is falling.

For many women, working three days a week is optimal; there are virtually no financial gains from working longer hours.

To be sure, the proportion of children in formal childcare has risen from 18 per cent in 2002 to 24 per cent now. But this increasing proportion has been associated with a substitution away from informal childcare for which government subsidies are not paid.

It’s hard to escape the conclusion that government childcare policy has been nothing short of disastrous, especially under Labor. The Rudd-Gillard governments were keen to favour formal, not-for-profit centres; to enable childcare workers to increase their pay and to join unions; and to impose a national quality framework regardless of evidence or cost. All that extra spending has been effectively snaffled by the providers.

Within the constraint of the same spending envelope, the Productivity Commission has been asked to consider some of the options to fix up the mess. We would expect competition and choice to be one of its guiding principles when considering these options.

There is no doubt centre-based formal childcare does not suit everyone. Workers with long hours, workers with erratic shifts, workers with several young children: for them, having a nanny come to their own homes surely beats a childcare centre.

It makes sense to extend childcare subsidies to nannies, something that may not cost the government any more money as parents withdraw their children from centres and employ nannies instead.

To be sure, there would need to be some regulation in relation to the employment of nannies, but let’s forget the notion that they would require university-based early childhood qualifications. Indeed, the requirement that every centre must employ at least one person with a univer­sity-based early child qualification is pretty daft.

There could be some relaxation along the lines of a certain number of hours per week per centre.

As for means-testing the childcare rebate, this makes sense and brings this payment into conformity with vir­tually all other government payments.

The reality is that women with high incomes are very likely to return to work without the incentive of the rebate. They have high levels of general and specific work skills and it makes perfect sense for them to return to work lest they face the penalty associated with a significant career interruption on future earnings.

The alternative is to use the savings to make sure children from disadvantaged backgrounds can attend childcare centres and undertake some structured early childhood learning. The evidence at least backs up this strategy, compared with the jumbled, amorphous mess that is the childcare policy the government has inherited.