Cheaper access to early learning will deliver ‘double dividend’ for economy and families
There are growing calls to reform child care funding to make it more affordable in Australia. If affordability is not addressed, it could be acting as a handbrake on our economic recovery.
A new report from the Grattan Institute calls for a modest reform to the Child Care Subsidy to increase the maximum and minimum subsidy rates by 10% each (i.e. maximum from 85% to 95% and minimum subsidy from 20% to 30% of fees) and smoothing out the income test taper, which is currently a sharp cliff. Grattan’s modelling shows the reform would come at a cost of $5 billion but add $11 billion to GDP. The reform would help reduce disincentives to parents – particularly women – from increasing their workforce participation as the cost of child care for working more days would be reduced.
Grattan’s headline numbers are quite conservative, overstating the cost and understating the benefit. Taking into account additional revenue from a larger GDP would reduce the cost of the reform to $3 billion, while the long term economic gains from more children accessing early learning before school could more than double the economic gains. A similar model in Quebec ended up paying for itself because the economic benefits to low income working mothers were so high.
The economic imperative of providing more incentives for productive workers, including parents, to work more is overwhelming. Pre-COVID, Australia already had one of the lowest rates of female workforce participation in the OECD. And, of those women that worked, we had one of the highest rates of part‑time employment in the OECD. The Child Care Subsidy system, with its taper rates, caps and income tests, effectively locks tens of thousands of women out of working full‑time because the marginal cost of increasing their days of work just isn’t worth it.
If women’s workforce participation was a major problem before COVID-19, it is a massive burning platform now. Female workforce participation took a hit in March and has been slow to recover. The most recent data shows that paid hours worked by women have fallen by 11.5% compared to 7.5% for men. Net immigration is expected by fall by 85 per cent next year reducing the options for importing workers to address labour shortages.
Australia simply can’t afford anyone to have a child care system that that discourages any of our productive workers from working as much as they choose. It has become an economic necessity to fix it. Unions and business leaders are on a unity ticket calling for child care reform to be a top priority for economic recovery.
The Grattan Report described its proposal as ‘an important stepping stone’ to a bolder, more universal scheme. Their modelling showed that ‘near free’ universal child care could deliver a massive $27 billion boost to GDP. Economic returns of this scale mean affordable child care stands to benefit all Australians, even if they don’t have children themselves.
These options need to be considered by Government, not just for the benefit for working parents, but because of the benefit for Australia’s children. Around one in five Australian children start school developmentally behind. But children who did not attend early learning as twice as likely to be developmentally behind as children who have.
Children who start school developmentally behind tend to stay behind and often fail to make an effective transition to the workforce afterwards. Yet, early intervention can have a huge benefit for these children and set them on a better development pathway.
PWC estimated that the economic benefit of increasing the participation of vulnerable children in early learning over the longer term would more than double the economic benefit from increased workforce participation. Raising the quality of early learning offered further benefits in terms of reducing the number of children starting school developmentally vulnerable.
As world-renowned economist Ben Bernanke, then Governor of the US Federal Reserve put it ‘economically speaking, 'early childhood programs are a good investment’.
Australia has never faced an economic challenge as big as recovering from COVID-19. It will require big thinking to get us out of it.
Investing now to make access to child care early learning more affordable will deliver huge benefits for Australian parents and children and a ‘double dividend’ to the economy for many years to come.
- John Cherry, Goodstart Head of Advocacy
Grattan Report page 80
Grattan Report page 20