Childcare’s market model in dire need of reform

Many parents are finding themselves priced out of childcare services. AAP

Just who carries the costs of childcare services has become a visible political issue in the last few weeks, as the federal government confronts its own ideological mess.

Concerns over the decreasing affordability of childcare have prompted Prime Minister Julia Gillard to convene a child care summit with providers and unions, which is being held today in Sydney.

At present, the government puts around $4 billion a year into supporting access to services, but has no control over where the services are or how they spend their income.

The sector’s largest union, United Voice, has launched a campaign to increase subsidies for the appallingly inadequate wages paid in the sector.

But this won’t work as the government does not fund the services, only the parents.

The official assumption has been that a market model of funding daycare-type services would work, as parents are well informed and active consumers and will therefore make good, market-based choices amongst the suppliers. This process, together with some external standard setting, was supposed to ensure the quality of services and restrain their prices.

However, this is a naïve market model, as the supply of child care is often inadequate and mis-distributed. As a result, there is little serious “competition” for parental choices. Desperate parents put babies on long waiting lists in the hope of finding places before their parental leave ends. The model also ignores the difficulties of moving children to follow prices, as quality of care is often built into relationships. Location is also important. Add to the picture a very underpaid workforce and serious shortages of services in many areas, and the messiness becomes more apparent.

Childcare funding, unlike most aged care funding and other government-paid subsidies, does not involve any formal contract between the services and the funding body. The massive $4 billion per annum goes not to the services, but to the parents.

The government subsidy is a standardised rate of payment to the parents and has no formal relationship to the fee levels charged. Therefore, the government has no control over fees charged by the services. This allows the providers of care to charge whatever most think their market will bear and ignore the need for higher wage levels to stem staff turnover.

About two thirds of services are commercial services, which run to make a profit for owners. Some of these are small businesses, but many are chains. (The largest chain is ABC Learning, which was wound up by receivers in 2008 and later purchased by Goodstart, a not-for-profit consortium.)

Government websiteMy Child shows fees per day that range from $70 to more than $140. Some of the lower fees come from the remaining not-for-profit services, but many of these are now managed by not-for-profit chains that operate according to commercial costings.

The current system of funding has been there since the big shift of policy direction in the 1990s, from subsidising childcare as non-profit community services to subsidising children in mainly commercial services.

The problems now emerging arise from tensions between the commercial services and federal government on how to meet the costs of lifting quality via staff qualifications and ratios to children. Another factor is the successful ASU equal pay decisions, which suggests other feminised industries, such as childcare, are entitled to substantial rises. In anticipation, the commercial centres’ lobby is pushing their need for higher fees.

Even though most of these changes are not yet functioning, the fees for many services are already increasing and this is sending out alarm signals to parents and staff. Parents already need to meet the gap fee between subsidies and centre bills.

The likely amount to be paid will vary as subsidies are both income tested and capped. The childcare benefit starts at $38 per day, on a very low joint income, with maximum child care rebate (50% of extra costs) at around $32 per day. So the government pays a maximum $70 per day but average fees are high and centres can - and sometimes do - charge twice as much.

Now, it seems the government has finally realised they need a basis for negotiating fees with the providers.

Over the past couple of weeks, there have been some rumblings about forms of fee control. Adding to the pressure is the United Voice campaign about raised fees but not wages, signalling they want action on pay. What can the government do?

For a long time, I have advocated a move to a similar system as the original form of childcare funding. Centres who want subsidies, must negotiate with the Commonwealth for funding via an approved budget. This involves their receiving grants of between 30% and 40% of expected costs minus approved fee levels. This budget could also be calculated to increase flexibility to include more funding to cover extra costs of places for babies, or the costs of more experienced staff where needed.

This approval process would also improve the distribution and supply of services by ensuring the numbers and age mix of centre, or care places, relate to local needs.

Owners of multiple centres would mix local fees and locations approval with the shared costs. Such an approach would allow the Commonwealth to negotiate reasonable fees that offer a return on capital invested and also ensure it funds services that have the capacity to meet local needs, such as for the under twos.

A more flexible funding system could also recognise the extra capital costs of some locations and particular needs in low income areas for additional skills. The initial change over would require some hard work but such a system would essentially ensure that services are where they are needed at appropriate costs.

The balance of services income would come from fees paid and fee subsidies much as the present system works. Some extra flexibility could be built into the systems to allow for attached in home workers to deal with children who need this type of care, or have other needs not able to be met in formal centre hours. This would solve some of the problems raised by those wanting nanny subsidies.

The alternative is the current inelegant battle between services threatening to raise fees and oppose quality changes, perpetuated by a relatively powerless funding system. The current system has problems of mal-distribution, underpaid staff and high costs that do affect the quality of care. The move from community to commercial services has saved capital funding, but not necessarily improved quality or accessibility. It is time for a major change

The current model is essentially a voucher system: it assumes there is a clear market when there is not. The care of children is not like doing your dry cleaning - the latter can simply be moved to a cheaper or more convenient location.

Continuity is a crucial need in childcare, so quality ratings are not enough to sell a service. The constant emphasis on the needs of children in their early years means the power of the government must ensure that children have access to quality affordable care, and can not leave their futures to the vagaries of presumed markets.