ACCC Childcare Report Released

Finance
 06 Jul 2023

The ACCC’s interim report into childcare services is hot off the press, and KindiCare's Founder and CEO is here to provide a summary of what it says – and doesn’t say.   

 

BY HEJIRA CONVERY, KINDICARE

JULY 5, 2023

If you’re using childcare, or providing it, then you’ll be very interested to know what the Australian Competition & Consumer Commission has gleaned about childcare prices, supply and demand.

However, you might not be quite interested enough to read their 146-page document on the matter, which has just been released.

And that’s ok, because at KindiCare, we have you covered!

We’ve whipped into action and read the ACCC’s first interim report for the Childcare Inquiry, so you don’t have to, and after drilling down on the detail, we can tell you that this document says a lot, and a little, about childcare’s state of play.

First, though, a quick recap of why this interim report has been produced.

It came about on request, because back in October 2022, Treasurer Jim Chalmers asked the ACCC to conduct an inquiry into childcare prices, as part of its overhaul of the Child Care Subsidy system.

He wanted to know about:

  • The costs being incurred by providers and services
  • The prices they’ve charged since 1 January 2018
  • How prices and costs differ according to factors like types of care and provider characteristics
  • The factors that impact supply, demand and competition in the childcare market, and
  • The impact of these factors on providers’ quality, profits and viability.

 

The Treasurer, who's also a dad of young children, also wanted to know how well (or otherwise) the existing price regulation mechanisms are working.

The ACCC got to work on all this, and the interim report they’ve released on the 5th of July uses Department of Education data, some results from an ACCC survey of parents and guardians, and information provided directly by providers.

True to its name, this report is preliminary, rather than conclusive, and here are our main takeaways after reading every, single word.

As a whole, this interim report provides a frame of reference and general review of the sector, but contains no big reveals.

If you’re expecting lots of insights, conclusions and solutions, then you’ll be left wanting, because the only real conclusion the interim report makes is that fees have increased at a higher rate than inflation – which we all felt was the case, anyway. And the fact that fees are increasing has already been shown through the KindiCare Price Index which is published and reported on every six months.

That said, the divide between for-profit and not-for-profit childcare providers isn’t as large as some might have expected.

KindiCare’s Founder and Chief Executive, Benjamin Balk says, “Whilst childcare providers that are for profit charge more than not-for-profit, data hidden in the report shows that this gap hasn’t widened in four years, with the average fees charged by not-for-profits increasing 19% versus the 20% increase by for-profits in the same period.”

The gap isn’t widening, which is heartening for families and childcare workers wanting the freedom to choose a service, rather than a business model.

This also contradicts views from some advocates in the sector that for-profit providers of long day care services are price gouging or taking advantage of Subsidy changes at the expense of families.

It’s good to see that most families have been better off, year-on-year, when it comes to fees.

Adjusted for inflation, the out-of-pocket cost for childcare has been reducing over time, and the Child Care Subsidy changes that come into effect from next Monday promise to bring more good news for mums and dads.

It’s estimated that nine out of 10 families will be better off from 10 July, 2023, and the government’s sustained investment in the Child Care Subsidy hasn’t gone unnoticed.

However, in the interim report there has been a serious oversight around wages and inflation.

Although the ACCC are very clever cookies when it comes to facts and figures, Mr Balk questions the use of the wage index to compare inflation.

He says, “This is wrong, as it is largely based on the award wages for the childcare sector, and not the true cost of labour in these times; where we're seeing an acceleration in employment costs and a changing mix of workforce.”

“Due to widespread workforce shortages, services are regularly paying above award wages to attract and retain staff, and are also paying high casual rates to meet educator to child ratios, sometimes at short notice.”

“Agency rates are also being paid to fill essential roles urgently, and these rates may be marked up by as much as 100%."

"So what we are seeing is a more transient workforce, and one that is under ever increasing pressure, with a growing proportion of educators and staff being short-term casuals or shift workers, which not only drives up costs for childcare providers, it can also impact the consistency and quality in some cases of the early learning services delivered.”

On a related note, the interim report is silent about the number one issue facing the sector.

Nothing in the report addresses the chronic workforce shortage being suffered by the childcare sector and the impact this has on fees, due to sub-optimal occupancy of centres. This is proven in the fact that more than 15% of long day care services are currently operating with a staff waiver from the regulator ACECQA due to a shortage of qualified staff in the sector.

Mr Balk says, “The high wage bill being paid by services is causing many to run at a loss, and this threatens the viability of services going forward, especially as many are still recovering from the financial perils of the pandemic.”

"The availability of qualified early learning educators and staff is vital to services being able to operate at their approved capacity and be viable. With the current workforce crisis, many centres are being forced to artificially cap their enrolments or operate at a low level of enrolments, and therefore revenue, that is not sustainable."

Wages remain the number one barrier to attracting and retaining qualified early learning educators and teachers - and even higher fees could be on the horizon as a result.

One of the drivers of the workforce crisis is the perception of wages and conditions for early childhood educators and teachers. The Federal Government and State Governments are investing in more TAFE places to train more new entrants to the sector, but the availability of training is not the main barrier to increasing the available workforce.

Mr Balk says, “There is a perception in the community that wages and conditions in the early learning sector make jobs in alternative industries far more attractive. This prevents many young Australians, or those returning to the workforce, from considering a rewarding career in early childhood education. We see most providers paying above award rates, offering study programs and career paths as well as other incentives, but these initiatives still aren't keeping up with demand, with wages remaining a key issue."

The push by unions and childhood educators for a 25% pay rise under Labor's multi-employer bargaining laws could see a significant increase in the cost of operating early learning services across the country.

Mr Balk says, “The recent 5.75% increase in award wages was certainly a key driver of mid year fee increases that were between 7% and 11% on average. With up to 70% to 80% of a childcare centre's operational costs being wages, any signficant increase in wages will flow through to increased fees for young families already grappling with inflation pressures."

"I think most parents would absolutely back a wage rise for the dedicated early childhood educators, teachers and staff who support the growth and development of our children through their critical first five years, the question is, who's going to pay for it as the ACCC report doesn't provide any recommendations or solutions to this as part of addressing the rising cost of fees and the workforce shortage in the early learning sector."

Nothing in the report provides a solution to accessability and affordability of early learning in regional and remote communities as well as for First Nations people.

The report highlighted that access to quality early learning services in regional and remote areas of Australia remains an issue.

Mr Balk says, "With the majority of childcare services being for-profit, and more concentrated in metro and suburban Australia, for-profit providers are far more unlikely to invest in services in remote and regional Australia as they are simply not commercially viable without a form of direct investment or subsidy by state or federal government."

"The burden as a result of this has fallen on not-for-profit community organisations and local government to provide services to the people in remote and regional communities. Often ratepayers are cross-subsidising these services, which for some councils, has become unsustainable."

"We're seeing more and more reports in media of council and community childcare closures due to the increasing costs of operating services, the impact of growing regulatory and compliance frameworks and a shortage of available staff in these regional and remote communities."

"Nothing in the report provides any recommendations or solutions as to how to address the childcare deserts across the country."

And last, but definitely not least, the interim report indicates that awareness and understanding of the National Quality Standard (NQS) is low.

Although the National Quality Framework (NQF) was introduced way back in 2012, and sets the quality standard for early learning and school-aged care in this country, the ACCC has found that many parents and guardians have a low awareness of the NQF and the NQS, against which services are assessed and rated.

The interim report recognises that awareness of the NQS ratings is important, because they help families to choose a service and ensure a competitive childcare market, but in our view, ratings like ‘Significant improvement needed’ or ‘Exceeding National Quality Standard’ simply don’t mean much to mums and dads.

Mr Balk says this is exactly why he created the KindiCare Rating, which gives each service a score out of 10, based on a whole gamut of up-to-date information about the centre or service.

Mr Balk says, “The National Quality Standard, in my view, makes it hard for parents to compare early learning services due to a lack of understanding about the framework, particularly for families looking at early learning services for the first time. The KindiCare Rating however provides a real-time indication of how a service compares on quality, performance and customer satisfaction based on real parent reviews of those families using the service, in relation to every other childcare service in Australia.”

“Anyone who’s new to the childcare world will instantly recognise that a KindiCare Rating of 9.0 or more is highly appealing, and each KindiCare Rating is calculated using information provided by the government, childcare providers, parents and other community members to provide a more complete picture of what the service offers, how it operates and what the customer experience is like for families who attend the service.”

“This agile and easy-to-understand rating has proven to be extremely popular with Australian parents, with more than 100,000 downloads of the KindiCare App since launch just two years ago, and more than one million families each year using the KindiCare App and Childcare Comparison Website to find, compare and engage with early learning providers across Australia.”  

All in all, the ACCC’s interim report sets the scene for the Childcare Inquiry.

We are looking forward to reading their consultation paper in September this year, followed by their final report, due by 31 December, 2023.

And whatever these documents say, in however many pages, it’s clear that the current workforce shortage needs to be addressed, and the costs and prices being paid and charged by childcare providers require deep and meaningful consideration.