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Child care on the cheap is bad policy [AU]

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Davidson, Kenneth
Publication Date: 
25 Oct 2007

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Both the Government and the Opposition want to get women back into the workforce as quickly as possible after giving birth. I suspect that most mothers are also keen on getting back into paid employment as soon as possible.

The problem is the politicians want to do it on the cheap, while mothers are reluctant to entrust their children to second-class care or to paying so much in child care that there is no financial incentive to return to work early. The result is a halfway house in which the Government doesn't take direct responsibility for the provision of child care and early education but provides what amount to vouchers that subsidise these services run by non-profit and for-profit organisations.

Kevin Rudd's Labor is proposing to extend the parent-subsidy model implemented by the Howard Government. On Labor's website it is described as "Labor's affordable child-care plan (which) is a $1.5 billion investment in the future of Australian families and in Australia's economic future". It makes a good headline, but the expenditure is over four years. Even with Labor's promise to lift the rebate from 30 to 50 per cent, the public spending on early child care and education would be less than 0.5 per cent &emdash; one of the lowest commitments to this form of social expenditure among the advanced industrial countries in the OECD.

The Scandinavian countries spend between 1.7 and 2 per cent of GDP on early childhood education and care. To reach this level would require a three-to-four-fold increase in government spending on children up to age six. The Scandinavian countries spend between $12,000 to $15,000 a year for each child aged one to six years, but this is not a net burden on taxpayers. The much higher expenditure has to be set against the much higher workforce participation rates for young women with children compared with Australia and the higher proportion of Scandinavian women occupying high-productivity, full-time professional jobs.

In 2006 the OECD published a comprehensive survey of early childhood education and child care. The central insight in the report was that it saw early childhood services as a public good, which provides an unequalled opportunity for investment in human capital. It cites research that shows the social return from investment in child care and preschool is higher than an equivalent level of investment in primary and post-primary education.

According to the OECD report, "In early childhood positive (or negative) dispositions towards society and learning are absorbed and the basic life skills acquired … Additionally, parents are particularly protective of their children at this age and eager to support development and learning. In comparison, remedial education interventions targeting young school drop-outs or adults with poor basic skills are far more costly, and according to the research, of limited benefit."


Clearly, an extension of quality child-care facilities would generate a far bigger economic pay-off in terms of higher workforce retention rates than tax cuts.

The pity is that both sides of politics are reluctant to invest directly in social infrastructure unless part of the money invested sticks to the hands of commercial interests. In the states, public hospitals are now being funded as public-private partnerships &emdash; and government schools look likely to follow in Victoria &emdash; which means investors can get a 12 per cent return on their equity instead of 6 per cent if the same projects were funded by public borrowing. This diverts future recurrent payments nominally identified as part of the health and education vote to the banks and other financial engineers who dream up these schemes. It is money that, with conventional debt financing, could be better spent on more and better-paid teachers and nurses.

Child care is now big business in Australia &emdash; ABC Learning is the biggest child-care provider in the world, with a $3.1 billion market capitalisation. Its explosive growth has occurred despite surveys showing mothers prefer the not-for-profit model because of the inherent conflict between the interests of shareholders and the children.

The OECD study expressed a cautious preference for direct funding of child-care services rather than the model favoured by the major parties. According to the OECD, "the conclusion reached is that direct funding brings for the moment at least, more effective control, advantages of scale, more even national quality, more effective training for educators and a higher degree of equity in access and participation than parent subsidy models".

- reprinted from The Age