The economics of free childcare in Australia

The economics of free childcare in Australia

What are the benefits of starting the formal education of a child younger than age 6? Are they so worthwhile that Australia should introduce opt-out childcare and a state-run childcare system? A new system that parallels what we currently have with primary and secondary schooling – either learn at home or learn in an independent or state-run classroom. These are concepts that have been debated time and again, always resulting in similar deadlocks: it would cost too much; it is a radical idea; the children would not learn anything useful. In all, it has been largely pushed aside as a waste of effort and has lacked the political capital to support it.

For this piece, I will breakdown what Australia’s recent experience has been with childcare and examine whether all Australian children should go to a pre-school from 3 years old , and then continue with the current system at age 6. That is, your state government would provide free pre-primary, primary, and secondary education, and families would have the option to send their children to catholic, independent, or at-home schooling.

The arguments in favour of early childhood education seem simple and attractive enough:

  1. More school means more child-minding, so parents have more freedom to work and study
  2. A more educated and up-skilled population will lead to better productivity and economic outcomes, and
  3. The critical learning period for children warrants a well-rounded education (which feeds through to the later years of learning).

I will leave point 3 to the psychologists and linguists, and deal with the 1 and 2, which are the crux of the debate for economists.

Picture: Stuart Mcevoy

First, and maybe more relevant nowadays: pre-school allows stay-at-home parents (mothers in particular) to (re)join the workforce and lift participation rates. [i] In an age where governments are seeking to tackle the gender pay gap and give women more opportunities to work, child-care presents a lifeline to those who might otherwise be held back, even from part-time work. In this ‘pink recession’—or ‘she-cession’ as the Americans call it—unemployment rates for women have been higher in the US, UK, and Australia, for example, and mothers are now spending five hours a day on home schooling during the pandemic (dads seem to only muster 2). [ii] McKinsey also noted that women’s jobs are 80% more susceptible [iii] to the current economic crisis than male jobs, and The Australia Institute found that government stimulus will overwhelmingly benefit men more. [iv] It is extraordinary. This disproportionate effect upon women is different to other recent crises like 2008 or the Great Depression. [ii]

So, what of the possible higher workforce participation? Let us look at our own recent experience with subsidisation. PwC found that the 2015 Childcare Subsidy the Abbott government introduced lowered overall childcare costs by 24% [v], and would add 29,000 full-time workers to the workforce by 2050 at its current rate.  This came during the same period in which the Productivity Commission finished its report on Childcare and Early Childhood Learning, saying that “benefits from participation in preschool for children’s development … are largely undisputed”, however, “additional workforce participation… will be small”. [vi]

If anything is to be taken from this pandemic, it is that work can be enabled in any setting, so long as the worker has a device and an internet connection. Therefore, by providing better ‘child-minding’   through continuing the 2015 ‘Families Package’ that encourages nannies, carers, and other pre-schooling, we might be able to meet a formal pre-primary system halfway. Even with the Abbott subsidies, PwC wrote that the plan would be $4.3b in the black, and add $7.6b to real GDP—that is quite an obvious reading of the 2nd benefit (positive economic outcomes). [v]

Source: Lukas Coch/AAP

Even more recent was the ‘free childcare during COVID’ scheme that rescued centres from the brink of collapsing demand. However, this was only meant to act as a way to save centres, not bankroll them for life. The scheme only lasted a few months and cost $1.6b [vii] to pay for half of the centre’s previous revenue (interestingly, one of the main causes of the record June quarter deflation). [viii] Australia needs a more sustainable option for its children to provide stability and certainty for future parents.

If there was ever a good time to enact a long-term, up-skilling agenda, it is the one we are in at the moment. The ACTU seems to agree, and proposed a plan with a $7 billion price tag. [ix] Elsewhere, France and Hungary are the world’s 2 proud pariahs of 3-year-old school starting age, but whether or not Australia has the appetite for its own ‘École maternelle’ remains to be seen. Though the past few months of no-cost childcare gave us a glimpse of a possible future, it all comes down to vision and loosening the purse strings.

[i][email protected]/mf/6239.0