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National Affairs

Reassembling the childcare business

19 November 2008

Australia has become a case study in how not to run childcare services, writes Deborah Brennan. How did this happen and what should we do about it?



GOOD POLITICS and good public policy can be difficult to align. Dealing with the fallout from the collapse of ABC Learning presents a case in point. The parents of 120,000 children enrolled in ABC centres and the 16,000 employees are asking important questions. Will the centres be open in 2009? Will staff receive their holiday pay and other entitlements? Should parents and staff seek alternative places and jobs? These questions need answers. But the resolution of immediate political issues must not be allowed to overwhelm the longer term objectives of good public policy. Clear-headed, strategic thinking is needed to reform and strengthen the early childhood sector. Before the collapse of ABC, important initiatives had begun in relation to standards and accreditation, workforce reform and Commonwealth–State relations. These initiatives must not derailed; rather, they should be expanded by adding in the possibility of a greater role for the non-profit sector.

The Rudd government’s approach to early childhood education and care is different in fundamental ways from that of previous governments. Under Howard, childcare was treated as little more than a commodity to be bought and sold – and, indeed, traded on the stock exchange. The Commonwealth gave no serious attention to the lax regulations administered by state governments and took a unduly complacent approach to its own weak accreditation system – perversely citing the high levels of “success” in gaining accreditation as evidence that quality care was being provided in Australian childcare centres. Influenced by recent research into early childhood development, and also by British New Labour’s approach to the early years, the Rudd government sees early childhood education and care as important to its long-term social and economic strategies – including productivity, labour force participation, skills formation, social inclusion and the “education revolution.” Early childhood services are also seen as important elements of “closing the gap” between Indigenous and non-Indigenous children.

Labor’s agenda for early education and care includes universal access to preschool education in the year before school and the development of parent and child centres which will act as service hubs, bringing together health, education and childcare and providing targeted services for particular groups. This ambitious agenda was always going to be difficult to deliver, given the scale of corporate provision in this country (unparalleled even in the United States). With the collapse of ABC there is an extraordinary opportunity to reconsider the fundamentals of Australia’s approach and to reinstate a national program focused on the needs of children and families. Such a program will require sound policy underpinnings, quality standards (including workforce development), planning processes and responsible stewardship of public resources.

How did Australia, once regarded by international observers as having an enviable childcare system, become a case study for other countries in what not to do? In the wake of ABC’s collapse, Julia Gillard blamed the previous government for having “let the market rip,” for having no workforce plans, no quality plans and no plans for market development. There is some truth in this statement, but it is far from the whole story. It was the Hawke government, in 1991, that introduced market forces into early childhood and promised that the market would lead to greater choice and lower fees. Labor extended childcare assistance (the forerunner to the Child Care Benefit) to the users of for-profit care, marginalised the community sector and encouraged provision by private businesses. It decreed that private entrepreneurs, not governments, should determine the location of services, even though huge public subsidies were involved. Labor introduced accreditation to allay the anxieties of those concerned that profits were incompatible with high quality care of children.

But under Labor’s system, there was no cap on the number of long day care centres that private operators could set up, no guidance about needs or planning, no cap on public subsidies. Instead, “market signals” were to guide these processes. The Hawke government retained small operational subsidies for community-based care, in recognition of the sector’s significant role in caring for babies, working with non-English speaking families and caring for children with disabilities, but this was its only concession to Australia’s tradition of non-profit care.

Labor’s responsibility for the “turn to the market” in early childhood is a relatively familiar story to those who follow Australian childcare politics. What is not so well known is that one of the major reasons that the Hawke government pursued the path of private, for-profit care was to contain the small advances that had been made towards increasing the qualifications of workers in childcare and improving their professional status. Labor’s finance minister Peter Walsh and his supporters were scathing about the employment of trained teachers in early childhood. They argued that efforts to extend the employment of teachers were intended “to make even softer the nests of bachelors of early childhood education and their middle-class well-feathered friends” and they accused childcare workers of crippling the system with “creeping credentialism.” The private sector’s resistance to the employment of well-trained staff was a major reason for Labor’s support for the sector. The lack of attention to workforce planning and qualified staff referred to by Julia Gillard was not an accidental by-product of the shift to the market; it was a design feature introduced by a Labor government.

The Howard government intensified Labor’s market focus. It ended operational subsidies to community-based care and abandoned plans to expand the non-profit sector. Many community-based childcare services closed and the pressure on sponsoring bodies, particularly local governments, intensified, leading some of them to vacate the field. The most significant policy shift in terms of laying the ground for corporate providers occurred in 2000 when, as part of a suite of family policy measures introduced in connection with the GST, the Howard government introduced the Child Care Benefit. The benefit is effectively a voucher that parents can use at any “approved” childcare service (mainly long day care and family day care). The amount depends on family income, the hours of care used and the type of care. The benefit positions the parent as a consumer who chooses from a range of “products.” Since many types of childcare are in short supply, however, and since starting a child in care is a time-consuming and sometimes emotionally fraught activity, there is little real prospect of parents using their power as consumers to “discipline” the market. Most parents elect to have the benefit paid directly to their provider, entitling them to reduced fees. Direct payment also provides a cash stream to providers and minimises their exposure to unpaid fees, especially on the part of low-income families who gain the most from the Child Care Benefit.

ABC Learning listed on the stock exchange shortly after the introduction of the benefit and Eddy Groves has explicitly linked the growth of his company to the possibilities opened up by this new benefit. ABC grew rapidly, snapping up small independent providers and community-based centres around the country, particularly in Victoria and Queensland, and later expanding internationally. As well as owning more than 1200 centres in Australia and New Zealand at its peak, ABC had substantial holdings in the United States and Britain. It also owned a training college for early childhood staff and had substantial interests in other businesses, including a toy and equipment provider that had an exclusive contract to supply ABC-linked centres around the world.

The Commonwealth does not publish data that would enable us to see the scale of ABC’s presence in individual states. Figures published by the Productivity Commission show that 73 per cent of long day care places across Australia are owned by private, for-profit operators. There are significant variations between the states: 83 per cent of long day care places in Queensland are run privately for profit compared with 29 per cent in Tasmania. But we do not know how many of the private places are owned by independent businesses and how many are run by corporate providers. ABC’s annual reports provided inconsistent data from year to year, so it has not been possible to get an accurate picture from that source. We do know, however, that as ABC increased its share of the market, the “choices” in many communities diminished. At the same time, the costs of care grew far more quickly than general consumer prices — fuelled by generous Commonwealth subsidies.

The Child Care Tax Rebate has also been integral to the rapid expansion of the Australian childcare market. This measure, introduced in a slightly different form by Labor in 1994, was originally intended as an alternative to tax deductions for childcare expenses. It was seen as fairer than both tax deductions (which provide most to those with the highest marginal tax rates) and tax rebates (which deliver nothing to those outside the tax system). Under Howard, the value of the rebate grew to cover 30 per cent of “out of pocket” expenses – the difference between what parents paid and the amount they received back from the Child Care Benefit. Labor has increased the value of the rebate to 50 per cent of out of pocket expenses up to a ceiling of $15,000. Parents who use “approved” care for work-related purposes are now entitled to a taxpayer subsidy for half their childcare costs up to this limit (which applies per child, not per family). The rebate was an open invitation to providers to increase their fees, and most did. ABC attracted criticism for the sharp spike in fees that coincided with the implementation of Labor’s new policy, but no one should have been surprised.


The demise of ABC Learning could result in the Australian childcare landscape being fundamentally reconfigured. Deputy Prime Minister Gillard has encouraged private providers and not for-profit organisations to register their interest in buying or managing ABC centres. The inclusion of not-for-profit organisations in the expression of interest process suggests that the government is considering an enhanced role for community-based providers, even if these providers do not have the capital to purchase ABC centres. Such a scenario suggests the possibility of re-instating a measure of diversity into a sector dominated by private interests. A number of other strategic considerations need to be addressed.

For a start, the role of markets in this sector should be acknowledged. Private providers will continue to play a major role in providing services – with almost three-quarters of all long day care centres now in private hands, there is no going back to the 1970s. But the Commonwealth government, in partnership with providers, unions, educators and other stakeholders, should resume responsibility for the planned provision of services that meet community needs. In other words, it should reinstate something like the Children’s Services Program. The current system, which places all power in the hands of entrepreneurs, while sending the bill back to taxpayers, has to end.

ABC Learning’s demise also presents a great opportunity to think more sensibly and creatively about the division of responsibility between the Commonwealth and the states. In most parts of Australia, services for children below school age are split into “education” (state-funded) and “care” (Commonwealth-funded). “Educational” services such as kindergartens and pre-schools usually employ degree-qualified teachers, but their hours of operation do not suit most working parents and they do not cater for babies and toddlers. Running in parallel, we have a system of childcare services intended to meet the needs of working parents. These generally do not employ teachers, and their working conditions are more onerous than those of preschools. While staff in both systems do a wonderful job, this is an old-fashioned system that does not reflect contemporary thinking about children’s development. It is a system that cannot meet the Rudd government’s objectives for integrated education and care. These days we know that high quality care and education are inseparable. And the division into separate service types certainly does not reflect the reality of busy parents’ lives.

Finally, there is a great opportunity to bring the skills and talents of the non-profit sector back into childcare policymaking. The headlong rush to the market and to private profits that has characterised this sector since the early 1990s has marginalised community-based childcare. This short-sighted approach needs to end. The challenge for the government will be to manage the politics (and economics) of ABC’s demise, without losing sight of the medium and long-term public policy objectives to which it is committed. •

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Climate change minister Penny Wong launching the government’s carbon reduction green paper last July. Mark Graham/AAP Image

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