New Australian study demonstrates risk of market-driven fees and for-profit expansion in the early childhood sector

A recent report released by Mandala and The Front Project, Paving the path: Addressing market imbalances to achieve quality and affordable childcare in more places, highlights the significant risks associated with the rapid growth of for-profit child care in Australia. The findings reveal that, while the supply of child care centres increased by 69% over the past decade, this expansion has come at a cost – affecting access, affordability and quality of childcare, particularly in vulnerable communities.

Australia’s child care system is demand-led, meaning that the market dictates where services are created and how much is charged to parents. Providers set fees and parents receive a Child Care Subsidy (CCS) based on their income. The CCS has an hourly cap, meaning that the government subsidy covers a percentage of parent fees, but only up to a certain amount per hour, after which the parent pays the full out-of-pocket cost. Although this fee mechanism is designed to curb fee increases, the cap has failed to keep costs down, especially in major urban centres.

Accessibility is poor in low income and remote areas

The report finds the more advantaged metropolitan areas and urban centres are more likely to have the greatest access to centre-based services. Most areas without access to services are in rural communities. In areas with low socioeconomic status there are 41% fewer child care centre places per 100 children, compared with high socioeconomic status areas. 

Notably, only 15% of services in remote and very remote areas are run by for-profit providers, while not-for-profit centres operate over two-thirds of centres. This trend in remote areas – where the cost of delivery is higher – is not representative of the overall growth of for-profit services in the last decade, noted below.

For-profit services and spaces are rising faster than not-for-profit provision

New services are disproportionately run by for-profit spaces, with 78% of new spaces since 2013 being run by for-profit operators. As a result, the share of for-profit child care services increased from 60% to 70% between 2013 and 2024, while the share of not-for-profit providers decreased from 32% in 2013 to 23% in 2024. 

Not-for-profit services are higher quality and more affordable

In addition to lack of access, the trend in for-profit provision is concerning because they also are less likely to provide high quality childcare: 28% of not-for-profit providers are rated above the National Quality Standard, while only 15% of for-profits are rated above the National Quality Standard. Additionally, 95% of staff employed by large not-for-profit providers are paid above the Award Wage (minimum wage for early childhood educators), compared with 64% of staff in large for-profit providers. And, in small and medium providers, 75% of not-for-profit providers and only 46% of for-profit providers pay above the Award Wage.

Furthermore, not-for-profit centres are more affordable. Among large not-for-profit providers, only 15% charge a fee about the hourly rate cap (introduced earlier), while 43% of large for-profit providers charge fees about the hourly rate cap. 

Valuable lessons for Canada

The findings from this report offer timely insight into the risks of replicating Australia’s challenges if Canada reverses its $10aDay program. 

To achieve equitable and high quality ELCC delivery, public funding must be supply-driven by planning and funding the supply of not-for-profit expansion, and higher wages for workers.  

The report asserts that government policy “helping NFPs [not-for-profit providers] in larger markets enables them to cross-subsidise services in thinner markets. This ensures NFPs are sustainable across different market types, improving care quality and affordability nationwide.” 

This report serves as a cautionary tale for Canada, underscoring the importance of public planning, funding mechanisms and accountability to prevent inequalities in access, and to ensure affordable and high quality child care.