The Productivity Commission wants all Australian kids to have access to 3 days of early learning and care a week

A major new report is recommending bold changes to Australia’s early childhood sector. On Thursday night, the Productivity Commission released an interim report from its inquiry into early childhood education and care.

The report recommends every Australian child aged under five years gets access to three days a week of “high-quality” early learning and care. This entitlement could occur in a range of settings such as centre-based day care, family day care and preschool.

Currently there is no national guarantee, only a mix of entitlements to preschool for three- and four-year-olds, which varies depending on the state.

The report also recommends lower-income families receive a 100% child care subsidy for these three days and some work or study requirements are removed. This means families earning less than A$80,000 would get up to 30 hours of free childcare for children aged under five years.

The recommendations would result in a huge overhaul of the sector and require large increases in the supply of early education places and government funding.

Why do we have this report?

The inquiry was set up in February this year, following a Labor election promise to conduct a comprehensive review of the sector with the aim of paying 90% of fees for all families covered by the Child Care Subsidy.

The report is one of several federal government-commissioned inquiries into early education and care. The Australian Competition and Consumer Commission is currently looking at the early learning market and Australia’s children’s education and care regulator is looking at safety in the sector.

The Productivity Commission review has a broader scope than the other reviews and is examining issues such as cost, quality, workforce and access to early learning and care.

The sector already provides services to more than 1.4 million children every year and receives about A$13 billion in government funding.

Read more: Yes, childcare is costly, but nowhere near as costly as recent reports suggest – here's why

What are the key findings?

The interim report found Australia’s early learning and care system can be complex and costly, with patchy provision in some areas and not enough support for vulnerable groups.

To meet these challenges, the Productivity Commission recommends the federal government takes a more active role in ensuring up to 30 hours or three days a week of quality early childhood education and care is available to all children up to five years.

This would be the first time there is an explicit policy aim in Australia for an entitlement like this.

The report highlighted that those who are likely to benefit most from childcare services - those experiencing disadvantage – are also less likely to attend. To increase participation, the report recommends “relaxing” the activity test and increasing subsidies for low income families.

At the moment, many families need to undertake a certain amount of work, study or volunteering (“activity”) to be eligible for the child care subsidy.

As Associate Commissioner Deborah Brennan said:

A child’s entitlement to at least three days of [early childhood education and care] a week should not depend on how much their parents work.

Read more: More than 1 million Australians have no access to childcare in their area

Fees and subsidies

A key point is the amount of subsidy different families should receive.

Currently, families earning between $80,000 and $530,000 receive up to 90% in subsidies. The subsidy decreases by 1% for each $5,000 they earn above $80,000. The subsidy is paid directly to early childhood services and they pass it on to families as a fee reduction.

In response to Labor’s request to investigate a 90% universal subsidy, Productivity Commission modelling suggests this would would increase the child care subsidy payments by about $4.1 billion annually, or 33%. The biggest beneficiaries would be high-income families, because their subsidy would increase the most.

But the report goes a step further. For families on incomes up to $80,000 it recommends increasing the subsidy to 100% of the top subsidy rate for 30 hours a week.

This would make up to 30 hours of childcare effectively free for about 30% of all families with children aged under five. The estimated cost of this policy, along with the relaxing of the activity test, is an additional $2.5 billion a year, or 20%.

The commission believes these changes would remove barriers for lower-income families and encourage more children experiencing disadvantage to benefit from high-quality early learning.

As the report says:

Affordability should not be a barrier to […] access.

The commission will explore further recommendations in their final report for subsidy rates to families not covered by the 100% subsidy recommendation.

Expansive reform

The commission’s proposal would introduce an entitlement to early education and care like reforms already underway in other countries.

Quebec in Canada already has an entitlement to childcare at $10 a day regardless of income.

The United Kingdom is expanding childcare entitlements to 30 hours per week for many working families with children aged over nine months.

The commission highlights such an expansion “will require careful sequencing and implementation”.

To do this, it is proposing more government involvement in locations where families struggle to find appropriate education and care. At the moment, the government subsidises those who create the demand for early childhood services (parents and families). Meanwhile, supply is created by a mix of for-profit and not-for-profit providers opening centres to respond to this need.

This is different to our school system, where governments fund schools directly, there is greater government service provision and schools are not allowed to be for-profit.

What next?

When viewed this way, the Productivity Commission has not recommended a major overhaul of the current approach. Instead, it will explore the most effective government interventions where the current model is not working properly. This means there is still a lot of detail that needs to be worked out.

But the reform agenda is undeniably big and geared towards directing the most support to those children from disadvantaged backgrounds.

The commission will hold public hearings next year with a final report due to the government on June 30 2024.