The Productivity Commission’s final report has been submitted to the Federal Government. The Government does not have to release the report until March, and the Government’s policy responses will not be seen until the run-up to the next Budget in May.

The report, and the decisions taken by Government next year, will have far-reaching and long-term implications for the children’s services sector.

Many of the Commission’s recommendations are unlikely to be taken up by Government, but we won’t know which until next year. Two broad reforms seem like they are done deals however – subsidising nannies, and a new means-tested subsidy to replace the Child Care Benefit (CCB) and Child Care Rebate (CCR).

I’ve written about subsidised nannies before, so I thought it was time to tackle the thorny issue of childcare subsidies and means-testing.

A huge number of formal submissions and comments to the Productivity Commission earlier this year clarified what anyone who had any experience with Australia’s childcare sector already knew: the current dual-subsidy CCB/CCR system is a nightmare of Byzantine bureaucracy that confuses and frustrates anyone who comes into contact with it.

International experience demonstrates a wide variety of funding models for childcare that range from user-pays all the way to completely subsidised by Government. The Australian system is so complex you have to wander if it was deliberately designed that way.

Successive Governments have failed to address this, despite a few very good models proposed by independent organisations (such as this one by PricewaterhouseCoopers; and this by UNSW’s Social Policy Research Centre).

In its Draft Report, the Productivity Commission proposed the replacement of the CCB and CCR with a single, clearer subsidy system. At this basic level, no-one can argue that this is not sensible policy.

Where the arguments begin is with the notion of means-testing. Essentially this means that those on higher incomes receive less of the subsidy so that those with lower incomes receive more, and pay far less to access a childcare service (I am no economist, so please forgive the rather huge generalisation!).

The Commission’s proposed model would see 90% of a the fees for a family earning under $60,000 a year covered – while families earning over $300,000 would get just 30% back, with a sliding scale in between those two points.

Since the release of the draft report, there has been a fairly large push back against the idea of means-testing any single childcare subsidy. The usual catchphrase of “class warfare” has been thrown around, and various reports have been made on who would be worse off and by how much.

Certainly, the Commission’s proposed model is not perfect. It includes the notion of a “deemed cost” per hour of providing childcare in Australia. Trouble is, ask 10 different people what the deemed cost of providing an hour’s worth of childcare in Australia costs and you’ll get about 17 different answers.

The subsidy does not also take into account the radically different fees that people pay in different parts of Australia. The impact of the means-test for those paying for childcare in the centre of Sydney will be significant for many on families what would nominally be a “high-income” Any new subsidy that the Government introduced next year would have to address these issues in some way.

But the overall point is clear – given the current Government and their stated budgetary aims, a means-test is the fairest and most equitable way to ensure access to quality early learning for the children who would most benefit.

I am firmly of the view that access to childcare should be seen as a right for children, just the same as a primary and secondary education. It should be free to access and completely funded by the Government. Until that far-off day however, the proposed means-test is an option that will allow the children of low-income families to more easily access a childcare service.

We know that quality early learning is of the greatest benefit to children from disadvantaged or vulnerable backgrounds. We also know that a Coalition Government is unlikely to be proposing wide-ranging reforms that open up access to children from those backgrounds.

Early learning advocates should be supportive of the means-test, at least in principle. Australia is never going to be run using the Scandinavian model, where public services are highly subsidised through high levels of taxation. We are always going to be attempting to balance a desire for low taxation with high expectations for our public services.

I will continue to advocate for fully-subsidised universal access to childcare, particularly for those children who most need access to it. But I’m also a realist. That vision is decades away if it happens at all. A means-test in principle allows for those who can most afford it to support those who do not have the means to do so. If we cannot apply that principle to early learning, than we are truly stuck.

As I discussed above, the means-test model for childcare is not perfect. There will be (to use the frustratingly reductive political and media language) “winners and losers”. But as it stands, this is the best we can hope for given the current Government and its economic values – particularly given that the “winners” are likely to be those who most need a win in this area.

Now this post has focused on the issue of the means-test mainly as a win for low-income families, but it’s important to remember that the proposed new subsidy recommendation is alongside others that dramatically disadvantage those same families. Changes to the work-activity test could lock a huge number of children out the system, as will reductions in the JETCFA scheme. These changes should be strongly opposed by advocates.

The precise details of the means-tested subsidy also need to be clear and flexible so as to ensure that families paying high fees are not significantly disadvantaged.

Advocacy in this area should not be simply railing against the idea of a means-test. It should be focused on advocating for a system where a means-test of this kind is not necessary. It should be targeted on getting the Government to overturn its ridiculous commitment to keeping any policy changes within the current budget allocation.

Even Clive Palmer is now insisting that the Government shift budgeted funds from its expansive Paid Parental Leave scheme to the childcare sector!

Actually, the Paid Parental Leave debate provides an interesting parallel to childcare funding. Opponents have argued the PPL is inequitable because it provides the bulk of money to high-income families at the expense of low-income families. A means-test for childcare can ensure that the opposite happens.

Those who are opposing means-testing of any kind are holding out for a “magic” policy that will not be anywhere in evidence from this Government. It is sensible to support this measure in the short-term while continuing to advocate for the broader structural changes that are still needed.

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2 thoughts on “Means-test means a big test for early education advocates

  1. Liam I am very concerned about how this new proposed activity test will impact families who are already struggling to pay fees.

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