New report challenges Productivity Commission assumptions around fixed price ECEC impact

A new report has challenged assumptions used by the Productivity Commission (PC) in its report into the early childhood education and care (ECEC) sector about the impact that a shift to a fixed price model would have on demand and workforce participation. 

The Time to stop throwing good money after bad report, released by Impact Economics and Policy, argues that the PCs assessment of  increases in early learning demand and mothers workforce participation have “materially underestimated” the true impact that a shift to a $10 a day pricing model would have. 

“The move to a universal early childhood education system would represent such a systematic change from the current system, and any model based on the status quo would struggle to factor in the full impact of changes in social norms and behaviours,” Dr Angela Jackson, lead economist notes. 

“However, there are a number of specific issues and limitations with the Productivity Commission’s approach that have likely underestimated the potential benefits of reform.”

The report calls out the following five limitations:

Limitation One: Estimates, produced by the PC, rely on a single data snapshot rather than observing people over time – making it harder to say accurately what is actually driving decisions to work and what the impact of a change on the price of child care would be.

Limitation Two: The impact of local access to ECEC is not included despite its established importance in a mother’s decision to work. 

Limitation Three: Unlike the modelling in the 2014 PC report, the enjoyment and value mothers place on looking after their own children is not factored into the results. 

Limitation Four: Including fixed costs from working in the model, but not modelling any reduction due to the abolition of the Activity Test which would make it easier for women with children outside the labour force to search for and secure work.

Limitation Five: In comparing the different models, the PC underestimates the potential benefits of the flat $10 a day fee model. A fixed price model would not result in any subsequent increase in costs faced by families but the other options would. 

“Taken together, the limitations in the PC model have under-estimated the increase in labour force participation from a $10 a day funding model and the net economic benefits of reform,” Dr Jackson concludes. 

The report release comes at a notable moment in time as ECEC sector participants await new policy pledges that are likely to be forthcoming from all major parties ahead of an upcoming General Election. 

Impact Economics and Policy’s latest report concludes that Australian families, their children and the ECEC sector large would be better served by a shift towards a fixed price model via which providers of early learning services would be re-imbursed directly from Government through a supply side subsidy framework and a centrally determined cost plus model.

To read the report please see here.