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Staffing shortages and subsidy schemes: the real childcare crisis
Freya Lucas
Dec 10, 2024
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With the Federal Government facing mounting scrutiny over its planned reforms for the early childhood sector, Patrick Bell, CEO of Finexia Financial Group has offered insights into what he terms “a complex web of competing proposals from the Productivity Commission” each of which comes with “significant trade offs.”
At the heart of the proposed solutions around how best to manage escalating costs, regional inequities and acute staffing issues are three key models: universal free childcare, expanded means-tested subsidies, and a flat fee model.Each of these models offers different paths to affordability and accessibility, but the government has signalled a preference for the flat fee option—a move drawing mixed reactions from stakeholders.
Flat fee: simplicity or inequity?
The Prime Minister has pitched universal childcare as a cornerstone of his government’s legacy. The proposed flat fee system, which would cap daily out-of-pocket costs for families at $10 or $20 regardless of income, is central to this vision. However, Finexia Financial Group, one of Australia’s largest non-bank childcare funders, argues that such a model disproportionately benefits wealthier households while saddling taxpayers with unsustainable costs.
The Productivity Commission’s data confirms that higher-income families would gain the most from a flat fee model. Families currently paying premium rates in metropolitan areas would see dramatic cost reductions, while low-income families, already paying minimal out-of-pocket fees under the existing subsidy system, would see little change.
A flat fee system would also strain public finances, costing $8.3 billion annually and creating just 7,300 full-time jobs—at a prohibitive $120,000 per position. In contrast, the means-tested subsidy model, which targets families earning under $80,000 annually, would add just $4.7 billion to government spending while focusing resources on those most in need.
“Childcare is about equity as much as it is about affordability,” Mr Bell said. “A flat fee erases the principle that public dollars should go to families who need the most help.”
The government, however, insists that the flat fee approach is a simpler, more predictable alternative for parents, especially amid growing frustrations over inflation eroding existing subsidies.
Early Childhood Education Minister Dr Anne Aly recently defended the government’s plan, citing data showing average hourly childcare costs briefly fell to $3.66 following the 2023 subsidy increase but have since risen 12.1 per cent due to inflation.
“We are committed to making early learning more affordable and accessible for all families,” Dr Aly said, “but we also recognise that the system must be sustainable and support long-term workforce needs.”
Eroding subsidies and limited workforce gains The erosion of subsidies is a recurring theme in the sector. Following the Albanese government’s $4.7 billion childcare subsidy boost in 2023, initial savings of 13 per cent were quickly offset by rising fees. This echoes patterns observed under the Morrison government, whose 2022 subsidy increase also failed to deliver sustained affordability.
Moreover, Finexia highlights the limited workforce participation gains from increased subsidies. Women’s workforce participation is already at historic highs, and evidence shows diminishing returns for subsidy-driven improvements.
“Boosting subsidies isn’t a magic bullet,” Mr Bell noted. “Most of the gains in female workforce participation have already been achieved, and the numbers show diminishing returns on these investments.”
The staffing crisis: childcare’s Achilles’ heel
Underlying the affordability debate is an even graver issue: a severe shortage of qualified ECEC professionals. Operators consistently cite workforce shortages as the single largest challenge facing the sector, with the impacts felt most acutely in regional and low-income areas.
The Productivity Commission’s report acknowledges staffing shortages in regional areas as a significant issue but offers very little in terms of direct solutions. While the government provides training subsidies for workers, these programs have minimal impact on improving the quality of care or attracting highly skilled educators.
Finexia’s own risk assessment model for funding new childcare projects reflects this reality. Workforce risks are now a key factor in determining the viability of new loans, as shortages threaten the ability of operators to maintain service quality and financial stability.
“Staffing is now the biggest risk to the childcare sector’s stability,” one operator in a regional area notes. “Without a targeted effort to attract and retain educators, no funding model will be sustainable.”
The government’s $3.6 billion initiative to raise childcare worker wages by 15 per cent over two years was a well intentioned first step but has been marred by implementation challenges.
Finexia points out that the in-arrears cost recovery model creates cash flow challenges that discourage smaller operators from making long-term investments in staff. Furthermore, the two-year timeline provides no certainty for the sector, and the scheme’s opt-in nature means it is not universal.
“A universal wage increase implemented via the tax system would eliminate these inefficiencies and ensure every childcare worker receives fair pay without burdening operators or opening the door to manipulation,” Mr Bell said.
Raising care quality with bottom-up solutions
Finexia has called for a fundamental shift from top down subsidies to direct, targeted support for ECEC educators. The group specialises in assisting experienced operators to open new greenfield childcare centres, making it uniquely positioned to identify the systemic issues driving instability in the sector.
“Providing targeted tax incentives, wage boosts, and other inducements directly to educators—especially those in regional areas or serving disadvantaged children—is the most efficient way to prioritise quality,” Mr Bell said.
Better-paid workers in service industries like ECEC have a direct impact on the quality of care provided, attracting more skilled and motivated educators into the sector. Under Finexia’s proposed model, the increase in government spending would be less likely to drive inflation or higher fees for families because the support would go directly to workers, bypassing the operators and the link to fees for parents entirely.
This bottom-up approach, Finexia argues, avoids the inflationary pressures often seen when government funding floods an industry and ensures the workforce remains adequately supported. Directly tying support to wages via the tax system would eliminate administrative burdens and cash flow strains, making the system more resilient and equitable.
“Government support must be tied to outcomes, not inefficiencies,” Mr Bell added. “We need to focus on strengthening the workforce and ensuring that every dollar spent delivers measurable benefits for children and families.”
Regional and income disparities remain unaddressed
None of the current proposals adequately address two major systemic issues: regional disparities in service availability and the higher costs faced by low-income families, Mr Bell argues.
Without targeted solutions for these gaps, Finexia warns that reforms will fail to deliver equitable access to quality care.
Graphs included in the Productivity Commission’s report illustrate stark differences in access and affordability between metropolitan and regional areas. Families in regional zones often face higher fees and limited availability, exacerbating the challenge of balancing work and family commitments.
Balancing reform with sustainability As the government finalises its policy direction, it must balance the need for immediate affordability with the long-term sustainability of the sector. Finexia draws parallels with the risks of overreach seen in programs like the NDIS, where unlimited funding models have strained public resources and created inefficiencies.
A sustainable childcare system will require not just funding but also strategic investment in the workforce, targeted support for underserved communities, and measures to prevent inflationary pressures. Only by addressing these foundational issues can Australia build a childcare system that is affordable, equitable, and resilient.
Finexia Helps Childcare Operators Secure the Finance They Need to Grow
Finexia offers tailored financing solutions to help childcare operators grow with confidence. From covering fit-outs and licensing costs to supporting expansion or new openings, our flexible loans are designed with your needs in mind.To learn more, call Finexia at 1300 886 103 or visit www.finexia.com.au/childcare-centre-loans
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