Reforming Australia’s childcare system: Why removing profit could make it safer and more affordable

Australia’s childcare system is under renewed scrutiny, with calls growing for a fundamental overhaul that would strip profit out of early learning provision. Advocates argue that prioritising children’s wellbeing over shareholder returns could deliver a system that is both safer and more affordable.

The recent push comes as the federal government moves to strengthen safety standards, using the threat of funding cuts to hold providers accountable. While these reforms aim to clamp down on poor-quality services, experts say they do not go far enough to address the structural issues driving costs up and compromising quality.

Currently, 70 per cent of Australia’s childcare sector is operated by for-profit providers, and they account for 95 per cent of industry growth. With billions in government subsidies flowing into the sector, many large providers have become highly lucrative businesses, some valued at hundreds of millions of dollars, with executives commanding seven-figure salaries.

This model, critics say, creates conflicts between profit-making and child safety. Unlike schools, which are predominantly non-profit and government-funded, childcare services are increasingly treated as investment assets, with centres changing hands for millions, totaling almost $1 billion in sales in 2024.

“The only priority of childcare providers should be the children in their care,” argues Matt Grudnoff, senior economist at the Australia Institute.

“They should not be distracted by keeping their shareholders happy.”

Childcare differs from other markets because its primary consumers, young children, cannot assess or report on the quality of services. Parents also face information barriers, making it difficult to detect when providers cut corners to save costs.

While many for-profit centres provide excellent care, Grudnoff warns that the profit incentive attracts providers who may prioritise margins over quality.

This is particularly concerning given recent child safety incidents in some services, which have prompted regulatory changes and heightened public scrutiny.

Grudnoff and other advocates propose a long-term transition to non-profit and government-owned childcare, mirroring the model used in primary and secondary education.

“In almost every suburb there is a local government-owned primary school. The same should be true for childcare centres,” Grudnoff says.

He suggests co-locating childcare centres with schools where practical, allowing for shared resources and a seamless transition for children entering formal education.

This shift could also professionalise the workforce, offering better career pathways, stable employment, and conditions that reduce turnover and burnout issues currently plaguing the sector.

Transitioning away from a profit-driven system will not happen overnight. For-profit providers dominate the market, and removing subsidies from them abruptly would disrupt access for families.

Instead, advocates call for a gradual conversion of services to community-based, non-profit, or government-run models, supported by targeted funding and regulation.

The government’s current reforms focused on compliance and transparency are an important step but, as Grudnoff argues, they do not address the root cause of systemic failures.

The debate over profit in childcare is not new, but recent events and public concerns have reignited calls for change. Countries with strong public provision of early learning, such as the Nordic nations, consistently report better outcomes for children, educators, and families.

For Australia, adopting a similar approach could mean:

• Improved safety through stronger oversight and reduced financial incentives to cut costs.
• Lower costs for families, as subsidies would directly fund service delivery rather than profits.
• Better outcomes for children, driven by a focus on quality rather than margins.

As the government prepares to roll out new safety reforms, the broader question remains: should childcare be treated as a business or as a public service?

Grudnoff concludes that the answer is clear:

“Our youngest children deserve the best possible start in life, and that is not going to happen when providers are focused on making a profit.”

The coming years may determine whether Australia continues to rely on a market-driven model or begins to build a childcare system designed first and foremost for children, families, and educators, not shareholders.

This article is based on reporting from the NewDaily.