Structural change is reshaping early learning: Entitlement, capacity and the push to scale

Australia’s early childhood education and care (ECEC) system is moving through a period of structural change shaped by a shift towards guaranteed access, tighter regulatory expectations and growing workforce constraints. These shifts bring opportunity, but also elevate two critical and immediate risks:

• Guaranteed access outpacing capacity: The risk is that access expands faster than workforce and operational capacity, especially in rent-heavy or highly leveraged services.
• Wage support uncertainty creating binary outcomes: The impending expiry of the Early Childhood Education and Care Worker Retention Payment and its associated 15 per cent wage uplift is one of the most material short-term risks. If the program is not extended or replaced post 2026, many educators could face an effective pay reduction of up to 15 per cent, depending on provider uptake and capacity. The result is a binary choice for operators: either reduce wages, risking workforce stability, or raise daily fees to sustain current earnings. A third option, accepting reduced margins, does exist, but is commercially unlikely in a for-profit sector where demand elasticity is low and cost structures are increasingly fixed. Nonetheless, it remains part of the policy equation and underscores the structural tension between funding design and sustainable delivery.

Specialist provider of growth and establishment capital to early learning operators Remara, partners with operators to support scalable growth and reduce liquidity pressure during ramp-up these pressures are fundamentally altering the risk and return profile of the sector. “We’re seeing structural tension between policy ambition and operational delivery,” Remara Head of Education and Early Learning Finance Patrick Bell said. “Access is growing, but the workforce platform and funding certainty are not keeping pace. That creates volatility, especially for sub-scale providers or those expanding into new supply.”

These risks are localised, not system-wide, but they are material. They affect operator decisions, service viability, and the sector’s ability to meet policy ambition with operational reality.

The sector is moving toward a model where access is treated as an entitlement rather than a conditional subsidy. While this direction can stabilise demand, it also increases public expectations around affordability, access and quality.

Policy initiatives like the “3 Day Guarantee” reflect this shift. The model aligns with mixed-market systems, where government funding supports citizen entitlements while delivery remains largely private. However, the expectation of guaranteed access can alter provider dynamics: it introduces stronger price discipline and greater accountability.

For operators, this is not simply a story of more demand. Guaranteed access often comes with higher scrutiny, tighter margins, and greater expectations around outcomes, safeguarding and transparency.

Tightening regulation continues to lift compliance costs and operational complexity. The National Quality Framework (NQF), including the National Quality Standard and the Education and Care Services National Law and Regulations, remains the central assessment and support mechanism.

The 15 per cent wage uplift remains time-limited, creating cost structure uncertainty beyond 2026. With wages largely fixed, uncertainty around post-2026 support leaves operators facing a binary choice: absorb a material wage reset or find ways to reprice services. That uncertainty is already influencing transaction activity and capital decisions across the mid-market.

The New Zealand experience is instructive. There, policy introduced a wage uplift alongside incentives for new supply, without long-term funding continuity. When wage support was reduced, the sector experienced margin compression, workforce instability and operational disruption, despite expanded capacity. A similar dynamic could unfold in Australia if entitlement settings continue to advance without corresponding long-term wage funding.

Meanwhile, construction costs, planning delays and site scarcity are reshaping the feasibility and risk profile of new service development.

In some jurisdictions, state-funded preschool and kindergarten programs are influencing enrolment patterns across age groups, altering utilisation for centre-based providers.

These pressures land unevenly, depending on location, maturity, service mix and access to workforce.

Occupancy softening is emerging in parts of the market, even as the number of licensed places grows. Because ECEC economics are highly sensitive to utilisation, even small dips can compromise viability, especially where rent, debt or fixed staffing costs are high.

This pressure is compounded in regions where free or low-cost kindergarten programs draw demand away from long day care services for part of the week. Maintaining sustainable utilisation in these contexts may require shifts in session design, staffing and age-group mix.

Staffing ratios and qualification requirements do not flex with enrolments. As a result, the system’s true capacity is not just how many places are licensed, but whether those places can be consistently and safely staffed.

New supply can enter the market faster than the workforce pipeline can support. This gap increases rostering pressure, complicates recruitment and retention, and can exacerbate quality variation, even within the same local area.

As compliance and workforce obligations become semi-fixed, scale increasingly determines resilience. Smaller and mid-sized operators often feel these pressures first. The compliance, governance and workforce obligations embedded in the system now behave like semi-fixed overheads. Larger groups can absorb these through centralised systems and specialist teams. Smaller providers often face similar expectations without the same cost base flexibility.

As portfolios grow, central functions such as HR, payroll, compliance, quality etc become essential. But these costs arrive in steps, while revenue grows incrementally. The result can be compressed margins even where individual services perform well.

Mid-sized operators often face the greatest challenge. Some pursue further growth to cross the scale threshold; others pause or exit, not due to lack of demand, but due to cost base shifts and evolving risk tolerance.

Traditional lenders often prefer stabilised centres with proven cash flows. This can limit growth for operators developing new sites or trading up underperforming centres.

Because new centres take time to reach sustainable occupancy, they may remain cash-negative for extended periods. This creates drag across the broader portfolio, limiting the number of concurrent expansions even for capable operators.

Remara’s strategy aims to ease this constraint by separating short-term volatility from long-term asset potential. Their "incubate, then internalise" model offers:

• External incubation: funding and stabilising new or repositioned centres outside the core balance sheet
• Internalisation post-stabilisation: refinancing with lower-cost debt once performance is proven

This model helps operators scale through structural thresholds that might otherwise stall sub-scale groups.

The sector is unlikely to experience uniform outcomes. Instead, expect:

• Access to broaden and demand to stabilise at a baseline level
• Quality, governance and compliance expectations to strengthen under the NQF
• Workforce capacity to remain the key constraint on utilisation
• Compliance costs to continue acting as semi-fixed overheads
• Scale to increasingly serve as a resilience mechanism, not just a growth strategy

Localised oversupply, occupancy softening and staffing gaps will continue to emerge in pockets. These do not signal system failure, but they do highlight the need for careful navigation, capital support and strategic investment in the workforce.

Need advice or support navigating growth, funding or the trade-up phase? Remara works with early learning operators to reduce liquidity pressure during centre ramp-up and support scalable expansion. Contact Remara for a confidential discussion.