New data a reminder that high childcare costs continue to bite in Australia - Grattan Institute

Tomorrow’s Consumer Price Index figures will put childcare costs back in the headlines. The ABS estimates the rise in childcare prices will add a sizeable 0.3 percentage points to the overall increase in the CPI in the December quarter.

The increase is mainly triggered by costs and attendance bouncing back from the lows during the COVID shutdowns, but it serves as a useful reminder that high childcare costs are hurting Australian families.

What do families pay for care?

Childcare spending varies a lot, depending on the amount of care a family uses, the number of children they have in care, the hourly or daily rate charged by the provider, and the amount of government subsidy the family qualifies for (this depends on family income, because the Child Care Subsidy is means-tested).

Long-day care centres – used by most families with children in formal care – charge about $105 on average for a 10-hour day.  About 14 per cent of families pay more than the hourly rate cap (which translates to about $110-to-$120 per day).

At the rate cap, the total cost of full-time care is more than $28,000 per year per child.

The government provides a subsidy to help defray these costs. The subsidy ranges from 85 per cent for households with incomes up to about $70,000, to 20 per cent for households earning about $350,000. Households with incomes of more than $353,680 receive no subsidy.

The government stresses that after the subsidy, 70 per cent of families have out-of-pocket costs of less than $5 per hour per child for centre-based care.

But don’t let the reasonable sounding per hour costs fool you (can you remember the last time a government sold its tax cuts in hourly terms?!). $5 an hour translates to about $50 a day, $250 a week, or $13,000 a year for each child in full-time care. This is more than the cost of sending the child to an exclusive primary school, and beyond the reach of many Australian families.

These high costs are a problem

Some members of Parliament say the cost of childcare doesn’t come up much in constituent feedback. This doesn’t mean the concern isn’t real; it probably reflects the fact that only a small proportion of the electorate is paying these costs at any given time. We also suspect that many working parents are too busy to stop for a chat with, or respond to a survey from, their local MP.

National surveys of parents with young children present a more accurate picture of the difficulties and consequences of high out-of-pocket childcare costs.

The 2017 HILDA (Household, Income and Labour Dynamics in Australia) survey found that 49 per cent of people with children under 5 had difficulties with the cost of childcare, up from about one-third in 2002.

And many other surveys highlight the impact of high costs on labour force participation, particularly for women:

  • In the 2017-18 ABS Survey of Income and Housing, about 30 per cent of mothers who have pre-teenage children and would prefer to work more nominated childcare cost as the main factor preventing them from doing so.
  • The 2019 ABS Participation, Job Search and Mobility survey found that the most common childcare-related reason for not being in the labour force was the cost of childcare (28 per cent).
  • A survey conducted by The Parenthood in June 2020 found that 66 per cent of parents reported the out-of-pocket costs of childcare before COVID were too expensive, and 76 per cent said the cost of childcare was too high for either them or their partner to work full time.

These results are no surprise: Grattan Institute’s analysis of the disincentives to work generated from the interaction of high childcare costs, tax, and welfare clawback shows that for many women with young children, working more than three days a week provides little or no financial benefit.

Making childcare more affordable is one of the single best things the Federal Government could do to boost workforce participation and help the COVID recovery. Chapter 5 of Grattan’s Cheaper Childcare report lays out a number of options to reduce the out-of-pocket costs of care. But the first step to finding a solution is admitting you have a problem.