High childcare costs pose challenge for Australian business

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Australia’s fertility rate hit an all-time low last month — a datum demographers attributed to younger citizens’ worries about climate change and the cost of home ownership.

Another factor, however, may be the high cost of childcare, which is widely seen as a significant deterrent for young couples deciding whether or not to have children.

Australia’s consumer watchdog, the ACCC, has argued that the country has some of the most expensive day care in the OECD, with fees rising at twice the rate of comparable countries between 2018 and 2022.

OECD data for 2020 and 2021 showed that Australians with two children under the age of three in full-time day care spent about 60 per cent of their average gross earnings on childcare, compared with an OECD average of 26 per cent, and only 1 per cent in Germany. Switzerland was the only country where childcare costs as a proportion of income were higher.

This has had a significant impact on Australian companies, which continue to lose female workers to parenthood because childcare is so expensive. Many businesses are now investing in facilities or policies that they hope will boost retention.

The untapped wealth from not enabling more women to do higher-value jobs has been compared to leaving a giant ore deposit in the ground

Politicians are worried, too: the government of Anthony Albanese made childcare one of its priorities when it was elected in 2022, and the issue of female participation in the workforce took centre stage at its jobs and skills summit that year. One speaker compared the untapped wealth from not enabling more women to do higher-value jobs to leaving a giant ore deposit in the ground.

Yet the problem has not gone away. If anything, says Georgie Dent, chief executive of childcare advocacy group The Parenthood, it has worsened. Australia’s latest inflation data shows that day care costs rose 12 per cent in the year to September, despite the government increasing childcare subsidies last year by A$5bn ($3.3bn). “That is the madness of pouring more money into a system that is not working,” Dent says.

In part, the sharp rise in prices reflects higher labour costs and inflation in Australia as a whole. Another factor, experts say, is that the businesses providing most of the country’s childcare have tended to invest in wealthier inner urban areas, where parents can afford to cover the “out of pocket” costs above the subsidy. This has created “childcare deserts” in many areas, leading to an imbalance of supply and demand that drives up costs for operators and parents.

For some companies, the solution is to provide the childcare themselves. Mineral Resources, for example, the Perth-based miner, is building a day care centre next to its headquarters that will be able to host more than 100 children at a cost of A$20 a day, compared with the A$160 that some parents pay.

However, similar on-site centres, run by companies including bank NAB and biotech CSL, have closed in recent years. Some in the childcare industry question whether businesses are willing to foot the cost of running such services in the long term, and whether parents really want to take them up.

Ash Sachdev, chief executive of Care For Kids, a comparison website for childcare services, compares the appeal of company day care centres to that of on-site gyms, which may be less of a draw than some businesses assume.

“If you’re looking for convenience, then that’s fantastic, but can an on-site crèche provide a better learning experience than a dedicated centre?” he asks. “The workplace may feel a lot more family friendly, but it may not be the best option for children in the long term.”

Many low-income families have found that the trade-off between the cost of childcare and the income generated by working extra hours is still unacceptable

Other companies, including insurer QBE and health fund HCF, have moved to increase parental benefits, including paid leave for both fathers and mothers, to attract workers and to encourage women to return to work. Dent welcomes such moves, noting that paternal benefits help ease pressure on women to be traditional stay-at-home mothers.

But the wider issue remains unresolved as Albanese’s government prepares for next year’s federal election. Erin Clarke, a researcher at economics research group the e61 Institute, says attempts to reform childcare policies have so far failed to increase women’s participation in the workforce because many low-income families have found the trade-off between the cost of childcare and the income generated by working extra hours is still unacceptable.

She notes that supply remains a problem, especially given childcare providers’ focus on higher income areas. And she adds that, as competition for workers continues to intensify, hampering the flow of staff into all care sectors, policy reforms will be difficult to achieve. “There’s no easy fix,” she says.

Albanese is considering a plan to introduce a flat fee of between A$10 and A$20 a day for childcare as a key tenet of his government’s re-election campaign.

Such a move would cost an extra A$8.3bn a year, according to a Productivity Commission report published in September — more expensive than an alternative proposal to increase subsidies and amend the existing structure to benefit lower-income families more.

Dent says she would support a move to a flat fee structure because of the scale of the challenges that high childcare costs present, from the low birth rate to reduced productivity and companies being starved of talent. “There’s no doubt that this is critically important,” she says. “It is genuinely a nation-building issue.”