Government subsidies alone won’t fix childcare centre demand

But when it comes to sustainably lowering childcare costs across the board, it needs to be through increasing competition. And again, as we know, when there’s more supply, prices tend to come down because suppliers have to compete harder to win customers.

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Childcare centres have raised their fees faster than both broader price increases and wage growth over the past four years, meaning they’ve been ratcheting up a tidy profit. Although demand-side subsidies have offset some of the cost for parents, it’s clear that subsidies are just a band-aid solution.

Capping childcare prices might seem like a quick and easy fix. It would certainly stop prices from rising. But it would also fail to add to supply, and come with the side effect of discouraging childcare centre owners from entering or adding supply to the market.

So, how can we bring down prices without worsening the shortage of childcare places?

The least costly solution is making it easier to open new childcare centres by shortening the approvals process. If we’re willing to splurge a little, it could also be worthwhile for the government to allocate more spending to building preschools in areas with high demand. If that’s a touch too far, the government could offer low-interest loans to not-for-profits looking to open a childcare centre. Each of these would help to put more childcare centres on the map.

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More government spending is not the most popular solution because the money ultimately comes from taxpayers. But childcare is an investment that pays dividends.

Of course, more childcare centres means we need to retain and add more childcare workers. The recently introduced multi-employer bargaining process has given childcare workers more power when asking for pay rises, potentially helping with retention and attracting new talent.

Affordable childcare means groups that have traditionally been forced to choose between work and raising a child get to do both, or choose out of desire rather than necessity. It’s lower income earners, and often women, who take on the child-rearing role when the cost of childcare is high. Some prefer to stay home with their kids, but for those who love their work and contribute to the economy, having a child should not spell the end, or a break, in their career.

If we don’t act now to boost supply and shake up the sector with more competition, we’ll continue to fall behind.

Unless the goal is to reduce our birth rate or take more workers out of the workforce, we’re on a sinking ship when it comes to our approach to childcare. For an economy with a declining birthrate and productivity, you would think we’d choose to swim.

Millie Muroi is a business reporter.