There are multiple crises in child care which occasionally hit the headlines. A recent story on some day care centres charging about $100 per day has started a ripple about affordability. The lack of child care places led the Federal minister last weekend to blame the state and territories’ planning, and to praise her government’s increased spending as evidence of good policy; and the PM to mutter about funding nannies. These are government responses to the paradox that child care is often unaffordable, but at the same time is failing to meet demand. Families are using child care services and looking for more care despite the costs, often netting little or no money after paying fees.

I am happy to state my viewpoint: I think most parents and children benefit from time away from each other. Access to other children and other adults, spending time in communal situations, learning social skills, being encouraged to explore diverse social relations, having access to other activities than those offered at home are good for most children from toddling onwards. We know these years are their steepest learning curve and leaving this just to parents may not serve most children well. The alarmist image of the baby in 50+ hours of care per week is neither the norm nor common, as statistics show with 80% of children in day care use less than 30 hours per week.

Current child care policy, particularly at Federal level, is badly conceived and counter productive. It pegs the numbers in areas like family day care and after school care – run mainly by not for profit groups – but gives an open ended subsidy to any user of child care centres, thus allowing commercial operators to open services in areas that suit their own needs. Over the Coalition’s tenure in Canberra, the proportion of chain-based day care services has increased; they have listed on the stock exchange and are making substantial profits. The private child care sector is profitable. The ABC’s website shows they made about $52M profits after paying tax and expenses well above the NGO level for executives and board fees; and their share price has risen.

The problem is that changes in policy have encouraged rising fees, poor planning and irresponsibility in spending. The government spends more and more on such services but makes a major error in this program by not monitoring or in any way controlling the location or costs of the services provided. Parents are paid a cash rebate. All services have to do is be licensed by state authorities and accredited by the Federal quality agency, which has no real policing of standards and rarely de-funds services. This allows centres to set their own fees, unlike nursing homes for example, which have caps on fees. The parents are supposed to choose services on price and quality. This however ignores the scarcity of care in many areas and categories, such that market forces don’t work.

Given this market failure, I propose that the government move back to funding centres, not parents, as was done in the early days of the program and as is done with nursing homes. A centre would be funded on the basis of an approved budget with a top up related to parental income and to particular costs, such as dealing with difficult children or poverty issues that need more funding to ensure staff quality, or the higher costs of care for toddlers and children with disabilities. Where capital costs are not publicly provided, the approved budget should allow for a return on capital and an agreed profit margin.

This would re-establish the relationships between centres and the funding body that previously operated for not-for-profit centres. They had their budgets approved, including fees, and this acted as a form of cost control over the rest of the sector. The removal of the direct funding of such centres via operational subsidies post-1996 started the fee spiral and the increase of commercial interest. A recent report from NATSEM shows that fees rose 10.3% from 2003 to 2004 and substantially over the period since parent-directed funding was introduced. While the current policy has saved governments the costs of capital, the costs to parents have risen substantially and led to poor allocation of capital in many areas.

Child care policies need a major revision. Adding to subsidies under the current model just allows child care operators to raise their fees. The need is to reduce the costs to parent to a reasonable level, to increase supply and to make sure that services meet the needs of the children using them. While states regulate the staffing and physical facilities, the funding models are very influential and need to be both responsible and effective. Reversing the focus on markets and recognising that publicly subsidised of services must be accountable can mean that young children get the services they need.