FactCheck: what are the facts on rising child care prices?
A reduction in the rate of child care price growth is likely due to broader market forces, not government policy, says Ben Phillips.
Wednesday 18 January 2017
By Ben Phillips, Associate Professor, ANU Centre for Social Research and Methods, and Guyonne Kalb, Professorial Research Fellow and Director of the Labour Economics and Social Policy Program, University of Melbourne
"We’ve already had great success in terms of reducing the rate of price growth. We saw during the Rudd-Gillard years price spikes of up to 14% over a 12 month period. Under the Coalition, that’s been brought down to around 6% on average. So we actually have much lower growth in relation to child care costs, but to achieve the real changes we need, we need to get our child care reforms through to Parliament." – Education Minister Simon Birmingham, doorstop interview, January 8, 2017.
As the working year starts again and many children return to formal child care, Education Minister Simon Birmingham has called on Labor to support a suite of reforms he says will ensure prices rise more slowly.
Simon Birmingham said the Coalition has “had great success in terms of reducing the rate of price growth”. Under Labor, he said, there were price spikes of up to 14% over a 12 month period but under the Coalition, “that’s been brought down to around 6% on average”.
The spokesperson also referred The Conversation to Simon Birmingham’s January 8 media release, in which the minister discussed the release of the government’s March quarter 2016 report on child care costs.
A one-off price spike and longer term trends
Simon Birmingham was correct when he said child care prices spiked to 14% over a 12 month period during the Rudd-Gillard years. Department of Education data from 2007-2016 show prices spiked up to 14% in the 2008-09 financial year.
But with the exception of the one-off spike in 2008-09, child care prices over the last decade have continued to increase close to their usual trajectory of average annual price increases of 6.8% – whether it was the Coalition or Labor in power.
Annual price growth has been slightly below that 6.8% average since the Coalition came to power in 2013 – closer to 6%, as the minister correctly said. The chart above provided by the minister’s office clearly shows the blue line (the rate of price growth) has been below the red line (the average increase) for the entire period of the Abbott/Turnbull government.
But, as that chart also shows, that trend began before the Coalition took office in 2013 and child care pricing and rebate policy hasn’t changed much since Labor lost the 2013 election. The Turnbull government does have a package of new measures it hopes to get through parliament, but it hasn’t passed yet.
So to say “we’ve already had great success in terms of reducing the rate of price growth” is taking credit for a reduction in the rate of growth that is likely due to broader market forces – like low inflation and slow wage growth – not government policy.
Why was there a spike?
The 14% price spike in the 2008-09 financial year was likely due to a one-off event – the major expansion of the Child Care Rebate. In that year, the maximum Child Care Rebate payment was increased by around $3,000 to $7,500 per child, per year.
A portion of the higher payment was likely taken by child care providers through record price rises. Department of Education figures show marked price increases in the September and March quarters of the 2008-09 financial year, marked with circles below.
What’s the overall trend?
The ABS Consumer Price Index shows the amount paid by parents after the Child Care Benefit and the Child Care Rebate have been taken into account. This is the “net” price paid by parents. Removing the impact of the changes in childcare benefit and rebate changes leaves the “gross” price index – the prices charged by childcare operators.
The chart below confirms the continued long-term trend of strong child care price inflation. The gross price index (purple line) has continued to increase strongly throughout the period.
Over the long-term, the net cost of child care – the cost after subsidies are received, shown as a green line in the chart above – has not grown as quickly as household income (the red line). That’s largely due to increases in the Child Care Rebate.
More recently, however, affordability has deteriorated significantly. According to the ABS Consumer Price Index, there have been real cost increases of around 56%. That’s because child care subsidies haven’t increased in real terms – at rates greater than inflation – since 2008-09.
What factors affect child care prices?
Child care prices are determined within a complex market. Government does have a role to play, but a host of other forces also play an important part in determining child care prices.
These factors include the supply of child care centres and centre vacancies (both of which have increased recently), demographic and labour market changes (particularly the strong growth in female workforce participation), and regulatory changes (such as the National Quality Framework, which seeks to increase the quality of child care).
Major child care subsidies have remained largely unchanged since 2008 and there has been little change in other areas of child care policy since the Rudd and Gillard Labor governments. So it’s unlikely that the Coalition government has had any major influence on prices beyond broader market forces.
Simon Birmingham got his numbers right on child care price increases – but he overstated how much of the change was due to government policy.
The minister was correct when he said there had been a 14% price spike during the Rudd-Gillard years. However, this was a one-off spike in 2008-09 most likely related to the expansion of the Child Care Rebate.
He was also right that price growth has now fallen to around 6% on average. According to the Department of Education price data, annual price growth has been below the decade-long average of 6.8% for the entire period of the Abbott/Turnbull government. That decrease began before the Coalition came to power.
But was it accurate to claim “we’ve already had great success in terms of reducing the rate of price growth”? No – that’s overstating the impact the government has had, and understating the effect of broader market forces.
Major child care subsidies have remained largely the same since 2008 and there has been little change in other areas of child care policy since the Rudd/Gillard Labor governments. So it’s unlikely that the current government has had any major influence on prices. – Ben Phillips
This is a sound analysis, providing the full details and statistics to put the minister’s statement in context. – Guyonne Kalb