Australia’s parents of school-aged children are this week dealing with the cost of Outside School Hours Care (OSHC) — that is, getting the kids looked after before and after school as well as during school holidays.
And if you’re among them, there’s a fair chance you’re dealing with private equity, the more than usually rapacious subset of modern capitalism.
The two biggest OSHC operators, Camp Australia and Junior Adventures Group (JAG), with about 20 per cent of the market between them, are owned by Bain Capital and Quadrant Private Equity respectively.
Bain tried to take over JAG as well, but the ACCC knocked them back.
Husband’s dying wish for more kids an impossible choice in childcare desert
Private equity loves this business because you don’t have to own any property — the businesses all run on school premises — and you don’t even have to pay a fixed rent — the deal is a percentage of revenue, 10-15 per cent, paid to the school.
And once the companies have a contract with a school, not only do they have a monopoly on that school, the customers have no choice about using the service (unless there are grandparents standing by) because they have to work, and the fee is subsidised by the government.
It is truly a beautiful thing.
OSHC represents about 30 per cent of the Australian early childhood education and care (ECEC) sector and is front-of-mind at the moment because we’re in the middle of school holidays.
For most parents with school-aged kids it’s front-of-mind for the rest of the year as well, because they usually have to go to work before school starts in the morning, and they often can’t get home in time to pick the kids up at 3 o’clock in the afternoon.
And, like the rest of the childcare industry, it’s both expensive and worrying — you don’t know who’s looking after your kids, you just know it’s not you.
An expensive mess
Australia’s education and childcare system has evolved into an expensive mess (and don’t get me started on tertiary education and the foreign student racket).
The care and education of children under five years old is entirely private, and 70 per cent of the businesses are “for profit”, many of them listed on the ASX or owned by private equity.
Their customers are subsidised by the federal government using a kind of voucher system, where parents are given the money, which is strictly means tested and capped at $140 a day, and are left to navigate the system to find a centre that suits them.
Price and quality are largely left to competition to sort out.
Housing affordability and childcare are two sides of the same coin, and are the core of Australia’s intergenerational fairness problem. (ABC News: Keana Naughton)
It works a bit like Medicare and GPs: you get a certain subsidy, or rebate, and the centre charges what it can get away with, leaving a gap for you to pay.
Because of the means test, if you and your spouse are in the position of earning decent salaries, the gap is a lot and can be the whole fee.
If you also live near a good school, and each child has their own bedroom and a backyard to play in, then you’ve probably got a whopping mortgage as well, which is why you both have to work long hours and pay for childcare.
The year your child turns five by the end of July, suddenly education is free, provided by the state government… but only until 3pm, after which you might have to pay a private company to show up at the school and look after your child until you get off work.
The intergenerational fairness problem
About 37 per cent of primary and secondary schools are private — either Catholic (20 per cent) or independent (17 per cent) — and they are also subsidised by the federal government.
But unlike under-five education and childcare, subsidies are only available to not-for-profit schools, which also get tax deductibility for donations. So, naturally they are virtually all not-for-profits.
Housing affordability and childcare are two sides of the same coin, and are the core of Australia’s intergenerational fairness problem, which Treasurer Jim Chalmers is fond of talking about these days.
The doubling of house prices as a multiple of incomes over the past 25 years has been accompanied by an equally rapid increase in the cost of having children minded while both partners work to pay the mortgage.
Older Australians, like your correspondent on the other hand, have typically paid off their house and see their adult kids on the weekends. Yes, we’re funding the Bank of Mum and Dad, but that’s optional, and anyway it is demeaning for its customers — the kids — who would much rather stand on their own feet.
So what can be done?
Last week I floated the idea of nationalising the industry and making childcare free, like education for the over-fives, and that piece on ABC News got a lot of support… as well as opposition from many appalled social media users who called me a communist, among other spicier names.
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The good news for those free-market purists is that nationalisation definitely will not happen, even though data from the Australian Children’s Education and Care Quality Authority clearly shows government-run centres are higher quality, safer and cheaper than privately-owned ones. The primary and secondary school system is two-thirds government-owned and the rest is not-for-profit.
A more feasible idea would be to copy what Canada has done.
There, the government has flipped the script. Instead of giving parents the subsidy and leaving them to it, the Canadian government gives money to the childcare centres in what’s called the $10-a-day Canada-wide Early Learning and Child Care (CWELCC) system.
The government provides tens of billions in funding direct to licensed childcare providers to cover their operational costs and, in exchange, the providers have to reduce and cap their fees.
Operators are not forced to join, but if they “opt out” they receive no government funding, and their parents receive no fee reductions.
The plan rolled out in phases. First, fees were cut by an average of 50 per cent, and this year many provinces have reached the “average $10-a-day” milestone that the government aimed for when they legislated it in 2018.
What’s more, it is not means tested: every family in a participating centre gets the lower rate regardless of what they earn.
And the fact that the government is funding the centres rather than giving parents the money as in Australia means it has much more control over how the money is used, so there is more accountability over quality and price.
Loading Why bother giving private companies money at all?
The Canadian system is not without problems. Demand for $10-a-day care is basically infinite, but the number of spots is limited, so waitlists in cities like Toronto or Vancouver have exploded. Some parents are waiting for years to get into a $10-a-day centre.
Also, the demand for cheap childcare is causing a workforce crisis — there simply aren’t enough workers to keep up.
And of course the owners of Canadian childcare centres are complaining bitterly that their subsidies aren’t keeping up with costs, so a lot of them are threatening to close.
But private operators will never be happy unless they can charge what they like, get paid by taxpayers and have a captive market.
Why bother giving private companies money at all? It’s perhaps far better for the government to nationalise them and extend public education to kids under five.
Alan Kohler is finance presenter and columnist at ABC News and also writes for Intelligent Investor.