The economic case for increased investment in early learning and care

Monday, 08 November 2021

VIRTUAL ADDRESS TO THE MCKELL INSTITUTE

MONDAY, 8 NOVEMBER 2021

** CHECK AGAINST DELIVERY **

 

Good morning everyone.

 

I wish to start by acknowledging the Kaurna people of the Adelaide plains – the country in which I am speaking from.

 

Thank you Helen for that introduction, and thanks to Michael and the McKell Institute for organising this important forum and inviting me to address you all today.

 

McKell has taken a strong interest in early learning and care policy for a number of years now and has helped progress the agenda.

 

With an election rapidly approaching it’s an important time to be discussing early learning and care.

 

Putting early learning and care on the election agenda

 

We are into the pre-election shadow boxing period.

 

Elections usually focus on the traditional policy debates and themes. The economy, taxation, health funding, schools, employment – these all quite rightly take up a lot of election oxygen.

 

Voters want to hear about the parties plans for sustainable economic growth and their vision to make Australia a better place.

 

I think in this election, early learning and care can and should be a major part of the discussion when debating future oriented, productivity boosting economic policies.

 

And I think the community wants to hear this narrative from both major parties.

 

As at every election, Labor will have a strong story to tell for the future.

 

There is no doubt that early learning and care policy has grown in prominence since the beginning of the COVID pandemic.

 

The COVID lockdowns made many people come to see the importance of early learning and care – both for its educational and economic benefits.

 

Parents and carers have always respected the work educators do – but I think the pandemic made more people take notice of just how important educators and early learning is to the wider community and the economy.

 

The government’s short-lived experiment with free child care demonstrated that health professionals, emergency services personnel, delivery drivers, retail workers, cannot go to work if they do not have access to early learning and care for their children.

 

That indeed early learning and care was, and is, an essential service.

 

It was placed in the same category as health care and emergency services – the community could not operate without it, and finally the realisation for many was that access to early learning and care has a significant public benefit to ensure our economy and our society kept functioning.

 

But the focus on this concept of public benefit seemed to evaporate, at least from the Federal Government’s perspective, as soon as the lockdowns ended.

 

Rather than looking at the COVID experience as a chance to reform, Government went back to their old system and tried to convince everyone “business as usual” is just fine.

 

The problem is, their ‘business as usual’ system is not working for families, for business, or for the economy – because of its complexity, and importantly because families have been bearing an increasingly high cost for early learning and care.

 

Business as usual isn’t working for families

 

Our system is one of the worst performing systems in the world for affordability and access.

 

A recent report by UNICEF titled ‘where do rich countries stand on childcare’ ranked us 37 out of 41 countries.

 

Australia stands right up the back when it comes to early childhood. It’s all in the title.

 

It’s a system where the burden of cost is borne by families, and that cost is increasing rapidly.

 

The latest OECD data for 2020 shows Australian families face some of the highest out of pocket costs for early learning and care in the world.

 

The average Australian family pays 19 per cent of its average wage in out of pocket costs – compared to the OECD average of 11 per cent.

 

We are well below global standards when it comes to the financial burden on families.

 

Last month’s ABS figures showed out of pocket child care costs went up 2.1 per cent in the quarter – double the inflation rate.

 

And out of pockets costs for families have gone up 12.5 per cent since June 2019.

 

Early learning and care costs are now the highest they have ever been in this country.

 

The cost borne by families has a real world impact.

 

The ABS estimates approximately 138,700 Australians – 92 per cent of whom are women – aren’t working because of the cost of early learning and care.

 

And women are electing to work less hours.

 

Australia’s female workforce participation rate falls in the prime parenting years, and they are much more likely to work part-time – 12 per cent above the OECD average.

 

The typical Australian woman with children of early learning and care age works 2.3 days a week.

 

Who can blame them when the system means there is little incentive for the second income earner to work more hours, once the cost of child care is taken into account.

 

This is bad for families who are trying to get ahead, bad for women who want to work and build their superannuation balances, and it is bad for our economy.

 

The Australian economy needs to be utilising all the levers at its disposal if it is to continue to meet the needs of current and future generations.

 

Population growth accounted for two-thirds of Australia’s economic growth since 2012, and productivity growth declined in 2018-19.

 

Last week Deloitte Access Economics estimated the structural deficit of the budget to be $60 billion.

 

That kind of budget repair will only be solved with sustainable economic growth.

 

With such stress on the budget we need to be looking for policies that deliver real bang for the taxpayer’s buck and a strong return on investment.

 

Taking an economic returns approach to early learning and care

 

The investment approach is used regularly in business cases written to support traditional infrastructure projects – with projects given a benefit to cost ratio after all of all the project’s impacts are assessed.

 

Let’s look at some of the benefit to cost ratios – or BCRs – for recent infrastructure projects.

 

The Inland Rail was assessed by Infrastructure Australia as having a BCR of 1.1.

 

This project bills itself as ‘connecting farms and producers to major cities, ports and other forms of transport for better access to domestic and international markets’.

 

The Randwick light rail project in Sydney claimed a BCR of 1.4 to 1 when it was approved.

 

The media release announcement called it ‘a critical project for New South Wales that will improve public transport in Sydney, address congestion and provide future economic growth’.

 

The North Connex road in Sydney claimed 2.12 to 1 when it was approved in 2013, with the assessment it ‘increases Australia’s productivity and productive capacity through reduced congestion and increased road freight productivity’.

 

The new Sydney Football Stadium has a BCR of 0.94 and claims it will create ‘economic activity through sporting events, providing employment opportunities for local people and attracting visitors to New South Wales’.

 

And to show I am not being partisan about this, the light rail in Canberra has a BCR of 1.1.

 

This project is sold as ‘delivering high quality, reliable and frequent public transport along one of Canberra’s busiest routes’.

 

I am not suggesting that these road and rail projects are not worthy of investment.

 

But I find that the estimated economic returns on road and rail projects are rarely questioned.

 

It is clear from the media statements that the road and rail projects mentioned above are deemed worthy of investment for their economic growth potential, even when there was no extra return on investment.

 

But the arguments made for investment in infrastructure because of their productivity and economic growth could equally be applied to investments in child care.

 

And if we are going to use BCRs as a methodology in assessing competing needs for economic growth when it comes to infrastructure projects, surely the same assessment should be given to the economic returns of early learning and care.

 

Because the economic cost benefit return of investing is early learning and care is incredibly strong.

 

It stacks up against and exceeds any other infrastructure project.

 

The economic benefits are based on removing the barriers for second income earners – which as we know are usually women – working more paid hours.

 

Australian women aren’t working as many full- time hours as women in comparable countries.

 

Analysis from the Australia Institute found that while Australian and Nordic women in their twenties have similar participation rates, Australia’s rates fall as women enter their thirties, whereas those of the Nordic countries do not.

 

The Institute estimates that if Australia maintained the same female workforce participation rates as these countries, the economy would gain about 3.2 per cent of GDP.

 

The many economic benefits include higher taxation revenue from higher female earnings, greater return on our investment in higher education, and spending less on the pension from an increase in the superannuation of women.

 

Numerous studies have found a negative relationship between child care costs and female workforce participation.

 

Currently, for families with two children in long day care, the primary caregiver can lose more than 80 per cent – in some cases 100 per cent – of take-home pay on their fourth or fifth work day in the week.

 

Child care costs on those extra days are the main contributor.

 

This situation has lead to policy makers and academics in this space regularly talking about the “workforce disincentive rate”.

This workforce disincentive rate is a handbrake on our economy.

 

We also know that time spent out of the workforce caring for young children can have a long- lasting impact on the lifetime earnings of parents and carers.

 

It is also a poor utilisation of all the education and skills that has been invested in these women by the Australian taxpayer.

 

If we can get these women working the hours they want, and need, it will boost productivity, and our economic growth.

 

The Grattan Institute estimated that if Australian women worked as many paid and full- time hours as Canadian women, there would be a six per cent increase in women’s working hours.

 

Increasing female workforce participation is one of the biggest economic opportunities available for governments looking to kickstart economies after the COVID lockdowns.

 

It will deliver a sustainable, locked in boost to economic growth each and every year.

 

The Benefit to Cost Ratio of early learning and care

 

Let’s look at what some of the recent papers have estimated as the Benefit Cost Ratio of early learning and care.

 

Last year KPMG modelled changes to the child care system that estimated a $2.5 billion investment would return a GDP boost of $5.4 billion – a ratio of 2.16 for every dollar invested.

 

Grattan modelled a universal 95 per cent subsidy system would deliver an annual GDP increase of $27 billion at a cost of $12 billion – a BCR of 2.25.

 

PricewaterhouseCoopers and The Front Project conducted a rigorous economic analysis in 2019 which identified a $2 benefit for every $1 spent – a BCR of 2.0.

 

And this was, by their admission, a conservative estimate.

 

The Lifting Our Game report from 2018 did a literature review of global returns on investment from quality early education and care, and found returns ranged from $2.62 to $17.07 for every dollar invested.

 

So the most conservative BCRs for early learning and care show a 2 to 1 return, which is better than the BCRs for some very high profile traditional infrastructure projects.

 

When Labor started looking for economic policies for our post-Covid recovery, early learning and care ticked every box.

 

There weren’t any other policies that could deliver such a sustainable boost to workforce participation, cost of living relief, as well as real social and educational benefits for children.

 

That’s why last October, in his first Budget Reply address, Anthony Albanese outlined Labor’s plan to deliver cheaper child care and move towards a universal system in government.

 

Labor’s plan for more affordable and accessible early education and child care will make 97 per cent of all families in the system better off.

 

We will ask the Productivity Commission to conduct a comprehensive review of early learning and care, with the aim of implementing a universal 90 per cent subsidy for all families.

This long- term plan will really recognise the public good that flows from workers being able to access affordable early education to our economy and beyond.

 

Labor’s investment is based on modelling by the Grattan Institute, that shows it will help women increase their hours of paid work by 13 per cent – the equivalent of 30,000-40,000 full-time jobs.

Now despite the federal government for over a year arguing that the system is working, they have been dragged kicking and screaming into making limited changes to the system in this years’ budget – but, only if you have more than one child in early learning, and only during the time that both children are in early learning at once.

 

It is complex, confusing, conditional and limited, with the defining feature of their policy the fact that most families don’t get any extra help.

 

It is a missed opportunity.

 

This is smart economic policy

 

In contrast to the Government, who sees child care policy as a family welfare policy, we see our early education policy as an infrastructure project – an investment in family infrastructure.

 

We also see it as major microeconomic reform that will unleash a lot of human capital into the economy.

 

It is also, of course, about delivering significant cost of living relief for families.

 

This is a structural change that will supercharge Australia’s economic growth – and we also know it will help give children the best start in life.

 

Yet again, it is Labor leading the way with bold economic reform.

 

Labor is deeply committed to providing all children with the best possible start in life.

 

I want an Australia where every parent – especially women – can work the hours they want and need.

 

The need for an Early Years Strategy

 

I want every child to get access to the wonderful benefits of early learning and care.

 

There is, of course, the double dividend that comes with investing in early learning and care.

 

There’s the economic boost, as well as the educational, health and social benefits that flow to the child.

 

These benefits have been extensively researched.

 

Children who receive quality early learning do better at school, are healthier, earn higher wages when they enter the workforce, and are less likely to enter the criminal justice system.

 

This evidence is even stronger for marginalised and disadvantaged children.

 

Government, and the community, pay less over the long run, and children lead better lives – which is surely the KPI we all care about most.

 

But governments need to be set up to succeed for our children.

 

They need to be actively chasing these benefits and returns.

 

But that isn’t going to happen under the current government attitude to early education and care.

 

The Morrison Government just isn’t interested in this space.

 

They see their role as paying for the child care subsidy, and that’s it.

 

In the last Senate Estimates a fortnight ago, we had the unedifying spectacle of the Department of Education unable to report the vaccination status of early educators, or the preparedness of early learning services for COVID.

 

They have refused to take any leadership in supporting the early learning and care workforce. They let the last Workforce Strategy expired in 2016 and have only recently drafted a replacement, that still does not respond to the urgency of the early learning workforce shortage.

 

It is a significant problem when we need an additional 39,000 educators by 2023, and 12.9 per cent of long day care centres have waivers from the national quality framework because of educator shortages.

 

The Commonwealth Government can do much more to advance the interests of Australia’s children and their families.

 

But it can only do it if it has the interest and the vision.

 

One of the problems we face is that current programs and funding for early childhood development are spread across a number of departments – Education, Social Services, Health, and the National Indigenous Australians Agency.

 

They all operate as silos, guard their own patch, and focus on the objectives of their own programs.

 

I want this to end.

 

We need all the departments pulling in the same direction and working for the same goals.

 

That’s why today I am pleased to announce that Labor will, if elected, develop and implement a whole of government Early Years Strategy.

 

The strategy will express Labor’s vision for the future of Australia’s children and their families.

 

It will be a plan to ensure Commonwealth programs and funding are best targeted to achieve the double dividend of educating and caring for children, and supporting families.

 

It will examine the range of programs delivered across the Commonwealth Government that directly impact on early childhood development.

 

It will consider the latest available evidence and literature from Australia and around the world on interventions and programs that are driving better outcomes for children.

 

The strategy will develop plans to eliminate or reduce program and funding silos across a number of departments, better integrate and coordinate functions and activities across government, and targeted outcomes to deliver better outcomes for young Australians and their families.

 

It will develop a programme of action which will set out the policies, initiatives and plans to help achieve the vision and outcomes.

 

The development of the strategy, and the secretariat support, will be led by a steering committee, with senior representatives from the relevant line departments, as well as Prime Minister & Cabinet.

 

This will ensure all other line departments provide input and a whole of government, integrated approach is taken.

 

Almost every state and territory government have an Early Years Strategy, as does New Zealand. Australia doesn’t.

 

I think it’s time we did.

 

This is another clear sign of Labor’s commitment to building a better future for the next generation of Australians.

 

Labor’s vision for children and families

 

Only Labor is the party with the vision to build a better future by investing in Australia’s children and their families.

 

The Liberals see these programs as welfare and as a cost.

 

Always have, always will.

 

Labor has always invested in the early years, because only Labor believes it is the greatest investment we can make in the future of our country.

 

This election there will be many infrastructure commitments to new roads and rail lines that will help boost productivity.

 

Labor has already made a $6.1 billion commitment to invest in family infrastructure that will deliver not only a short term economic boost to our country, but a long term investment in our next generation.

 

This type of investment should be a no brainer.

 

Thank you again to Michael for hosting us and thank you to Jesse at McKell for helping organise today.

 

I am looking forward to taking any questions and continuing the conversation.

 

ENDS

More News

Monday, 08 November 2021
Albanese Labor Government to introduce Early Years Strategy
Wednesday, 27 October 2021
Australian families paying more than ever for child care
Wednesday, 13 October 2021
Child care fees out of control under Morrison