Opinion article

Could more coherent early-childhood education policies supercharge Australia's economy?

CEDA Senior Economist Cassandra Winzar discusses how investments in early-childhood education could help raise workforce participation and drive economic growth.

As the COVID-19 recovery continues, skills shortages are becoming acute across Australia, particularly in Western Australia. Despite bouncing back strongly after last year’s lockdowns, workforce participation has been hit hard by this year’s extended restrictions and lockdowns.

To help address these shortages, we must focus on raising workforce participation, both as a short-term COVID-19 response, and for the longer-term economic and social development of our nation. Investing in early-childhood education and care ticks all these boxes, allowing parents to work more hours, increasing the talent pool for business and providing long-term benefits to children.

Recent policy developments in this space are a step in the right direction. The May Federal Budget included two changes to the Child Care Subsidy (CCS) – increasing the rate of CCS for families with multiple children in care, and removing the annual cap of CCS for families earning about $189,390. Families with multiple children face some of the largest barriers to accessing affordable care, and these policy changes are an improvement. However, this is tightly targeted policy reform that will only benefit a relatively small proportion of families. Barriers to participation remain and broader reform is necessary.

Research by the Front Project found 77 per cent of parents see high childcare costs as a barrier to working as much as they want to. Fifty-two per cent of parents said once the cost of care was taken into account, it was “hardly worth working”. Parents with young children face major financial disincentives for working more hours. We should remove these roadblocks and provide more support to parents wanting to re-engage in the workforce or increase their hours.

Increasing access to childcare will come at a cost to the Federal Budget, but there is widespread evidence showing the benefits to economic growth far outweigh these costs. The Grattan Institute estimates that increasing the maximum childcare subsidy from 85 per cent to 95 per cent for all families, flattening the taper rate and removing the annual cap would cost the Federal Government an additional $5 billion per year in childcare subsidies but increase GDP by $11 billion through the increase in workforce participation. 

Greater workforce participation is not the only benefit from increased access to affordable high-quality early-childhood education. It also has lifelong benefits for children (particularly those from disadvantaged backgrounds), families and government budgets. Early-childcare education provides children with critical skills and increased cognitive capabilities, giving them the building blocks for lifelong success.  Support for these reforms is popular, with a recent survey by The Minderoo Foundation’s Thrive by Five initiative finding most West Australians believe better access to high-quality early-childhood education would benefit the economy and the education system.  

The WA labour market has rebounded strongly since last year’s initial COVID-19 shock. Now, we must lock in the foundations for long-term growth and productivity improvements. The gap between the female and male participation rates is still substantial: expanding childcare subsidies will help support women who want to work, while also ensuring children receive the long-term benefits of early-childhood education.

CEDA will continue the conversation on this important topic and how to drive real change to supercharge our economy at our upcoming hybrid event Growing minds, growing economy in Perth with The Hon Jay Weatherill AO on October 7. 

About the authors

Cassandra Winzar

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Cassandra Winzar is Senior Economist (WA) at the Committee for Economic Development of Australia (CEDA). Prior to joining CEDA she was Principal Economist at the WA Department of Communities (Housing Authority) where she focused on WA economic conditions and housing related research, including running the state government’s Housing Industry Forecasting Group. Cassandra has also held roles as the WA based Economist for the Reserve Bank of Australia, and in Transfer Pricing at EY. Cassandra has a Bachelor of Economics (Honours) and Bachelor of Arts (Asian Studies) from the University of Western Australia.

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