Text size: A A A

Putting a value on early childhood care and education

Our children are a critical and too often overlooked element in the debate about how Australia can increase prosperity in the long-term.

Any number of international studies show how children’s early lives profoundly shape their life outcomes, for better and for worse. But what of the broader economic consequences — exactly how will our children shape our nation’s future and its fortunes?

A new PwC study — Putting a value on early education and care in Australia — for the first time provides economic modelling of the long-term impact of quality and access to early childhood education and care (ECEC) on the Australian economy and on taxpayers, specifically by looking at its impact on productivity.

The study finds a cumulative positive impact on GDP of up to $29.6 billion by 2050 and an estimated net fiscal benefit of between $1.6 and $1.9 billion in the same period.

Modelling efforts to date in Australia, including from the Productivity Commission, have focused predominantly on the immediate economic benefits of more young children’s mothers joining the workforce. In contrast, this study also estimates the value of the return from investing in quality ECEC programs and from investing in increasing participation rates, especially for children from low-income or vulnerable households who are currently under-represented.

The report comes against a backdrop of significant uncertainties for future arrangements in the ECEC sector.

Recent initiatives like universal access to 15 hours of preschool (which has just been extended for a further 12 months) and establishing standards in the National Quality Agenda are under review and the Productivity Commission is conducting a public inquiry into future options for child care and early childhood learning.

In addition, the Australian government is still considering the Commission of Audit recommendation that the childcare rebate and childcare benefit should be replaced with a single, simpler, means-tested payment to families to help meet child care costs. There is also the related consideration of the government’s paid paternity leave proposal, which also may affect participation rates.

[pullquote] “… what is clear is that we can now say that making the interests of the child central to childcare policy is also good for the economy.” [/pullquote]

“At a time when Australian governments are considering the future direction of early childhood policies, this study provides a clear message that the longer term benefits of improved quality and access are likely to be significantly greater than the incremental, but still welcome, benefits from increased labour force participation,” said PwC Partner James van Smeerdijk.

“The study is also important in highlighting to the Australian community that child minding is just not good enough for the future of our children and of our economy.”

International studies show quality education and care programs provide demonstrable improvements in literacy and numeracy outcomes in primary and secondary years. These in turn are correlated with higher earnings when people enter the workforce.

There is also significant international evidence of the return on investment of vulnerable children’s participation in early childhood programs. This has been measured in terms of savings to taxpayers through decreased spending on remedial education, criminal justice and youth offending and health services.

The study models these international findings in the Australian context. It estimates a cumulative benefit to GDP by 2050 of $13.3 billion if children whose parents are in the lowest income bracket — and are unlikely to attend an early childhood program — attend a program.

It also estimates cumulative GDP benefits to 2050 from children receiving a quality education and care program based on two scenarios of productivity growth. The high growth scenario yields a benefit of $10.3 billion, while the low scenario envisages a benefit of $2.5 billion.

While not containing a full cost benefit analysis, the study identifies a number of costs to government in providing new early childhood services, but also a number of financial benefits. The costs include:

  • Increased childcare use by non-working mothers;
  • Marginal costs of increasing quality through regulatory activity, and;
  • Increased access to services by the vulnerable or disadvantaged who are not accessing any form of childcare.

On the other hand, the expected benefits include:

  • Increased taxes collected from an expanding childcare sector;
  • Lower expenditure on unemployment benefits, and;
  • Decreased spending on remedial education, justice and health services.

In short, a strong case is made that the benefits will significantly outweigh the costs in the long-term.

The estimated net fiscal benefit to 2050 is between $1.6 and 1.9 billion, based on either a low or high scenario of productivity growth, with the returns to government quickly becoming positive after an initial set-up period.

Given the uncertainties, the childcare debate has further to run. But what is clear is that we can now say that making the interests of the child central to childcare policy is also good for the economy.

To find out more about the Education sector at PwC, click here.

Written by: Tony Peake, PwC

Author Bio

Tony Peake, PwC

Tony Peake is National Leader – Government at PwC Australia. He heads PwC’s team that focuses on delivery to government departments, business enterprises and statutory authorities. Tony has strong relationships with people across the political and public service spectra. PwC combines a broad understanding of regulatory and economic conditions with the functional skills of domestic and international experts, partnering with government to deliver innovative solutions. PwC aims to contribute to advancing government priorities while delivering value for money. Tony is also PwC Australia’s Managing Partner, Finance & Operations and leads teams across finance, business services, technology and real estate. He is a member of PwC Australia’s Executive Board. Outside work, Tony is a member of the Council of The University of Melbourne, a director and Treasurer of Methodist Ladies' College, and director of Melbourne University Publishing.