Finexia's plan to solve Australia’s childcare crisis

Childcare sector is grappling with escalating costs, regional inequities and acute staffing shortages
Non-bank lender Finexia says proposed flat-fee childcare model unfairly benefits wealthier households and won’t solve crisis in sector
Finexia suggests there are better ways to fix systemic issues

Special Report: Finexia Financial Group (ASX:FNX) CEO and director Patrick Bell argues that the proposed flat-fee childcare model unfairly benefits wealthier households while burdening taxpayers with unsustainable costs.

Words by Patrick Bell at Finexia

Prime Minister Anthony Albanese has pitched universal childcare as a cornerstone of his government’s legacy.

However, the Albanese government faces mounting scrutiny over its childcare reform plans as the sector grapples with escalating costs, regional inequities and an acute staffing crisis.

With the next election looming, policymakers are navigating a complex web of competing proposals from the Productivity Commission, each with significant trade-offs.

At the heart of the debate are three key models including universal free childcare, expanded means-tested subsidies and a flat-fee model.

Each offers different paths to affordability and accessibility, but the Albanese government has signalled a preference for the proposed flat-fee option, which would cap daily out-of-pocket costs for families at $10 or $20 regardless of income.

However, the Productivity Commission’s data confirms that higher-income families would gain the most from a flat-fee model.

Families currently paying premium rates in metropolitan areas would see dramatic cost reductions, while low-income families, already paying minimal out-of-pocket fees under the existing subsidy system, would see little change.

A flat-fee system would also strain public finances, costing $8.3 billion annually and creating just 7,300 full-time jobs, at a prohibitive $120,000 per position.

In contrast, the means-tested subsidy model, which targets families earning under $80,000 annually, would add just $4.7 billion to government spending while focusing resources on those most in need.

Childcare is about equity as much as affordability

A flat fee erases the principle that public dollars should go to families who need the most help.

The government, however, insists that the flat-fee approach is a simpler, more predictable alternative for parents, especially amid growing frustrations over inflation eroding existing subsidies.

The erosion of subsidies is a recurring theme in the childcare sector. Following the government’s $4.7 billion childcare subsidy boost in 2023, initial savings of 13% were quickly offset by rising fees.

The Morrison government’s 2022 subsidy increase also failed to deliver sustained affordability.

Moreover, boosting subsidies isn’t a magic bullet for increasing women’s workforce participation, which is already at historic highs with most of the gains already achieved.

Staffing crisis – childcare’s Achilles’ heel

Underlying the affordability debate is an even graver issue, a severe shortage of qualified childcare workers.

Operators consistently cite workforce shortages as the single largest challenge facing the sector, with the impacts felt most acutely in regional and low-income areas.

The Productivity Commission’s report acknowledges staffing shortages in regional areas as a significant issue but offers very little in terms of direct solutions.

While the government provides training subsidies for workers, these programs have minimal impact on improving the quality of care or attracting highly skilled educators.

Finexia’s risk assessment model for funding new childcare projects reflects this reality.

Workforce risks are now a key factor in determining the viability of new loans, as shortages threaten operators’ ability to maintain service quality and financial stability.

The government’s $3.6 billion initiative to raise childcare worker wages by 15% over two years was a well-intentioned first step but has faced implementation challenges.

The in-arrears cost recovery model creates cash flow issues that discourage smaller operators from making long-term investments in staff.

Furthermore, the two-year timeline provides no certainty for the sector, and the scheme’s opt-in nature means it is not universal.

A universal wage increase implemented via the tax system would eliminate these inefficiencies and ensure every childcare worker receives fair pay without burdening operators or opening the door to manipulation.

Bottom-up solutions needed

At Finexia we’re calling for a fundamental shift from top-down subsidies to direct, targeted support for childcare workers.

Specialising in assisting experienced operators to open new greenfield childcare centres, we’re in a unique position to identify the systemic issues driving instability in the sector.

Providing targeted tax incentives, wage boosts, and other inducements directly to educators – especially those in regional areas or serving disadvantaged children – is the most efficient way to prioritise quality.

Better-paid workers in care industries like childcare have a direct impact on the quality of care provided, attracting more skilled and motivated educators.

Under Finexia’s proposed model, government spending would be less likely to drive inflation or higher fees for families, as the support would go directly to workers, bypassing operators and the link to parent fees entirely.

This bottom-up approach avoids the inflationary pressures often seen when government funding floods an industry and ensures the childcare workforce remains adequately supported.

Tying support to wages via the tax system would eliminate administrative burdens and cash flow strains, making the system more resilient and equitable.

We need to focus on strengthening the workforce and ensuring that every dollar spent delivers measurable benefits for children and families.

Regional and income disparities remain unaddressed

None of the current proposals adequately address two major systemic issues – regional disparities in service availability and the higher costs faced by low-income families.

Without targeted solutions for these gaps, reforms will fail to deliver equitable access to quality care.

There are stark differences in access and affordability between metropolitan and regional areas.

Families in regional zones often face higher fees and limited availability, exacerbating the challenge of balancing work and family commitments.

Balancing reform with sustainability

As the government finalises its policy direction, it must balance the need for immediate affordability with the long-term sustainability of the sector.

Parallels can be drawn with childcare to programs like the NDIS, where open-ended funding models have stretched public resources and led to inefficiencies.

A sustainable childcare system will require not just funding but also strategic investment in the workforce, targeted support for underserved communities and measures to prevent inflationary pressures.

Only by addressing these foundational issues can Australia build a childcare system that is affordable, equitable, and resilient.

This article was developed in collaboration with Finexia Financial Group, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.