Childcare Inquiry - what this means for Private Capital

Given the significant level of private ownership in the childcare sector, the final report by the Australian Competition and Consumer Commission (ACCC) into the supply of early childhood education and care is of particular interest to Australian private capital^[1].

The final report was released on 29 January 2024 and found childcare markets to be failing to meet “key objectives of accessibly and affordability”^[2].

Contrary to the popular narrative that recent cost increases in the childcare sector are somehow related to private capital ownership of particular childcare assets, this was not borne out in any of the ACCC’s findings.  Whilst childcare costs were found to have increased at a rate faster than inflation and wages (and despite the introduction of demand-side subsidies), price increases were determined to be reflective of the increasing costs in providing childcare, such as land and labour costs^[3].  Whilst no findings were made of providers pocketing higher margin or price gouging, the ACCC flagged that a more detailed examination of private capital ownership in the sector may be warranted in order ‘…to ensure government funds are being directed towards the economic and social objectives intended’^[4]. 

In other welcome news, the report recommended supply-side subsidies be introduced (potentially on a localised basis) to remove existing barriers to accessibility in “underserved” and “unserved” markets^[5], which will present a growth opportunity for private operators.

In a somewhat worrying development for private operators, the ACCC has recommended a new supervisory body be created with extensive market monitoring powers to undertake periodic assessments to determine required levels of government intervention (eg supply-side and/or demand-side subsidies) and the form of any regulatory support measures ^[6].

As many know, the inquiry created headwinds for several sale processes in the sector in 2023, which were ultimately abandoned.  The question operators and potential buyers of these assets must now grapple with is whether and to what extent Government intervention flagged by the ACCC is likely to impact earnings going forward.  Unfortunately, given current fiscal constraints and competing government priorities, it may be months or years before we find that out.

The Government will consider the ACCC’s report once the Productivity Commission finalises its inquiry into the sector around 30 June 2024.^[7]

It may not be game on in the childcare sector just yet.

A deeper dive from the KWM Competition team into the findings and recommendations coming out of the ACCC final report on the supply of early childhood education and care can be found here.