Federal government's free childcare plan a lifeline for operators during coronavirus crisis

Under the governments new proposal, centres will be paid 50 per cent of the fees they were getting on March 2, when attendance was unaffected by coronavirus. The parent gap fee will be waived and the current means test will be removed, with the changes to commence the week commencing April 6.

The subsidy will be given to businesses who agree to remain open and offer free care, and is intended to add to the JobKeeper wage subsidy announced earlier this week.

Shares in listed childcare operators skyrocketed upon news of the announcement, with shares in one of the country’s biggest providers, G8 Education, rising by 25 per cent to $1.08 within 15 minutes of the announcement.

What does it mean for investors? 

Real estate agents Tom Moreland and Michael Collins, of Cushman and Wakefield, said that the announcement was likely to bolster the sector’s reputation as a safe haven for small-scale investors.

“This announcement demonstrates the defensive nature of the sector… It’s effectively a sector that’s underwritten by the federal government,” Mr Moreland said. 

“It’s the only sector receiving this kind of assistance,” Mr Collins added.

The announcement would have a reverberating effect, he said, with operators now able to “pay their staff and pay their rent”. 

“For centres that have had reasonable occupancy levels prior to the second of March, it will help them maintain their business and keep their doors open. The other part is giving a million Australians free childcare, parents will be able to pay rent and their groceries and flow-on benefits for the sector,” Mr Collins said. 

The agents, who typically handle transactions involving childcare centres, service stations and convenience stores, said that the announcement would provide ‘clarity’ for investors contemplating entering the childcare sector.

“The market has definitely slowed and people are sitting on their hands waiting to see what happens,” Mr Collins said. 

It would also set the sector up for a strong recovery once the pandemic had passed.

“Because interest rates are so low this section of the property market will bounce back very strong,” Mr Moreland said. 

Industry groups welcome plan

The sector had been facing the prospect of significant closures as parents affected by the coronavirus were no longer able to pay fees, with the Sydney Morning Herald reporting last week that four out of five childcare centres were facing collapse.

The government estimated that the sector is expected to receive $1.6 billion over the coming three months, when including the ‘jobkeeper’ subsidy, compared with an estimated $1.3 billion if current revenues and subsidies had continued based on the existing system.

The announcement was welcomed by industry groups including the Australian Childcare Alliance (ACA) and the Early Learning and Care Council of Australia (ELACCA), which counts the heads of big childcare providers G8 Education and Goodstart among its membership.

ACA president Paul Mondo said that the association had worked  with Education Minister Dan Tehan to design the package, which he said was a critical part of ensuring the sector emerged from the coronavirus pandemic in a strong position.

“Australian families can be comforted that when Australia’s economy emerges from this terrible global crisis, our early learning sector will also emerge strong and ready to continue to nurture their children and ensure they can confidently return to the workforce,” Mr Mondo said.

“Whilst we are still working through the details, ACA and the early learning sector applaud the government’s commitment to providing this immediate relief for our service providers, and in turn, our highly valued early learning sector workforce.”

Elizabeth Death, chief executive of ELLACA, said that the move to make childcare free would likely see a boost in attendance.

“I am confident that the waiving of the gap fees and the removal of the activity test will encourage many families to resume engagement with their early learning service and in doing so recommence a vital early education for their children,” she said.

More changes to come 

Mr Tehan confirmed that the federal government was working with its state counterparts to provide further assistance for the sector.

“The states and territories are looking at how to reduce the regulatory burden on the childcare services, which will further help them to remain viable. The Education Council of the country’s education ministers, as well as national cabinet, will address regulation this week,” Mr Tehan said.