Privatising child care and aged care promised lower costs, more choice. Experts say some consequences are 'devastating'

Revelations of abuse and neglect in childcare centres shocked Australians this week.

But they also raised a nagging question: have "privatisation" and "marketisation" in our social services sector lived up to their promise?

In the 1980s, 1990s, and 2000s, Australian governments forced an increasing number of essential social services to be controlled by "market logic".

That process of "marketisation" — where the profit motive is used to regulate relationships between citizens and the state, and citizens and providers of social services, by transforming social relationships into market goods and services — has been applied to everything from education to health, housing, child care, aged care, and employment services.

Voters were told it would lower the cost of services, improve service quality, and increase "consumer choice".

But researchers say many of those policy areas have been plagued by real problems in recent years.

And major problems have hit two sectors that most Australians will have to interact with at opposite ends of their life cycle — child care and aged care.

The childcare sector

The childcare sector has changed a lot in 50 years.

The federal government's involvement in childcare funding began in 1972 with the Child Care Act 1972.

Under the Act, federal funding was restricted to non-profit organisations and local government providers.

That funding model was based on advice from early childhood experts who believed good quality care was best provided in childcare centres operated by non-profit organisations.

But attitudes changed in the 1980s and 1990s.

In the early 1990s, the Hawke Labor government introduced market forces into the early childhood sector and encouraged the growth of for-profit providers by extending childcare assistance to for-profit care.

It said "the market" would lead to more choice and lower fees.

The Howard Coalition government, elected in 1996, continued down that path.

By the mid-2000s, the changes led to an Australian company, ABC Learning Centres, becoming the largest publicly-traded childcare provider in the world.

It listed on Australia's stock exchange in 2001 and five years later had a market capitalisation of $2.6 billion.

It had adapted its business model to accommodate the federal government's generous childcare subsidies, and it pursued an aggressive campaign of expansion and acquisition.

By 2006, it was receiving 44 per cent of its income from government subsidies ($128 million out of $292 million revenue).

Its founder, Eddy Groves, also ranked first on BRW's list of the richest Australians aged 40 and under with an estimated wealth of $260 million.

By 2008, the company held about 20 to 25 per cent of the long day care market in Australia, providing care to over 100,000 children and employing about 16,000 staff.

But then the company went into voluntary liquidation, and the fallout was immense.

The federal government had to spend millions of dollars keeping open hundreds of childcare centres until the financial mess could be cleaned up and new owners found.

Writing about the sudden rise and fall of ABC Learning, researchers Deborah Brennan and Mab Oloman said the shift to privatised child care in Australia had had "devastating consequences for parents, families and staff".

"Australia, once regarded by international observers as having an enviable child care system, has become a case study for other countries in what not to do," they wrote.

In a Senate committee in 2009, Professor Brennan also said the degree of market concentration ABC Learning had accumulated in Australia had been exceptional internationally, and she was concerned about its impact on children.

"We really have entered into a vast national experiment with our children in Australia," she told senators.

Fast forward to this week, and a fresh series of stories from the ABC's Four Corners team has drawn attention to new problems in Australia's childcare sector, including shocking cases of neglect and abuse.

Professors Marianne Fenech and Gabrielle Meagher say Australia's childcare regulator has consistently been showing that for-profit childcare services are, on average, rated as lower quality than not-for-profit services.

They say large for-profit providers have a higher proportion of part-time and casual staff than not-for-profits, employ less experienced staff, and pay their staff less.

But despite this, the federal government continues to support for-profit providers through huge childcare subsidies.

"Today, more than 70 per cent of all long day-care centres are operated by private providers. Between 2013 and 2023, the number of for-profit long daycare services jumped by 60 per cent, while not-for-profits only grow by 4 per cent," they wrote in The Conversation this week.

The Greens are now calling for a royal commission into the sector, but Prime Minister Anthony Albanese says it's unnecessary.

Professors Fenech and Meagher say a royal commission isn't necessary to tell us "the current system needs fundamental change".

The aged care sector

Australia's aged care sector has had a different experience with marketisation.

Proper facilities for aged care began to emerge in Australia in the 1950s when hospitals started focusing on acute care and closed their beds for long-term care.

In 1954, the federal government began supporting accommodation for older people by handing capital grants to charities and religious organisations to cover the costs of building homes for the elderly.

In 1956, the government got involved in community care by providing assistance to home nursing organisations.

But in 1963, the federal government also introduced a direct public subsidy for every occupied bed in nursing homes, and that led to a "state-subsidised commercial bonanza" for for-profit providers in the sector.

"The guaranteed payments made nursing homes a risk-free investment and eligible frail older patients became a valuable earning asset," researchers Michael Fine and Bob Davidson wrote in 2018.

"While the subsidised market helped keep costs per bed day low, it also resulted in low quality care and systemic distortions, as providers competed to fill empty beds, then to expand by opening more homes to take advantage of the secure government payments."

In 1986, a review of the system recommended the sector be better regulated, and that government explore alternatives to residential care, including less expensive alternative forms of community-based provision.

"This laid the foundations for Australia's current system with its high proportion of subsidised, largely non-profit community care services and prompted the expansion of the non-profit providers of residential care," the researchers wrote.

But fast forward to 2018, and another Four Corners investigation uncovered shocking reports of elder abuse in Australia's aged care facilities, which prompted the Morrison government to announce a royal commission into the sector.

The commission found one in three people who accessed residential aged care and home care services in Australia received substandard care.

However, it also found a lack of quality data made it difficult to know how much the extent of substandard care varied across different provider types, including the organisation type — for-profit, not-for-profit, and government.

But in residential aged care, it said government-run providers performed better on average than both for-profit and not-for-profit care providers.

It said surveys also suggested that life satisfaction of elderly residents was highest in government-run services, followed by not-for-profit, and then for-profit services.

The royal commission released its final report in March 2021 and made 148 recommendations.

In response, the Albanese government passed a new Aged Care Act through parliament in 2024, which will come into effect on July 1, 2025. But it only aims to address about 60 recommendations from the royal commission.