Early childhood: the neglected frontier that impacts almost everything.
Education for our youngest kids is the key to an optimal future – for them and for the country. So why does Australia do it so badly? And what is being lost?
At no time in our lives are humans as open to learning as in the first three or four years. In those years, more than a million new neural connections are formed every second.
This reality, informed by masses of research over many years, forms the basis of the case for a massive boost to early childhood education. And we have long known that education in these earliest, most receptive years leads to far better outcomes in later education and throughout life.
“The brain’s capacity for change decreases with age,” explains Harvard University’s Center on the Developing Child in a research brief.
“The brain is most flexible, or plastic, early in life to accommodate a wide range of environments and interactions, but as the maturing brain becomes more specialised to assume more complex functions, it is less capable of reorganising and adapting to new or unexpected challenges.
“For example, by the first year, the parts of the brain that differentiate sound are becoming specialised to the language the baby has been exposed to; at the same time, the brain is already starting to lose the ability to recognize different sounds found in other languages. Although the ‘windows’ for language learning and other skills remain open, these brain circuits become increasingly difficult to alter over time. Early plasticity means it’s easier and more effective to influence a baby’s developing brain architecture than to rewire parts of its circuitry in the adult years.”
And they drew up a chart to show what was happening in the developing brains of very young children:
Experiences in those first few years of life determine the foundation on which all future learning takes place. Interventions – including those before the age of three – help all kids, but are particularly valuable for those coming from disadvantaged or unstable backgrounds. Early education, then, has the potential of reducing social and economic inequality.
There’s strong evidence of the value of teaching literacy, numeracy and even second languages to children well before they go to primary school. As children age, the brain continues to develop but in different ways. That openness to new experience is never quite lost but is seriously and quickly diminished. For instance, early exposure to foreign languages gives children the best chance of being able to speak like a native. Waiting until secondary school is just too late. In all of this, timeliness is critical.
WHY IS AUSTRALIA DOING THIS SO BADLY?
Compared to most developed countries, Australia lags the field. According to OECD figures, only 65% of three-year-olds have any form of education or childcare; most of our peer-group nations have over 90%. Many of those countries stipulate the amount of time children spend; Australia does not. It’s therefore likely that these figures flatter our performance.
As in most countries, primary schooling in Australia is compulsory from the age of six, though many children start at five or four-and-a-half. For four-year olds, the attendance levels look better – but at least some of this apparent improvement is because some go to primary school before their fifth birthdays. Even so, we still lag the others.
The failure of governments to prioritise this area is reflected in funding. The most recent comparative OECD figures are now 11 years old but, although GDP in all countries has changed since 2012, the data reveal a general relationship that is still valid.
As a percentage of GDP, New Zealand spent four times as much
as we did. Sweden spent over ten times as much. On the basis of these figures,
Australia would have to triple its overall funding to match New Zealand and at
least quadruple it to match the high-performing countries of northern Europe.
Australian governments give less support to early childhood education and care than those in other similar countries. Private sources – mostly parents – are responsible for 35% of the cost. It’s one of many reasons why Australia’s system is so small, fractured and inadequate.
For each child who does attend, Australian governments spend
(in US dollars adjusted for purchasing power) less than the OECD average and
about half the amount spent in the Nordic countries.
But those figures include all elements of early childhood education, including fairly basic child-minding services. When we look at total funding for more advanced education programs – and that includes parents’ contributions – the comparison is even more pronounced.
The rising cost of living hits particularly hard at young families with small children, who have to make difficult decisions about where to spend their available cash. It should not therefore be a surprise that non-compulsory education is being regarded increasingly as an unaffordable luxury, as the latest ABS data show. The most comprehensive education is likely to occur in centre-based care, rather than in other settings (such as the home). And it is here that cost pressures are hitting hardest.
On a state-by-state basis, Victoria and Western Australia are being most affected, with enrolments in Victoria going down by 9% in a single year and in WA by 7.6%. Falls of this magnitude indicate a crisis.
The most recent Essential Poll has found that only 32% of respondents could “comfortably afford” to pay for early childhood education and childcare; 42% were finding it “a bit difficult” and 23% were “struggling to afford it”. The downturn in attendances is likely therefore to increase for at least the next couple of years and probably longer, until wages catch up with household costs.
It is almost inevitable that in a system which relies so heavily on parents’ capacity to pay, children in lower-income households are more likely to miss out on early education and care, even though they are likely to need it the most.
THE GOVERNMENT PROMISED TO FIX THE SYSTEM. BUT WILL IT?
Total funding of pre-school education amounted in 2022 to $17.4 billion, or 0.94% of GDP. The new money promised by the government won’t make much difference.
The federal government has promised to increase its funding of early childhood education by $1.7 billion a year. This will represent an increase of 16.5%, bringing the Commonwealth’s share to 0.55% of GDP. But overall funding will increase only from 0.94% of GDP to 1.02%.
It will take a lot more than that to give us an effective and equitable system of early education.
Based on what we know about the performance of other countries, Australia would have to at least double its funding to create a system that would be competitive with our peer-group nations.
And the balance between public and private funding would have to change: according to the OECD, more than a third of the total comes from private sources – mostly, parents. It is clear that doubling their contribution would not be possible. The cost squeeze would force large numbers of children out of the care they need. Such a reform would set the system back by decades.
Nor is it likely that the states and territories will be able to make up the difference. Most of the increase – if it is to take place – will have to come from the Commonwealth.
Even with the new injection of $1.7 billion a year, Australia will still be spending only 0.66% of GDP on early childhood education. And that includes a significant proportion of children aged under 6 who are nevertheless in primary school. The figures for children of four and under will be significantly lower.
Doubling the overall amount being spent without changing the contribution from parents would mean federal and state governments would have to find an extra $29.5 billion a year. Between $20 billion and $25 billion would have to come out of the Commonwealth budget.
This estimate is similar to that reached by economist Matt Grudnoff in a report for the Australia Institute’s Centre for Future Work, who calculated that government funding would need to increase by $21 billion.
THE ECONOMICS OF REFORM
It’s usually easier to count the cost of a public-sector initiative than to evaluate its benefits. And the more those benefits accrue to the welfare of individuals, the harder the task becomes.
Nevertheless, there are robust methods to do just this. Cost-benefit analyses are now becoming routine for government infrastructure initiatives and are used also for many other programs. These analyses, though, rely on being able to quantify outcomes: they don’t like making uncertain assumptions, so anything that cannot be quantified tends to be downplayed or left out. Cost-benefit analysis, therefore, is likely to under-estimate the economic benefits of early childhood education.
Another approach, Social Return on Investment, includes more of those intangibles but uses more assumptions. Many economists are wary of this approach.
Despite the shortcomings of the cost-benefit approach, there is extensive evidence in favour of early education. There’s a lot that can be quantified.
Dozens of studies have shown children who have had at least some pre-school education start primary school considerably ahead of their peers in literacy, numeracy and language skills. Much of that relative advantage continues through their education.
They are significantly more adept at social skills, better at interacting with others and less likely to show aggression and hyperactivity, had better engagement in the classroom, and improvements in several markers of physical and mental health.
But quality matters. In Australia and many other countries, there is little consistency, no mandated curriculum and – despite attempts at reform – little certainty about the effectiveness of services. In a system that is so fragmented, so varied and so reliant on private and other non-government services, this is perhaps inevitable.
Improved funding is not the only component of a better system. Unless quality and consistency is resolutely addressed – and there will be opposition from some providers – too much of any funding increase will be wasted, as it is now.US study, which conducted a cost-benefit analysis of one large program, showed it produced an economic rate of return of more than 14% in terms of benefits to individuals and the community. There was less crime, higher levels of employment and measurably improved educational outcomes.
Professor James Heckman of the University of Chicago (pictured), who won last year's Nobel Prize for Economics, was the study’s lead author. He wrote that: “These are underestimates of the rate of return because they ignore the economic returns to health and mental health.”
And, as the researchers’ notional diagram shows, programs were more efficient when they were provided early.
Another study, of a program in America’s Midwest, found:
“After five years [of age], these children were successful in school – academically, socially, and emotionally. Academic performance increased for children provided with high-quality, early learning. There were fewer placements in special education, which provided evidence that the emphasis on early identification and remediation of learning problems has merit.
“Additionally, the differences in math and reading on the state standardized indicators provided evidence that early intervention has long-term benefits for brain development when its architecture is most pliable.”
This shows the limitations of cost-benefit analyses, which can usually measure costs fairly accurately but which routinely under-estimate benefits such as these.
In Australia, there has been more of an emphasis on the effects on employment, and particularly for mothers who cannot re-enter the workforce if they have to be full-time carers. On the basis of Matt Grudnoff’s calculations for the Centre for Future Work, government budgets would benefit strongly by providing universal public access to early childhood education.
On this basis, federal and state governments would make a profit of around $20 billion a year, as increased employment produced greater tax revenue both directly (through income tax) and indirectly (through the economic stimulus of those employees’ extra spending).
There are two problems with this approach. One is that most of the benefits are more intangible and delivered over many decades, throughout the lives of better-educated children.
The second is that policy needs to be focussed on what is best for the child: the case for reform would persist even if there was no employment benefit at all. Making employment opportunities a major reason for reform would produce bad policy. A cheap child-minding service could do that job just as well as an expensive and comprehensive education program, but that would produce a system far worse than the one we have now.
BORROWING TO INVEST
Normally, recurrent costs should be provided through taxation and intergovernmental transfers. It is entirely reasonable, though, to fund necessary infrastructure through borrowing.
As we have seen earlier, a cost-benefit analysis of a large US scheme showed an annual economic return on investment of 14%. This, the authors said, was an under-estimate because some important aspects (such as the benefits to health and mental wellbeing) could not be quantified.
In our case, let’s assume a conservative return of 10%. If a government issues a 30-year bond for $1 billion, it is likely to have to pay around 3.5% annual interest. And, for this exercise, we can reasonably assume an average annual inflation rate of 2.5%, right in the middle of the Reserve Bank’s target band.
At the end of 30 years, the government will have to pay back the full principal of $1 billion. And every year, the interest – a fixed amount of $3.5 million – will be paid to the bond-holder.
So in nominal terms, the total cost to the government will be $1.105 billion.
But it’s not that simple. Or that expensive.
Inflation means that the real value of both the principal and the annual fixed interest payments will decline. At the end of 30 years, the real (inflation-adjusted) principal won’t be $1 billion: it will be worth only $480 million in today’s (2023) dollars. And the real cost of that annual $3.5 million interest will also reduce by the rate of inflation. Each year’s interest will be worth 2.5% less in real terms than the year before.
So by the end of 30 years, interest will have cost the government around $74.5 million. All up, paying back that original $1 billion will cost just $554 million.
Now let’s look at the other side of the ledger: what we get for our money.
With an annual return of 10%, that investment of $1 billion will produce $100 million in economic benefit to the community. Every year.
But that too is subject to inflation – with a difference. In real terms, the value of that economic benefit will be worth 2.5% more every year. So by the end of 30 years, the real benefit to the community (measured in today’s dollars) will be over $3 billion.
WHERE’S THE GOVERNMENT?
In 1872, Victoria became a pioneer in education. The colony’s Education Act was the first in Australia and one of the first in the world to institute public education that was “free, secular and compulsory”.
In those days, Australia led the pack. Now we don’t.
In practice, the principles of free, secular and compulsory education have been substantially eroded by the huge and growing private and religious schools systems, which are taxpayer-subsidised but fee-charging. But education, at least between the ages of 6 and 17, remains compulsory. And by law, non-government schools must adhere to standard curricula and standards.
None of this applies to the early childhood sector. It should.
The evidence of the benefits that early education brings to children between the ages of three and five is now so overwhelming that a fundamental redesign of the system is essential if Australia wants to remain socially and economically competitive with other developed nations.
A key shortcoming of the present system is its almost complete reliance on non-government service providers, mainly profit-making companies. Only 11% of services are run by government providers – either by state-managed organisations or within state schools. It is impossible to imagine any other element of the education system being conducted in this way.
Despite some improvement, quality remains a significant issue in all sectors but particularly among private providers. Of all the services provided by the private for-profit sector, 13.1% failed to meet the National Quality Framework criteria. For services provided by state governments, 9.3% failed.
Even under the modest standards of the National Quality Framework, only 33 providers were classified as being of “excellent” quality, out of a total of 15,574. The results for all sectors were disturbing but the for-profit sector was the worst, with only six of its 7,693 services (0.08%) regarded as excellent.
THE SHAPE OF REFORM
All governments, working together, need to endorse the basic principle that early childhood education must be regarded as an integral part of the overall education system and treated accordingly.
- Commonwealth and state ministers should agree on a program of reform and on the distribution of funding. The Commonwealth should make capital and recurrent funding available to the states and territories on a matched-funding basis, with the Commonwealth paying 60% to 70% and the states providing the rest.
- The Commonwealth’s principal roles will be in overall policy and curriculum development. The states should be the service deliverers.
- Reform must go far beyond delivering large amount of extra cash. Without fundamental redesign, there’s a high risk that extra funding, injected into a system which is inefficient, fragmented, over-privatised and inequitable, would be largely wasted. Re-structuring and re-financing must go together.
- The dominance of the private sector needs to end. There is no good reason why the balance between public and private providers should be any different from the proportions ruling in primary and secondary education – that is, two-thirds public, one-third private. This means that almost all growth should be in the public sector.
- Priority should be given to children in socially and economically disadvantaged areas. This is where the returns on investment will be the greatest.
- New and expanded child education facilities should be established, wherever possible, in the grounds of existing state primary schools. This would save capital: the land is already in government hands and, in some cases, existing buildings and other facilities could be used. It would also simplify administration and co-ordination.
It is simply a nonsense for governments to worry about the cost of providing universal, high-quality early childhood education. A better question is: how can we afford not to?