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Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011



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ISSN 1328-8091

Parliament of Australia Departmentof Parliamentary Services

Contents

Purpose .................................................................................................................................................... 2

Background .............................................................................................................................................. 2

Main issues............................................................................................................................................... 4

Financial implications ............................................................................................................................... 5

Key provisions .......................................................................................................................................... 5

Schedule 1—Amendments to the A New Tax System (Family Assistance) (Administration) Act 1999 ........................................................................................................................................... 5

Concluding comments ............................................................................................................................. 6

BILLS DIGEST NO. 134, 2010-11 15 June 2011

Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

Marilyn Harrington Social Policy Section

2 Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

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Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

Date introduced: 26 May 2011

House: House of Representatives

Portfolio: Employment Participation and Childcare

Commencement: The day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The purpose of the Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011 (the Bill) is to amend the A New Tax System (Family Assistance) (Administration) Act 1999 (the Act) to strengthen its provisions with regard to the financial viability of ‘large’ long day care centre (LDCC) operators who apply for, or receive, Child Care Benefit. The Bill defines large LDCC operators as those who operate, or propose to operate, 25 or more LDCCs.

The Bill proposes to make financial viability a specific prerequisite for the approval to operate, and continue to operate, a large LDCC. In order to determine the financial viability of these operators, the Bill contains two sets of measures. The first set relates to the collection of financial information from large LDCC operators, and those with a significant connection to the operator, so that the Secretary can determine the financial viability of services. The second set of measures proposes to empower the Secretary to instigate an independent audit if there are concerns arising from the financial information provided.

Background

The Bill’s measures are a further step by the Government to strengthen the regulatory and financial management framework of the child care industry in the wake of the collapse of ABC Learning Centres Limited (ABC Learning).1

1. The Bill’s Regulatory Impact Statement (RIS) provides information about other action that the Government has taken. See: Explanatory Memorandum, Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011, p. 8, viewed 31 May 2011, http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r4583_ems_920d5c3c-7aff-4edb-94b3-23a85f920164/upload_pdf/355645.pdf;fileType=application%2Fpdf

Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011 3

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The collapse of ABC Learning affected about 1000 child care centres across the country and threatened the child care arrangements for some 120 000 children—that is, about 20 per cent of LDCCs and 24 per cent of LDCC places.2 Prior to ABC Learning’s collapse, in spite of ongoing speculation about the company’s financial viability and growing indicators of its financial difficulties, the Department of Education, Employment and Workplace Relations (DEEWR) did not have authority to conduct its own independent examination of the company’s financial records—it could only rely on the company’s assurances that it would trade out of its difficulties.3

The Bill’s measures are also taking place within the context of the National Quality Framework for Early Childhood Education and Care (the NQF), agreed to by the Council of Australian Governments and scheduled to come into effect from 1 January 2012. The NQF includes improved carer-to-child ratios, higher qualification requirements for child care workers and assessment of services against the NQF’s National Quality Standard.4 The NQF will be underpinned by the Education and Care Services National Law enacted by all states and territories to introduce national uniform licensing and regulation processes.5

The current Act is not specific about the eligibility conditions for operators to be approved, or to continue to be approved, to provide child care services for the purposes of receiving Child Care Benefit.6 Rather, it defers to rules to be determined by the Minister by means of a legislative instrument.7 These rules require that the applicant and key personnel be ‘suitable’ people to operate a child care service, taking into account their expertise and experience in providing child care, and their ability to provide quality child care.

There is only one reference to financial management in the current rules and that relates to the financial management record of applicants who have been previous providers of child care services. There is no provision for the Secretary of the relevant government department (currently DEEWR) to access an operator’s financial records to determine their suitability to operate a child care service. However, the Regulatory Impact Statement (RIS) contained within the Explanatory Memorandum

2. Explanatory Memorandum (EM), op. cit., p. 6. The RIS in the EM provides further background on the ABC Learning collapse and subsequent events. See also: Senate Education, Employment and Workplace Relations References Committee, Provision of childcare, The Senate, Canberra, 2009, pp. 22-34, viewed 31 May 2011, http://www.aph.gov.au/Senate/committee/eet_ctte/child_care/report/report.pdf

3. DEEWR, Submission to the Senate Education, Employment and Workplace Relations Committee, Inquiry into the provision of childcare, 2009, p. 4, viewed 31 May 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=68ee49d9-77be-4d53-aca9-a52e972a3f83

4. For further information, see: Department of Education, Employment and Workplace Relations (DEEWR), ‘National Quality Framework for Early Childhood Education & Care’, DEEWR website, viewed 31 May 2011, http://www.deewr.gov.au/EarlyChildhood/Policy_Agenda/Quality/Pages/home.aspx

5. For further information, see: DEEWR. Early Childhood Development Working Group, Information paper on the Education and Care Services National Law and the proposed national regulations, DEEWR, Canberra, 2010, viewed 6 June 2011, http://www.deewr.gov.au/Earlychildhood/Policy_Agenda/Documents/NationalInformationPaper.pdf

6. To be eligible to receive Child Care Benefit, child care service providers must first be approved to operate under state and territory child care licensing laws. 7. Child Care Benefit (Eligibility of Child Care Services for Approval and Continued Approval) Determination 2000, viewed 31 May 2011, http://www.comlaw.gov.au/Details/F2011C00113/Download

4 Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

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advises that the rules have been revised. The proposed changes will enable the Secretary to consider the financial viability of applicants and key personnel as part of assessing their suitability to operate a child care service.8 The revised Eligibility Determination, which contains the rules, will be registered on the Federal Register of Legislative Instruments when its RIS is approved by the Office of Best Practice Regulation.9

Main issues

The Bill’s measures, if passed, will amend the Act to insert specific financial accountability requirements. However, these requirements will apply to six large LDCC operators only.10 These operators provide about 900 services, representing 14 per cent of the long day care market.11 The RIS identifies the largest provider of LDCC services as GoodStart Childcare Ltd, a syndicate of four non-profit organisations which purchased 678 ABC Learning Centres.12 The names of the other five large operators cannot be divulged because of the protected information provisions within the Act.13 GoodStart Childcare is named because that information is in the public domain.14

During the June quarter 2010, there were 5930 LDCCs and 430 650 families, involving 528 140 children, using LDCC services.15 There are no aggregated statistics indicating the market penetration of LDCC operators—that is, the number of operators by the number of services provided. It is known, however, that most child care operators are small, operating one or a few services16, and that there are at least another 14 LDCC providers ‘on the threshold of owning 25 services’.17

There is no specific explanation in the Explanatory Memorandum, the RIS, or the Minister’s second reading speech, for limiting the Bill’s provisions to those operators who provide 25 services or more. It is apparent that the six operators affected by the Bill have the greatest capacity to disrupt the child care market if they failed financially, affecting child care provision for families and the employment of those working in the industry. However, there are other providers who operate close to 25 services and which may also have significant capacity to disrupt the market. During stakeholder consultation about the Bill concern about the regulatory burden was expressed by these

8. Explanatory Memorandum, op. cit., p. 9. 9. DEEWR, email, 31 May 2011. 10. Currently only six day care centre operators operate 25 or more approved centres (see the definition in item 5). 11. Explanatory Memorandum, op. cit. 12. Explanatory Memorandum, op. cit. See also GoodStart Childcare Ltd’s website, viewed 6 June 2011,

http://www.childcare.com.au/goodstart-childcare-limited 13. DEEWR, advice of DEEWR officer, email, 31 May 2011. Protected information is defined in section 3(1) of the Act. Sections 162 to 164 deal with the collection and use of protected information, and sections 165 to 169 deal with the

disclosure of protected information. 14. DEEWR, oral advice, 31 May 2011. 15. DEEWR, Office of Early Childhood Education and Child Care (OECECC), Child care update, OECECC, Canberra, 2011,

viewed 6 June 2011, http://www.deewr.gov.au/Earlychildhood/Resources/Documents/ChildCareUpdate.rtf 16. Explanatory Memorandum, op. cit., p. 5. 17. Ibid., pp. 18-19.

Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011 5

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other significant operators.18 It may be a case, therefore, of trying to achieve a balance between ensuring the financial viability of a significant part of the market while limiting the regulatory burden for smaller operators. In any event, the Bill does make provision for the Secretary to amend by regulation the definition of a large operator.

Financial implications

The Explanatory Memorandum states that the cost of the Bill’s provisions will be $1.9 million over four years, from 2010-11 to 2013-14.19

This funding was announced at the time of the 2010-11 Budget as part of the Government’s $273.7 million to ‘support the introduction of the new National Quality Framework for early childhood education and child care’.20

Key provisions

Schedule 1—Amendments to the A New Tax System (Family Assistance) (Administration) Act 1999

Items 1 to 7 propose to insert new definitions and make other amendments to the definitions in subsection 3(1) of the Act. The proposed definition of a ‘large long day care centre operator’ (item 5), defined as a person (or persons) who operates or proposes to operate 25 or more approved LDCC centres21, is the pivotal new definition.

Subsection 195(1) provides that the Secretary must approve a child care service for the purposes of the family assistance law if satisfied the conditions set out in the subsection are met. Item 10, proposes to insert new paragraph 195(1)(ba), which adds the requirement that it is a condition for approval of a child care service that, if the operator is a large LDCC operator, the Secretary must be satisfied the operator is financially viable and is likely to remain so.

Item 14, proposes to insert new section 196A, and provides that it is a condition for the continued approval of a child care service operated by a large LDCC operator that the operator is likely to remain financially viable.

18. Ibid., p. 20. 19. Ibid., p. 2. 20. J Gillard (Minister for Education. Minister for Employment and Workplace Relations, Minister for Social Inclusion, Deputy Prime Minister) and K Ellis (Minister for Early Childhood Education, Child Care and Youth), $273.7 million to

boost the quality of child care and early childhood education for Australian children, media release, 11 May 2010, viewed 31 May 2011, http://www.deewr.gov.au/Ministers/Ellis/Media/Releases/Pages/Article_100511_174044.aspx The media release also advised that this funding would be partially offset by the capping of the Child Care Rebate. 21. Note item 7 provides that the Minister may, by legislative instrument, change this figure of 25.

6 Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

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Items 11-13 and item 15 relate to the consideration and provision of financial information for the Secretary’s determination of financial viability. Item 15, which proposes to insert new subsection 219GA, authorises the Secretary to seek financial information relating to large LDCC operators, defines the persons who can be required to provide financial information, and details the information the Secretary can request and the processes for seeking that information.

Item 15 also proposes to insert new section 219GB which empowers the Secretary to authorise an audit of an operator of an approved child care service if there are concerns about its financial viability as the result of information received under new section 219GA.

Items 16 to 20 make provisions for the operation of an audit, including the powers and responsibilities of members of the audit team, the audit report, the obligations of operators and occupants of approved child care services in relation to the audit and audit team members, and the penalties for contravening these obligations.

Item 26 is an application provision, allowing the Secretary to seek financial information relating to large LDCC operators only in respect of a financial year that begins on or after 1 July 2010.

Concluding comments

The introduction of the Bill is occurring at a time of great change for the child care industry, chiefly as a result of the NQF. It has been acknowledged that the NQF will increase the cost of child care.22 In spite of its inherent benefits, how far the costs associated with the introduction of the NQF, including the proposed measures in the Bill, will affect the financial viability of child care providers remains to be seen. However, the new national licensing and regulation framework is intended in part to offset some of the impost of this new child care regulatory environment.

22. Council of Australian Governments (COAG), Regulation Impact Statement for early childhood education and care quality reforms, COAG, 2009, viewed 6 June 2011, http://www.coag.gov.au/coag_meeting_outcomes/2009-12-07/docs/ris_early_childhood_education_care_quality_reforms.pdf

Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011 7

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© Commonwealth of Australia 2011

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