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Economic Analysis of Universal Early Childhood Education in the Year Before School in Australia

4 Mins read

There is an increasingly strong evidence base that demonstrates the impact of the early years on outcomes later on in life. While early childhood experiences do not entirely dictate future trajectories, they do create the foundations for all future learning, health and wellbeing.

Over the past 50 years, numerous international studies have shown that high quality early childhood education can have substantial and sustained impacts on a whole range of skills that are important for children’s futures. However, to date, no economic assessments of Australian early childhood education programs have been undertaken. International models do not necessarily reflect the unique nature of early child education provision in Australia or the specific social and economic circumstances of Australian society.

The Front Project commissioned PwC to undertake an economic analysis of early childhood education in Australia. The analysis focusses on the early childhood education provided to children in the year before they start school – often known as either preschool or kindergarten.

Scope of the analysis

The analysis has considered the benefits of early childhood education for children, their parents or carers, governments and employers against the costs of providing that early childhood education. It has used a methodology that is consistent with similar past studies and accepted approaches to economic analysis. It considers a broad range of short, medium and long-term benefits, all of which are strongly supported by either Australian or international evidence and use contemporary Australian data.

Benefits:

Children, their parents or carers, governments and business all benefit from the provision of a quality early childhood education:

  • The benefits of early childhood education for children include increased cognitive capabilities, which can be measured in terms of improved literacy and numeracy. These can be linked to improved achievement at school, which in turn affect school completion rates and levels of educational attainment. Educational attainment is in turn a strong predictor of earnings over a lifetime.
  • Some of the parents and carers of children who participate in early childhood education are able to participate in paid work, when they otherwise would not be able to, or choose to work more hours. They benefit from higher incomes, including over an extended period as a result of less career disruption.
  • Early childhood education also contributes to a more capable and highly qualified workforce, which is a benefit to business in terms of higher productivity and greater levels of innovation.
  • Governments are long-term beneficiaries of the provision of early childhood education. They benefit from higher taxes paid by parents and carers who are able to work more, and children who earn more over their lifetimes. Early childhood education also reduces unemployment and the resulting payments of unemployment benefits and other forms of social expenditure. State and Territory governments are beneficiaries as a result of fewer children repeating a year of school or needing special education placements, as well as lower health and criminal justice systems costs.

Whilst this study has been able to quantify in economic terms a broad range of benefits form investment in early childhood education, there are additional benefits from early childhood education that have not been quantified. A significant benefit of early childhood education is the improved social and emotional skills it provides children. Social and emotional skills have a significant and lasting impact on children and affect outcomes over their lifetime, contributing to achievement at school and at work, to positive relationships and social cohesion, to mental health and wellbeing. There is emerging evidence that early social and emotional capabilities developed in early childhood education predict later outcomes, but there currently insufficient evidence to track these benefits and quantify them in monetary terms over a lifetime. As such, our analysis is likely to be a conservative estimate of the overall benefits of early childhood education.

Costs:

The study has focussed on children accessing 15 hours of early childhood education in the year- before-school. Contributors to this cost include:

  • The Commonwealth Government, who is the major funder of early childhood education provided through the Child Care Subsidy1 as well as payments made to State and Territory Governments under the National Partnership Agreement on Universal Access to Early Childhood Education (NP UAECE).
  • The governments of Australia’s states and territories, who contribute to the cost by directly delivering early childhood education programs or funding other providers to do so, as well as undertaking regulatory and policy functions.
  • Parents and carers, who contribute to costs in terms of fees paid to providers of early childhood education services.

Key findings

Using 2017 as the reference year, this study has identified $2.34 billion in costs associated with the provision of early 15 hours of early childhood education in the year-before-school. These costs are split between government (79 per cent) and parents or carers (21 per cent).The study has also identified $4.74 billion in benefits associated with providing this one year of early childhood education. Some of these benefits will be realised in the short-term, including the additional income and higher taxes paid by parents or carers who choose to work more because early childhood education is available ($1.46 billion and $313 million respectively). Other benefits will be realised over a much longer period. The cognitive benefits for children who receive a quality early childhood education can be linked with to $1.06 billion in higher earnings over a lifetime and a further $495 million in higher taxes paid to government.The timing of the benefits has been accounted for using a discount rate of 3 per cent, which is consistent with other studies of the long-term benefits of social programs. The beneficiaries include:

  • Children – $997 million or 21 per cent of benefits
  • Parents and carers – $1.46 billion or 31 per cent of benefits
  • Governments – $1.96 billion or 41 per cent of benefits
  • Employers and businesses – $319 million or 7 per cent of benefits
Source: The Front Project, June 2019 - PWC

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