From Subsidies to Stewardship

Early childhood education and care is entering a new phase of reform in Australia, and the temptation is to treat each new measure as a stand-alone fix. A change to subsidised hours. A wage initiative. A new reporting timeframe. A new register. A tougher compliance lever. Each matters. None is sufficient on its own. If we want reform that actually shifts outcomes for children, families and educators, we have to stop thinking of the system as a set of policies and start treating it as a designed market delivering a public good, with all the responsibilities that implies.

There are signals that Australia is beginning to treat early childhood as the high-trust, safety-critical, nation-building infrastructure it is. But signals don’t automatically become system performance. The reform question for 2026 is “what must be true, in practice, for the new architecture to deliver what it promises?”

To answer that, we need to confront a hard truth. A system can look better on paper while getting riskier on the ground. Nationally in 2023–24, there were 148.1 serious incidents per 100 National Quality Framework-approved services, up from 139.4 the year before. ACECQA’s most recent annual performance reporting shows the rate rising again to 160 serious incidents per 100 approved services in 2024–25. Serious incident reporting is imperfect and differs across jurisdictions, but direction matters. If we are serious about reform, we must build a system where safety and quality do not depend on heroic effort by individuals, or on parents being able to shop their way to protection. We need a system where the default settings make the right thing the easy thing, and the risky thing hard to sustain.

That is why the next stage of reform must pivot from subsidies and standards alone to stewardship – the active shaping of incentives, information, supply, enforcement and capability so that quality providers thrive, families can trust, and children are protected without needing luck.

Reform starts with a simple test – does the system reward quality, or merely fund activity?

Australia’s early childhood system is often described as “mixed provision,” but that phrase hides the central design challenge. Government sets objectives, funds demand through subsidies, regulates minimum standards, and then expects a diverse provider base to deliver safe, developmental, relationally rich services at scale. This can work, but only if the system’s incentives are aligned with its outcomes.

Right now, the system still behaves like a volume buyer. The main funding stream pays per hour of care, mediated by family eligibility and an hourly rate cap. The government is clear it does not set fees, and that the subsidy applies to the lower of the service fee or the hourly rate cap. This structure can expand access, but it also creates predictable behaviours. When demand is strong and information is imperfect, fees rise. When workforce costs rise, services face a choice between absorbing costs, lifting fees, reducing staffing buffers, or compromising non-obvious aspects of quality. When capital is scarce in an area, supply lags behind need and parents have less choice. And when a provider is poorly governed, families often learn that last.

The ACCC’s inquiry into childcare markets landed on a crucial point – a “one size fits all” intervention is unlikely to be effective, because conditions differ across local markets and across service types. That is a competition and pricing insight, but it is also a reform philosophy. If we keep applying uniform rules and uniform funding levers to a highly variable service landscape, we will keep getting uneven outcomes, with pockets of excellence and pockets of risk.

Stewardship means acknowledging this variability and responding with instruments that are precise enough to match it.

Child safety reform is necessary, but it will fail if it becomes a compliance performance rather than an operating system

The child safety package embedded in the National Quality Framework is a significant shift. The move from a seven-day to a 24-hour notification timeframe for allegations or incidents of physical or sexual abuse changes the tempo of regulatory response and expects services to have internal escalation that is immediate, practiced, and psychologically safe for staff to use. The new requirements around safe use of digital technologies and online environments, including clearer expectations around policies and procedures, respond to the reality that children’s lives, family communication, and service operations are now digitally mediated. The refinements to Quality Areas 2 and 7 matter because they explicitly name child safety and embed it into governance and management systems.

The risk is that services experience this as a checklist, and regulators experience it as documentation, while the real determinants of safety remain unchanged. In early childhood, safety failures rarely come from one missing policy. They come from interacting pressures – thin staffing, high turnover, poorly inducted casuals, weak supervision design, inadequate line-of-sight, exhausted leaders, and governance that is focused on occupancy and margin rather than culture and risk. If we respond to this reality only with more rules, we will create a two-tier world – providers with strong systems translate rules into safer practice, while weaker providers learn to produce paperwork.

That is why the National Educator Register is potentially one of the most important reforms in years because it can become the backbone of risk-based regulation. The Register’s stated purpose is to give regulators visibility into who is working where, their checks, training and qualifications, and to support monitoring and response to risk. If implemented well, it allows regulators to move from periodic inspection to continuous oversight that is proportionate, evidence-led and targeted.

But data alone doesn’t create safety. Stewardship means designing the “closing of the loop” between what is detected and what changes. The new 24-hour notification requirement should be paired with a regulatory operating model that triages notifications, identifies patterns across services and providers, and responds with interventions that are escalatory and supportive. The new NQS emphasis on child-safe governance should translate into expectations about board competence, incident learning, supervision design, and workforce stability.

In other words, child safety reform must become a learning system.

Affordability and workforce reform cannot be separated from market design

The Worker Retention Payment is another signal that governments are now willing to intervene directly in the cost structure of the system. It is a two-year grant designed to lift wages by 10% above award in the first year and a further 5% in the second year, with additional funding toward on-costs. It is also explicitly conditional on limiting fee growth, with a cap that has been set at 4.4% for the first year and 4.2% for the second, with future limits guided by a new Childcare Services Cost Index developed by the ABS. The government has also created a pathway for some services that exceeded the initial cap to become eligible later, under a combined cap across two years.

This structure is, in effect, an experiment in a more stewarded market. Government is saying – we will help pay for the workforce you need, but we will not fund wage rises that simply flow through to fee inflation. It is a reasonable intent. But the design exposes the deeper problem – the system does not yet have a trusted, independent view of what it actually costs to deliver high-quality early childhood education and care across different contexts.

That is why the Commonwealth’s investment in building a data-driven understanding of “reasonable costs” of service delivery is foundational. Without credible cost benchmarks, reform risks swinging between blunt fee controls that can harm viability and quality, and open-ended subsidy growth that can be absorbed by higher prices. The ACCC warned that without regulatory reform, future subsidy increases may be competed away through fee growth, undermining affordability gains.

A stewarded system needs a pricing and funding architecture that can do three things at once. It must keep early childhood within the means of families, it must fund a workforce that can deliver safe and developmental practice, and it must ensure services remain viable in places where demand is uneven and costs are structurally higher.

That implies a shift from pretending “the market” will solve pricing to building a service-delivery price logic that is transparent and differentiated. The hourly rate cap is a blunt instrument, it is a ceiling on subsidised price, not a definition of efficient cost. A mature system would move toward independent cost benchmarking that recognises geography, service type, age mix, supervision design, and the staffing profile required to meet strengthened child safety expectations. It would use that benchmarking to inform how funding levers are set, how fee constraints are calibrated, and how viability support is triggered.

This is about creating guardrails that prevent the system from rewarding cost-cutting disguised as efficiency.

The 3 Day Guarantee is a landmark access reform, but access reforms become hollow without supply and quality capacity

The 3 Day Guarantee is now in effect and has replaced the activity test, guaranteeing at least 72 hours of subsidised care per fortnight for CCS-eligible families. It is an equity reform as much as a cost-of-living reform. It recognises that early childhood education and care is part of how children build language, belonging and readiness for school.

Yet every expansion of entitlement raises the same practical question – where will the places come from, and what will happen to quality when demand rises faster than workforce and infrastructure?

The Bills Digest for the Three Day Guarantee legislation makes the risk explicit – increased demand could occur in markets where places are already limited. The Productivity Commission’s vision of a universal system is more expansive again, describing a pathway where every child aged 0–5 whose family wishes to use early childhood services can access at least 30 hours, three days a week, for 48 weeks of the year. The Commission’s own modelling indicates demand would rise under such reforms, primarily among children in low- and middle-income families not currently attending.

Stewardship means planning for demand honestly. It means acknowledging that in some communities, expanding entitlement without supply response simply shifts scarcity into longer waiting lists, less parental choice, and more pressure on services to stretch staffing. It also means understanding that “more places” cannot be achieved only through the same commercial incentives that built supply in already-profitable markets.

The Commonwealth’s announcement of targeted capital grants aimed at priority and underserved markets, including regional locations and on school sites, is an acknowledgement of this. The separate investment to develop a business case for government to own and lease centres is another signal that the old assumption, that private capital will always meet public need, is no longer taken for granted.

The reform challenge is to turn these signals into a coherent supply strategy that is locally intelligent. Thin markets require different tools than metropolitan corridors. In some places, the right answer will be capital grants and planning support. In others, it will be long-term leasing models that remove property risk. In others, it will be commissioning arrangements where government specifies outcomes and supports capability rather than simply subsidising hours. What matters is that supply policy becomes part of reform design.

Workforce reform must go beyond pay – professional infrastructure is now the binding constraint

Wages matter. The Worker Retention Payment acknowledges what the sector has said for years – the system cannot be safe and high-quality if educators are paid as if their work is low-skilled. But even a significant wage intervention will not automatically create the workforce we need. Early childhood is confronting a professional infrastructure challenge.

A stewarded system invests in four workforce pillars at once – attraction, preparation, practice support, and retention. Preparation is about whether the training pipeline reliably produces educators who can supervise safely, build secure relationships, work with families, and respond to risk. Recent regulatory actions in the training sector, including cancellations affecting early childhood qualifications and guidance from ACECQA for services engaging educators with such qualifications, underline that training quality and integrity land directly in service capability.

Practice support matters because the most important learning in early childhood happens inside the service – mentoring, reflective practice, supervision design, and leadership that makes standards real. That is why governance reform under Quality Area 7 is so pivotal, it is meant to anchor sustained quality, documented and evaluated in partnership, with systems to manage risk. If we want this to be more than words, we must treat leadership development and operational capability as reform levers.

Retention is affected by wages, but also by workload, ratios, emotional safety, time for planning, and the experience of being trusted as a professional. If reform becomes surveillance-heavy without being support-heavy, it will drive out the very people the system needs. The child safety package must therefore be implemented in a way that strengthens practice.

The National Educator Register can help here too, if it is used to reduce burden rather than add to it. Done well, it can simplify evidence of compliance across jurisdictions, streamline checks, and reduce duplication, while enabling regulators to focus on meaningful risk. Done poorly, it becomes another administrative layer that shifts time away from children.

Stewardship is the discipline of designing reforms so that the workforce experience improves as safety expectations rise, rather than deteriorates.

Regulation must become proportionate, preventative, and capable of managing provider failure without harming children

Australia has historically relied on approval, assessment and rating, and compliance action to manage quality. That will remain essential, but the emerging data suggests the current approach is not sufficient to keep pace with system complexity. In 2024–25, the rate of serious incidents reached 160 per 100 approved services, and ACECQA notes long day care reports a higher rate than other service types, unsurprising given younger children and longer hours. The Report on Government Services cautions against simplistic comparisons, but it still frames the rate of serious incidents as a safety signal.

At the same time, service numbers continue to grow and participation remains high. Over 1.4 million children aged 0–12 attended CCS-approved services in 2024, and more than half of children aged 0–5 attended approved services. Government expenditure on early childhood is substantial and rising, with the Report on Government Services noting total government recurrent expenditure of $20.4 billion in 2024–25. This is a large, complex system delivering high-stakes outcomes. We should regulate it accordingly.

In such systems, the worst failures often occur when weak providers can continue operating until a crisis forces action. The Commonwealth’s push for stronger levers to address repeated failures, including mechanisms discussed publicly around funding consequences for centres breaching standards, reflects a desire to close that gap.  A stewarded approach is about having an earlier, smarter set of interventions that prevent the need to use it.

That requires three capabilities.

The first is real-time risk detection. Notifications, staffing patterns, educator registration data, complaints, and repeated minor breaches must be analysed as a pattern, not treated as separate events. The educator register is a building block for this.

The second is graded intervention. Some services need support to improve supervision design, governance systems, and incident learning. Others need closer monitoring. A smaller number need decisive enforcement and exit. The National Quality Framework’s new emphasis on risk management systems in governance is an opening to formalise this.

The third is continuity planning. When a service fails, children and families should not bear the cost through abrupt closures, chaotic transfers, or loss of trusted relationships. A stewarded system plans for provider failure the way infrastructure systems plan for outages. It maintains contingency capacity, coordinates transitions, and ensures children are not moved into equally risky settings. Reform must include protocols for managed exits.

If we do not build these three capabilities, every new safety rule will increase administrative load while leaving the system structurally prone to the same shocks.

Transparency must be designed to change behaviour, not merely to disclose information

One of the quiet themes across recent reforms is transparency. Public information portals and regulatory record visibility are intended to help families make informed choices and to create reputational incentives for providers. This is consistent with the ACCC’s emphasis on improving information to parents and guardians and strengthening transparency in the system.

But transparency only works when it is usable and when families have real options. In constrained markets, information can tell you a service is struggling without providing an alternative. In time-poor households, complex quality information can be impossible to interpret. In communities where services are culturally important, reputational penalties can harm trust without improving safety.

Stewardship therefore means designing transparency for three audiences at once. Families need clear, comprehensible signals about safety and quality. Providers need feedback that is specific enough to guide improvement. Regulators and governments need system-level insight that identifies where risk is clustering and where capacity is failing.

The educator register, the new notification timeframes, and the explicit child-safety framing in the NQS create an opportunity to build a more sophisticated transparency model – one that identifies patterns earlier, supports improvement pathways, and triggers intervention when risk is persistent.

The point is to ensure the system can see itself clearly enough to protect children.

A coherent reform agenda for 2026 must integrate five strands into one strategy

Australia is already implementing major pieces of reform. The risk now is fragmentation – safety reforms implemented as compliance, access reforms implemented without supply strategy, workforce reforms implemented without professional infrastructure, and pricing reforms implemented without credible cost benchmarks. The opportunity is integration.

A coherent strategy would treat the 3 Day Guarantee as a foundation of entitlement, then build supply and workforce capacity around it so the entitlement is real in every community. It would treat the Worker Retention Payment as a bridge toward a sustainable wage and funding settlement that is informed by the Childcare Services Cost Index and by rigorous service-delivery cost modelling. It would implement the child safety package as an operating system, with the educator register enabling risk-based regulation that is faster and more proportionate. It would use transparency tools to drive improvement and system learning. And it would explicitly plan for provider failure and thin markets, recognising that continuity for children is part of quality.

The Productivity Commission has already provided a long-horizon roadmap toward a universal system, with at least 30 hours a week for 48 weeks, and 56 recommendations that span availability, affordability, quality and equity. The reforms now underway can be seen as early steps along that path, but only if they are stitched together by a stewardship mindset.

Stewardship is not a new agency, though an independent national coordinating capability may ultimately be part of the answer. Stewardship is a way of governing the system – setting clear outcomes, aligning incentives, measuring what matters, intervening early, building capability, and protecting children and families from the predictable failures of an unmanaged market.

If reform in 2026 is simply more rules and more money, the system will keep drifting – better in some places, worse in others, always one scandal away from reactive policy. If reform becomes stewardship, Australia can build something rare – a national early childhood system that is trusted, equitable, safe, and professionally sustaining, where the default settings make quality the easiest business model to run.

That is the reform task now. Not to add more pieces, but to make the pieces work together as one system, designed for the outcomes we say we value.

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