Christiane Purcal
Karen Fisher
Social Policy Research Centre, University of NSW

This paper presents a model of the approaches open to government to ensure that early childhood services are affordable to families. We derived the model from a comparative literature review of affordability approaches taken by government, both in Australia and internationally. The model adds significantly to the literature by proposing a means to understand and assess the numerous options for affordability funding. The model suggests that the options fall into only three basic approaches: operational funding, fee subsidies and tax relief. Application of this simple model helps clarify the costs and benefits of particular choices within these approaches. We predict that the choices affect cost to government, affordability to families, and participation by children in early childhood services.

Introduction

Policy-makers have recognised the importance of good-quality early childhood education and care, both for children's development and for parents' participation in work, study and community activities. Therefore governments aim to facilitate affordable access to children's services (e.g. Australian Government Department of Family and Community Services, 2005). However, this proves very difficult in the current context of rising human services costs (Popple & Martin, 2003; Rice & Press, 2002). This paper presents a model of the approaches open to government to ensure that early childhood services are affordable to families.

In Australia, governments at both Commonwealth and state/territory levels subsidise children's services in order to reduce or eliminate the fees families have to pay. Across the country, a range of funding programs is in place, including operational subsidies to children's services in several states and both territories, and free preschool services in most states and the territories. Some government subsidies are directed especially at low-income families, for example the NSW Government's Preschool Affordability Assistance and the Commonwealth's Child Care Benefit. However, there is a lack of tools for comparing different approaches.

This article proposes a model of different types of affordability measures. It categorises the variety of approaches open to government and thereby provides a tool for understanding and comparing these approaches. This model can be used to develop criteria for assessing the effectiveness of particular affordability measures at reducing costs for families and improving equity of access.

In order to develop this model, we first look internationally. How have other countries attempted to improve affordability, and how do their approaches compare with those applied in Australia? Using this information, we then develop a model of different approaches, which can be used as a basis for assessing the numerous options for affordability funding. Applying such a model helps understand the costs and benefits of particular policy choices. We predict that the choices affect cost to government, affordability to families, and participation by children in early childhood services.

Research design

Methodology

This study compares early childhood affordability funding measures in Australia and other countries in the Organisation for Economic Cooperation and Development (OECD). It focuses on Western industrialised countries, which resemble Australia politically and socioeconomically and are therefore most likely to provide similar early childhood services and employ affordability measures that can be compared with those in Australia. Information was collected on the funding of early childhood services in Canada, New Zealand, the United States (US) and 11 Western European countries (Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Portugal, Sweden and the United Kingdom). The information was gathered through a literature search and, in Australia, through interviews with government officers.

A large variety of policy options was surveyed and the options then classified according to a small number of identified basic approaches. These approaches were analysed and assessed regarding their ability to ensure affordable access to children's services, especially in the Australian context.

Definitions and limitations

Early childhood services provide care and education for children from shortly after birth to formal school entry, which ranges from five to seven years in the countries examined. A vast array of services and institutional arrangements exists, and the terminology for early childhood services varies between jurisdictions. But in all countries the most common service types are some kind of long day care, family day care and preschool.

In this study, the term ‘long day care' refers to centre-based care available for at least eight hours per day. ‘Family day care' means care provided to a small group of non-related children in the carer's home, and ‘preschool' refers to sessional educational services for children from three years to compulsory school age. Preschool-type educational programs may also be provided in long day care centres and other settings, but in this study the term ‘preschool' refers only to dedicated preschool services.

Other forms of early childhood services, such as occasional care or in-home care schemes, are not included in this study. They comprise only a very small percentage of Australian early childhood services (Australian Government Department of Family and Community Services, 2005). Funding schemes for children with additional needs, including disabilities or indigenous background, are also not considered. Finally, services during a compulsory transition year to school, such as kindergarten in NSW, are not included in this study. While they may cater for relatively young children—some students in NSW kindergartens are only four years old—these services represent the first year of compulsory, full-time schooling and are therefore not considered early childhood services.

This article does not discuss the quality of children's service provision and how quality affects cost. While these are important considerations in early childhood learning and accessibility, they are reviewed elsewhere (for a general discussion, see Ceglowski, 2004; for Australia, see OECD, 2001a).

This article is about affordability funding that improves access for low-income families. All government subsidies to early childhood services could be considered affordability funding because they reduce the cost of the service to families, thereby increasing affordability (unless the service provider uses the subsidy to increase profit margins). In all countries examined here, a proportion of government funding benefits all families who use early childhood services. Some funding is for purposes other than affordability, including family participation in the labour market, support for particular quality measures, locations, service types or service providers.

All governments direct some proportion of their funding at low-income families to reduce their costs further and, in this way, ensure more equitable access to early childhood services. More equitable access is achieved if out-of-pocket costs for children's services represent a similar proportion of income for low- and high-income earners. Affordability funding directed at low-income families is the focus of this study.

The study does not discuss what is meant by ‘affordable' early childhood services. A different body of literature deals with this question, analysing national family income and childcare expenditure data and determining either which proportions of disposable income different family types have to spend if they want child care (e.g. Australian Institute of Health and Welfare, 2001; Blau, 2000), or by how much childcare costs have risen compared to the consumer price index (Cassells, McNamara, Lloyd & Harding, 2005).

The term ‘affordability' itself is rarely defined. This is partly because affordability has a subjective dimension. Some families may consider child care affordable because it is important to them and they are willing to make sacrifices to pay for it; while, for others on the same income, child care may seem unaffordable.

However, early childhood services become objectively unaffordable if the cost exceeds a certain proportion of family income. In Australia, non-government organisations have set benchmarks for affordability of early childhood services at around five to six per cent of disposable income (Powlay, 2000). While Australian governments have not set any benchmarks, they acknowledge that, from a family's point of view, lower out-of-pocket expenses represent ‘more affordable child care' (Australian Government Productivity Commission, 2005).

Comparative affordability funding

Early childhood services are established and run by government, non-profit organisations or private providers. The ongoing cost of care is usually covered through a combination of public funds, family contributions and, in rare cases, employer contributions. In federal systems, several levels of government may be involved in early childhood services funding. This section describes Australian and international government funding methods with particular emphasis on affordability measures for low-income families, summarised in Table 1.

Table 1. Early childhood services affordability measures by jurisdiction

	Operational funding		Fee subsidies	Tax relief
	Other	Free universal preschool
Australia
Commonwealth	•		•
Australian Capital Territory	•	•
New South Wales	•		•
Northern Territory	•	•
Queensland	•
South Australia		•
Tasmania		•
Victoria	•		•
Western Australia		•
Internationally
Canada	•	•	•	•
New Zealand	•	•	•
United States	•		•	•
Belgium	•	•	•	•
Denmark	•	•	•
Finland	•		•
France	•	•	•	•
Germany	•		•	•
Italy	•		•
Netherlands	•	•	•	•
Norway	•		•	•
Portugal	•	•	•	•
Sweden	•	•	•
United Kingdom		•		•

In every country examined, privately or publicly funded early childhood services are available, mostly in preschools, long day care centres and family day care. In all jurisdictions, families contribute to the cost, but all governments have additional mechanisms in place to increase the affordability of early childhood services for low-income families. While details vary greatly across jurisdictions, three basic approaches to affordability funding can be identified:

• Operational funding: governments pay a portion of the early childhood service's capital or running costs with the aim to reduce fees for parents. They may even pay all of the service costs and provide free universal preschool services.
• Fee subsidies: families receive a government contribution to reduce their cost of using a children's service. The fee subsidy may be paid directly to the service on behalf of the family.
• Tax relief: governments provide income tax reductions.

Operational funding

In all countries examined for this study, governments contribute to the capital and operational costs of early childhood services, summarised here as operational funding.

Sometimes all licensed or registered services receive operational funding. This is the case in New Zealand, for example, where all services receive a subsidy depending on the number of hours children attend, the ages of the children, and the type and standard of the service. The highest rate is available to all-day, centre-based services that employ registered teachers only (information about New Zealand was obtained from government administrators; New Zealand Ministry of Education, 2001, 2004, 2005; and New Zealand Departments of Work and Income and Inland Revenue, 2005).

There are wide variations in the proportion of service costs covered by operational funding. In Canada, these subsidies make up 30.5 per cent of average service revenue (information on Canada comes from Friendly, Beach & Turiano, 2002). In Finland, they cover 85 per cent of service costs; while in Germany, where each Land and municipality has its own funding arrangements, operational subsidies vary significantly across the country (examples in OECD, 2004b; unless indicated otherwise, information about the European countries comes from OECD, 2001b; see also the summary table in Cleveland & Krashinsky, 2003).

Many jurisdictions concentrate their operational funding budget on certain types of early childhood services. In Australia's Northern Territory, community-based, non-profit children's services can apply for capital funding from government to assist with licensing upgrades. In addition, long day care centres receive per capita funding to help reduce fees for families (unless stated otherwise, information about early childhood services funding in Australia was obtained from government officers).

In Queensland, community children's services and preschool services that cater for three- to five-year-olds are funded via recurrent assistance and capital assistance schemes. The former provides up to 80 per cent of staff costs, depending on the approval status of the service. Capital assistance contributes up to 50 per cent of the cost of a project to a maximum grant of $50,000.

The NSW Government provides capital and operational funds to just over half of all licensed children's services within the state. Funded services are mostly preschools and, to a lesser extent, non-profit long day care centres (NSW Department of Community Services, 2004). Like NSW, Victoria concentrates its operational funding on preschools. The state provides per capita grants, i.e. annual amounts paid for each four-year-old for 10 hours of sessional preschool per week. The Australian Commonwealth Government supports new family day care centres with capital funding (OECD, 2001a).

Some jurisdictions also offer discretionary grants. In this way the New Zealand Ministry of Education, for example, supports community-based services that cater for low-income and working families and those with certain ethnic backgrounds.

In addition to these general operational funding schemes, governments are trying to direct some subsidies at low-income or otherwise socially disadvantaged families. In the US, federal discretionary grants are funding children's services for low-income families (Almanac of Policy Issues, 2003). Amounts are allocated among states according to each state's share of children under five, each state's share of children receiving free or subsidised lunches, and state per capita income. Portugal provides additional funding to children's services in socioeconomically disadvantaged areas (Portuguese Government, Ministry of Education, 2000), while Belgium targets both low-income and ethnic areas. New Zealand provides equity funding for non-profit services that are in low socioeconomic communities, have significant numbers of children with additional needs or are from non-English-speaking backgrounds, offer education and care in a language and culture other than English, and/or are in isolated areas.

In the US, many states have developed special programs for assisting low-income families with early childhood service costs. For example, some states pay for a certain number of places for low-income families in privately run services, or they fund extended hours in otherwise free, but part-time or sessional preschool-type services for disadvantaged families (unless indicated otherwise, information on the US comes from Schulman, Blank & Ewen, 2001). Since 1997, the United Kingdom (UK) Government has increased early childhood education funding enormously, focusing on disadvantaged areas.

In addition to the operational funding measures discussed so far, which cover only part of a service's costs, most jurisdictions examined fully fund universal preschool services for at least one year prior to formal school entry. This means every child of a certain age group has access to an early childhood education place without any direct cost to the parents. Such free universal preschool is a policy goal in many jurisdictions, especially in Europe, and it has been achieved in most of the countries examined. However, preschool is part-time and usually sessional, so that many families need additional child care outside preschool hours and therefore, if they have low incomes, need to rely on other affordability measures.

In Australia some states and territories (not including NSW, Victoria and Queensland) offer free universal preschool services. These services usually cater for children in the one year prior to formal school entry, mostly four-year-olds. In Western Australia, however, five-year-olds attend a second year of free, non-compulsory preschool (called pre-primary) rather than the first year of compulsory schooling. Jurisdictions vary in the amount of free preschool hours funded, from 10 to 12 hours over three to five days per week (Government of Western Australia, 2005).

Until 2003, Queensland offered one year of free universal preschool. However, this service was directed at five-year-old children, who in most other states attend a full-time, mandatory transition year to school. Queensland is currently in the process of turning its free preschool into such a transition program, bringing it in line with 13-year schooling in other Australian states and territories (Walker, 2004).

New Zealand and many of the European countries examined provide free universal preschool for more than one year. New Zealand, Denmark, Portugal, Sweden and the UK fund two years (for Sweden, see Swedish Government Office for Administrative Affairs, 2003; for the UK, see Directgov—education and learning, 2005). Free preschools in Belgium and France (OECD, 2004a) cater for children as young as two.

Fee subsidies

Governments in all countries examined have established fee relief programs for families. Some of these programs are comprehensive, meaning that all eligible families receive the fee subsidy. In Australia, the Commonwealth offers Child Care Benefit (CCB), which varies according to family income and the number of children in care. Among families using long day care, family day care and approved care in the child's home, 91 per cent receive CCB, with 33 per cent receiving the maximum amount (Australian Government Department of Family and Community Services, 2005). CCB constitutes the main component of Commonwealth expenditure on early childhood services. In 2003–04, it made up 78.8 per cent of the early childhood services budget (Australian Government Productivity Commission, 2005).

CCB is not paid for children attending preschools, since preschools are the responsibility of states and territories, where it is free in most jurisdictions. Victoria, which does not offer free universal preschool, has a comprehensive fee subsidy program in place. All low-income families who hold a Commonwealth health care card are entitled to a preschool fee subsidy of $255 per year (State Government Victoria, 2005). In many cases this covers about half of the total fees. Preschool (called ‘kindergarten' in Victoria) is for four-year-olds. About 97 per cent of the age group attend and 27 per cent of these receive the fee subsidy.

Fee relief systems that guarantee benefits to each eligible family are also in place in New Zealand and many European countries, notably Belgium, France, Italy and Norway. Details vary greatly, not only between the countries but often also between states and municipalities within these countries.

Some other jurisdictions have a set fee relief budget. Often this is not sufficient to supply all eligible families with the fee subsidy they are entitled to. As a result, eligible families are placed on waiting lists, which is the case in most Canadian provinces. In the US, federal and state governments provide childcare assistance for poor families through the Child Care and Development Fund, reaching 1.75 million children (Beh Neas & Mezey, 2003), but budget limits leave many eligible families on waiting lists.

The fee relief program in NSW does not reach all eligible families because of its allocation arrangements. Under the Preschool Affordability Assistance scheme, the NSW Government allocates fee relief for low-income families to most preschools as part of their annual grants. Preschools receive fee relief for a maximum number of places to distribute among eligible families. The total amount allocated to Affordability Assistance is $13 million per year, which equals 13 per cent of the state's children's services budget. The proportion each preschool receives is based on allocations determined in 1995, so that eligible families may miss out or receive lower fee subsidy amounts than those to which they are entitled. Currently the NSW Government is reviewing its Affordability Assistance scheme (Australian Government Productivity Commission, 2005).

Rather than capping their fee relief budget, some governments cap the contribution families have to make. In Denmark, for example, parent contributions are capped at 30 per cent of early childhood service costs. In Finland, where government covers 85 per cent of service costs, parents pay a maximum of 15 per cent. The Netherlands and Sweden have imposed fee ceilings, and some German municipalities set parent contributions at fixed amounts (e.g. Stadt Karlsruhe, 2003). France has set fee caps at 12 per cent of income for families with one child, 10 for families with two, and 7.5 for families with three children (OECD, 2004a). In Denmark, Finland and some German municipalities, families on very low incomes do not have to pay any fees at all.

Fee relief granted to families on low incomes requires income assessment to determine eligibility. Administrative arrangements differ widely, but almost all jurisdictions examined here have a multi-tiered system in place where fee relief is differentiated by income level. The Victorian preschool subsidy is the only system that grants one fixed fee relief amount below a certain income level, i.e. that which entitles a family to a health care card.

Almost all governments included in this study pay fee relief directly to the early childhood service provider on behalf of the eligible family. In Australia, families may choose instead to have the Commonwealth's Child Care Benefit paid as a lump sum at the end of the financial year.

Tax relief

While operational funding and fee subsidies are employed in every OECD country examined, additional tax relief for early childhood service costs is available in only some of the countries. Variously called tax deduction, tax exemption, tax benefit, tax rebate or tax credit, it is, in essence, a type of fee relief distributed through the taxation system. Unlike most other types of fee relief, however, tax relief is paid directly to families rather than to early childhood service providers. Another difference is that tax relief is not paid as an ongoing fee reduction but only in arrears, i.e. after the parents have claimed childcare expenses for the previous year on their tax return. This may create difficulties for low-income families.

This study does not consider programs such as the Canadian Child Tax Benefit or the UK Child Tax Credit. They are not linked to the family's early childhood service expenses but provide income support to families with children, including families that do not use children's services.

Among the tax relief schemes for early childhood service costs, some are universal. This means each family with a child in approved care can claim the benefit, as is the case in Norway, Belgium and Portugal (for Portugal, see Portuguese Government, Ministry of Education, 2000).

In other countries, tax relief is means-tested. Usually it is dependent on both income and work or study requirements. In the UK, for example, parents qualify only if they work at least 16 hours per week (Directgov—money, tax and benefits, 2005). The new Australian Commonwealth Government's Child Care Tax Rebate is directed at recipients of Child Care Benefit who are working, looking for work or studying. The US Government offers its Child and Dependent Care Tax Credit to married couples when either both spouses work or at least one spouse is attending school. The benefit may also be claimed by divorced, separated or single parents with child custody (OECD, 2000).

Regarding the amount of tax relief, governments may offer a set percentage of a family's child care expenses. The Australian Child Care Tax Rebate will reimburse eligible families for 30 per cent of their out-of-pocket expenses, up to a maximum of $4000 per child.

Many other countries offer a range of tax relief percentages, up to a maximum amount. France reimburses a maximum 25 per cent of out-of-pocket expenses, up to €2300 per year (OECD, 2004a). A family in the UK may recoup up to 70 per cent of costs, a maximum £300 per week for two or more children. The average reimbursement, however, may be relatively low. In the UK, where a full-time nursery place for a child under two typically costs between £120 a week in Wales and £197 in London, the current average tax credit is £50 (Daycare Trust, 2005). The remainder of the fee has to be met by the parents. However, while the UK Government does not provide operational funding or fee relief to children's services, it does offer additional financial support to most families with children and to unemployed lone parents.

Tax relief can also be delivered in the form of a tax deduction, i.e. a reduction in the amount of taxable income. Germany (German Government, 2004) and Canada, for example, have chosen this system. In Canada, parents who are working or studying may deduct up to $7000 in children's services expenses per child. Parents on high incomes benefit most, since higher incomes attract higher tax rates. Therefore families in the 50 per cent income tax bracket may receive tax savings of $3500, while those in the 20 per cent tax bracket get only $1400, although their expenses may be the same (OECD, 2003). This pattern would occur in any jurisdiction with a progressive tax system, as it does in Germany.

Modelling of approaches to early childhood affordability funding

This section models the three affordability approaches described above—operational funding, fee subsidies and tax relief. Examples for all the funding options mentioned below are provided in the previous section of this paper. The model does not include funding for reasons other than affordability, as defined earlier in the limitations section.

The model (Table 2) shows that, if affordability funding is granted as operational subsidies allocated to children's services, the amount of affordability funding may be determined by the service's running costs, the child hours, or the socioeconomic conditions in the area where the children live or the service operates. Operational funding may also take the form of discretionary grants, or it may cover all of the service's costs, providing free preschool to all children of a certain age.

Alternatively, affordability funding can be granted as a fee subsidy, the details of which involve decisions about six criteria. First, governments decide whether to grant predetermined amounts of subsidy to eligible families, who then pay the remainder of the children's services fees, or whether the government caps the parent contribution and makes up the shortfall.

Then eligibility for the fee subsidy is determined. Either eligibility is universal, granting the subsidy to each family who uses approved children's services, or eligibility is means-tested. Income eligibility limits can be either one fixed level below which a fee subsidy is granted, or they can vary along a sliding scale. Similarly the fee subsidy amount can be flat, i.e. the same for all eligible families, or scaled according to income or other criteria. Fee subsidies are then allocated to eligible families either by the government or the children's services provider, and finally the subsidy amount is paid directly to families or to the provider to reduce the fee for the eligible child.

Table 2. Model of approaches to early childhood affordability funding

Approach 1: Operational funding to children's services
Options
1. Share of running costs
2. Funding per enrolled hours of attendance
3. Equity funding according to enrolled children's addresses
4. Equity funding to children's services in priority communities
5. Discretionary grants
6. Fully funded preschool services
Approach 2: Fee subsidies
Criteria	Alternative options
1. Extent of subsidy:	Subsidy capped	or	Parent fee capped
2. Eligibility criteria:	Universal	or	Means tested
3. Eligibility limits:	Sliding income scale	or	One-point cut off
4. Type of subsidy amount:	Scaled	or	Flat
5. Agency allocating fee subsidies:	Government	or	Provider
6. Recipient of subsidy:	Provider	or	Family
Approach 3: Tax relief
Criteria	Alternative options
1. Extent of tax relief:	Benefit capped	or	Proportion of family's expenses
2. Eligibility criteria:	Universal	or	Means tested
3. Tax mechanism:	Reducing taxable income	or	Reimbursing actual expenses

Affordability funding can also take the form of tax relief. As is the case with fee subsidies, designing a tax relief scheme involves decisions about several criteria. First, the government may either cap the benefit amount a family can receive, or it may pay a certain proportion of the family's expenses for children's services. Second, eligibility for tax relief can be universal or means-tested; and third, the tax mechanism can be a reduction of taxable income or a reimbursement of actual expenses.

Implications of the model

Governments planning affordability programs can apply the model to inform their decisions. In particular, governments may use the model to inform funding policies that have the objective of improving participation by children in early childhood services through removing affordability barriers. The model helps to compare the impact of different affordability funding approaches on cost to government and cost to families. This section discusses a range of government considerations and their impacts on cost to government and cost to families.

Cost to government

The level and targeting of public investment in early childhood services affects family fees and hence affordability. Governments choose which proportion of their total early childhood services budget to allocate to affordability measures for low-income families, and which particular affordability approaches to finance.

This paper does not discuss absolute government funding for early childhood services in different countries. Comparative figures are not available (OECD, 2001). In Australia, the Commonwealth Government spent $1.8 billion in 2003/04, while the states and territories contributed another $0.6 billion (Australian Government Productivity Commission, 2005).

The model developed in this paper shows that, of the three approaches, the lowest direct cost to government is incurred by a scaled fee subsidy, targeted at low-income families. The most costly approaches are full operational subsidies or unscaled full tax relief, each of which would, at the extreme, ensure free early childhood services for all families. Current examples of different approaches are reviewed earlier in this article. They range from a small amount of fee relief targeted at low-income families accessing preschools in NSW to offering universal free preschool services in most of the jurisdictions examined.

Governments making choices about affordability funding have to weigh up different policy considerations. Often this results in an affordability strategy combining a number of the approaches presented in Table 2. One example is the policy reform in New Zealand described above.

In managing affordability funding, options are an open or a capped budget. An open budget means that every eligible family or service that applies receives a subsidy. While this makes budget predictions more difficult for the government, it ensures equity, clarity and affordability for families. Alternatively, a capped affordability budget makes government planning easier, but is likely to result in waiting lists for eligible families, thus undermining equity and affordability.

Government costs also include administrative arrangements. Unless early childhood services are offered free to everyone, as is the policy goal in many of the jurisdictions surveyed, governments incur considerable costs in administering an equitable affordability model. Governments face a trade-off: the more equitable the funding model is, the more complex it needs to be and therefore the more administration it will require. All international jurisdictions included in the literature review have opted for equity, requiring complex eligibility assessment and funding administration (e.g. detailed fee and income scales).

Given the significance of good quality care to the child's early learning experience, the government has the opportunity to link affordability funding to quality requirements. This is possible where the service must meet certain standards in order for families or the service itself to receive the funding. Examples are the Australian Child Care Benefit link to the Quality Improvement and Accreditation System, and operational subsidies in Australian states and territories linked to licensing standards. It is more difficult to link tax relief to quality standards, unless it is available only for fees incurred in eligible services.

Cost and affordability to families

Cost to families directly affects participation by children in early childhood services. Since low-income families can contribute only a small proportion of costs, a policy of offering free services or capping the cost to low-income families is most likely to facilitate access.

The model implies that an operational subsidy resulting in free universal access is the approach most likely to encourage participation in early childhood services. In contrast, fee subsidies and tax relief are more likely to impose cost burdens on families in the form of gap fees, administrative barriers, delays between paying the fee and receiving the benefit, and exclusion of non-taxpaying families. Participation of children from low-income families is therefore less likely. Experiences in some of the countries examined show that administrative complexity discourages eligible families from applying for fee subsidies.

Operational subsidies are generally untargeted, with the effect of reducing fees or providing a free service for all families. A modification of this policy is to allocate operational subsidies to disadvantaged or priority areas, thereby increasing affordability for low-income families.

The most common form of free or low-cost early childhood service is preschool. In Australia, as in other countries, the part-time and sessional character of free preschools limits the access by children with working parents. Unless these families can get informal care, they have to either pay for extended hours of care in the preschool service or find, and pay for, a different type of children's service. When such extra paid care is needed, affordability remains a problem, especially for low-income families.

Where the early childhood service is not provided free of charge and families can afford only a small contribution to early childhood service costs, some families try to compensate by enrolling their children for a limited number of terms and days per week (NSW Affordability Policy Advisory Committee, 2003).

In contrast to operational funding, the fee subsidy and tax relief approaches offer governments policy choices about the level of subsidy each family receives. These policy choices relate to the criteria and process for determining eligibility. Policy choices include:

• the maximum income up to which a family remains eligible
• how income eligibility limits vary with the size of the family or other eligibility criteria such as location and family characteristics
• a definition of what is to be included in the family's income, especially whether government benefits and assets are to be incorporated
• whether to set higher income limits for exiting the fee subsidy or tax relief than for entering it, to allow the family's finances to stabilise
• how often income is reassessed—frequent reassessments place additional burdens on low-income families, which are already vulnerable
• who takes on the task of assessing income and therefore eligibility: the government or the children's services provider
• whether fee subsidies are allocated to the provider in advance and reconciled with actual enrolments later and how frequently this happens.

For affordability measures to achieve their goal of improving participation by children from low-income families, governments need to monitor and adjust for changes in children's services costs and living expenses. In addition, administrative arrangements need to be reviewed from the perspectives of government, early childhood services and eligible families.

More generally, reviewing the impact of the affordability policy helps ensure that it meets its goal of making early childhood services more affordable for low-income families. Relevant review data includes:

• whether the policy has improved access of low-income families to early childhood services (increased number of children from low-income families attending early childhood services, or currently enrolled children from low-income families attending early childhood services for more days per week or more terms per year)
• whether the policy has changed the availability of early childhood places (have some early childhood services closed, have new services opened, and have existing services increased or reduced their child numbers).

The change in Australia towards increased private sector provision of early childhood services affects the implications of some of the policy choices discussed here—including the current Australian Government policies of an open budget for fee subsidies, capped fee subsidies but uncapped parent fees, and most fee subsidies not being targeted to priority locations.

Conclusion

This paper presents a model of the three major approaches open to government to make early childhood services affordable to families: operational funding, fee subsidies and tax relief. We derived the model from a comparative literature review of affordability approaches taken by governments, both in Australia and internationally.

The model adds significantly to the literature by proposing a means to understand the numerous options for affordability funding. Application of this simple model helps clarify the costs and benefits of particular choices within these two approaches. We predict the choices affect cost to government, affordability to families, and participation by children in early childhood services.

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AJEC Volume 31 No 4 December 2006, pp. 49-58.

You can purchase this issue of the Australian Journal of Early Childhood now.

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