Government funding models are pushing companies providing care for both the young and the old into crisis mode; leaders warn staff shortages will force more facilities to close.
Early childcare education (ECE) and aged residential care providers both rely on government subsidies to operate; businesses in both sectors say they are struggling to keep up with rising wage costs, given the funding they receive – and that’s impacting both quality of care and commercial viability.
On the pre-school side, children between three and five can get 20 hours of education funded by the Ministry of Education each week.
The Ministry funds centres three times a year in bulk, based on the number of hours they expect to deliver.
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Early Childhood Council chief executive Simon Laube said the base model favoured bigger or chain providers rather than the smaller providers it represents. And it was causing problems for some centres.
“If you’re a big provider with economies of scale you can move teachers around your centres, that kind of thing. But if you’re a small community-based provider and you’ve got just one centre, maybe you’ve got only 30 children, you’re very isolated.”
The funding model the council takes the most issue with is the implementation of pay parity.
Introduced in Budget 2021 and updated in 2022 and 2023, the scheme aims to close the gap between early childhood and kindergarten teachers.
More than half of all ECE centres have opted into the scheme, but Laube said the policy promoted a reliance on less trained teachers while squeezing out experienced individuals.
He said the “blunt” funding model put each centre on a single rate for the four-month period, with a shortfall between the money they receive and the Government’s salary increases.
A survey of early learning wages found smaller centres had more staff on higher pay steps (of which there are 11 in the latest funding iteration), creating another funding imbalance between the big and small providers.
As staff costs increase, Laube said a “major financial shock” was looming for the smaller players who make up the majority of the sector and had opted into the scheme without assessing whether or not it was sustainable.
“Sadly, our report has confirmed our suspicions about the consequences of pay parity, with our most experienced teachers struggling to find a role, or finding their existing role is at risk due to the possibility of their employer failing.
“This is especially likely if it’s a small or community-based provider with low or no revenue from parent fees.” At the same time, centres were faced with a prolonged teacher shortage.
“The Ministry knew there were lots of centres that wouldn’t be able to make it work, but they seem to have come to the conclusion that therefore they wouldn’t opt in… Well you didn’t tell them that the figures don’t work.”
Centres most at risk of closure would be operators who rely solely on funding, not fees, to provide care.
“In a lot of South Auckland, the centres are in communities that don’t currently pay fees. Where there’s no financial ability to absorb an increase or even to bring in fees, then you’re basically faced with a decision around closing.”
The situation is similar in the aged residential care sector, another funding-reliant sector struggling to match costs with funding.
Aged care organisations are the largest providers of healthcare in New Zealand, with around 40,000 beds compared to the public health system’s 13,000 beds.
The care industry has long complained that chronic underfunding from central government has constrained growth. Despite predicted demand being for more than 15,000 new beds by the end of the decade, the number of beds actually available reduced by more than 1200 in 2022, industry leaders say.
Meanwhile, the way the Government’s funding model has operated means aged care companies face stiff competition for staff from the better funded public health sector, which pays up to 30 percent higher wages.
Smaller providers mostly can’t afford those wage pressures as staffing levels drop, meaning valuable beds can be left unoccupied or entire facilities closed.
Late last year the Government announced pay parity with the public health system, and while the Aged Care Association greeted the deal as a major win at the time, last week it said the reality didn’t match the expectation.
Association chief executive Simon Wallace said the $20m set aside in the first tranche of money – up to June 30 – was less than half of what was needed to achieve parity. Deputy chair Warick Dunn said the government hadn’t honoured its promise.
“This massive pay disparity was caused by government underfunding in the first place. The least it should do is fix it. The funding that has been allocated will not stop the flow of aged care nurses to higher paying jobs in public hospitals, and it will not stop disruptions in the health care sector,” Dunn said.
The association expects to discuss the second tranche, an annual payment from July 1, with Government next week but doesn’t have high expectations.
“Based on what’s happened with this first tranche of money, we’re very concerned there won’t be enough in the second tranche.”
The industry receives a daily rate per bed from government but the industry says that doesn’t match rising costs, meaning they are forced to charge additional fees.
Much like ECE Centres, a pure government funding model is increasingly moving towards a fee-based model.