New Zealand’s Funding System for Early Childhood Education and Care Services

New Zealand has a substantial amount of supply-side funding (i.e., direct funding of operating costs) of its various types of early childhood education and care services.  In that way, it’s quite different from Australia; in Australia, the large majority of funding is on the demand-side – a payment to services on behalf of parents (and varying in amount according to the circumstances of the parents) when they use certain types of regulated child care.

In Canada, we’re very interested in looking at different examples of supply-side funding.  Of course, child care providers in different circumstances have different costs.  An effective supply-side funding system needs to account for legitimate differences in the costs of service delivery and pay different funding rates to providers in different circumstances.

Amongst English-speaking countries, New Zealand was early in funding its child care services on the supply side and stuck with it.  For that reason, and for its pioneering curriculum Te Whāriki, and for its articulate advocates, many of us regarded New Zealand as a model to follow.  Some aspects of its funding model are interesting to examine, but its early education and care system has not fared well over the years.  New Zealand had a supply-side funding system for child care, but it did not impose any limits on child care fees that could be charged.  It turns out that was a huge mistake. 

New Zealand now has child care that is amongst the least affordable in the OECD, despite supply-side funding and despite offering 20 hours of “free” early childhood education to children 3, 4 and 5 years of age (essentially to children aged 3 and 4 because schooling starts on a child’s 5th birthday in New Zealand).  The average parent fee in New Zealand for children 0-5 was calculated to be $6.89 per hour or over $60 per day if, for example, using child care for a 9-hour day.

I’m not going to try to unpack what has gone wrong with New Zealand’s education and care system in this blogpost.  Instead, I want to look at some of the details of their supply-side funding system to see what we in Canada can learn from it.  The point of what I wrote above is to remind you that while a supply-side funding system is desirable, it is not sufficient.  There need to be controls on the fees that services can charge to parents as well and there need to be strong measures of financial accountability.

There are a range of different early education and child care services that are funded in New Zealand.  There are education and care services (child care centres), kindergartens (also in centres but governed by a kindergarten association), hospital-based services and home-based services.  All of these are part of what are called teacher-led services.  Then there are parent-led services that also receive funding.  This blogpost will focus on education and care services in child care centres; kindergartens are funded quite similarly. 

Half of New Zealand’s approximately 4,700 early childhood education services are education and care services and nearly 70% of these are now for-profit enterprises (up from about 40% three decades ago).  There are nearly 700 kindergartens – all of these are community-based not-for-profit organizations.

There are many factors that will affect the amount of supply-side funding a centre gets.  To summarize, these are the main ones:

  • The type of service (education and care service vs. kindergarten etc.);
  • Whether the services are full-day or are part-day and perhaps part-year;
  • The proportion of staff hours that are covered by certificated teachers (i.e., with ECE or primary teaching qualification plus a current practising certificate).  These must be staff hours that are required to fulfill ratio requirements;
  • The pay level relative to union-bargained kindergarten and primary teacher pay levels (i.e., supplementary funding if all teachers are paid at certain rates);
  • The age of children attending the service (under 2, 2 and over);
  • Whether the service offers parents the program for 20 hours per week of free child care for children aged 3, 4 and 5;
  • Whether the children attending a centre come from low socio-economic communities;
  • Whether the children attending a centre come from communities with a substantial population with special needs and from non-English-speaking backgrounds;
  • Whether a centre provides the majority of its service in a language and culture other than English;
  • Whether a centre is isolated from population centres;
  • Whether 20% or more of the children attending a service are considered to be disadvantaged (dependent of person on social assistance or other programs).

The largest portion of this regular funding for most centres would be related to the first six of these factors.  These funding variations are covered by the Early Childhood Education Funding Subsidy and 20 Hours Early Childhood Education.  The remaining funding variations are covered by Equity Funding, the Annual Top-Up for Isolated Services and Targeted Funding for Disadvantage.  Details are available here.  Of course, there are regular detailed reporting requirements for early childhood services (on enrollment, attendance, staff hours worked by teachers with different qualifications, pay levels, etc.) so that eligibility for funding can be calculated.

For reference, here is the base funding rate table from January 1, 2023.  The figures in the table refer to the amount of funding per hour for each funded child hour.  Funded child hours are limited to no more than 6 hours in a day and no more than 30 hours in a week.  A centre may offer the 20 free hours of ECE program for 3, 4 and 5 year old children.  For those hours, the 20 Hours column would apply for the first 20 hours and other columns would apply for the remainder of hours up to 30 in a week (but no more than 6 in any day).  Funding under the 20 Hours ECE program is intended to cover full average costs, whereas other funding is intended to make a contribution to costs, but not cover full costs.

Base Funding Rates Per Hour for Education and Care Centres in New Zealand, 2020. 

Rates vary by percent of hours provided by certificated educators

Percent of required ratio hours that are delivered by certificated educators (either ECEs or primary teacher qualification)Funding per hour per child for children less than 2 years oldFunding per hour per child for children 2 or more years of ageFunding per hour per child under the 20 Hours ECE program for children 3, 4 or 5 years of age
100% certificated$14.16$8.30$13.55

Note that these are the base funding rates.  Centres that pay higher rates of pay to all of their teachers would receive higher funding rates – either the Parity Funding Rates or the Extended Parity Funding Rates.  These Parity funding rates are designed to encourage centres to pay wages that are fully competitive with union-bargained wages paid to primary teachers.

On top of this supply-side funding, there is also some targeted demand-side funding paid directly to the ECE service.  All the supply-side funding is provided through the Ministry of Education.  Childcare Subsidy is administered through Work and Income, Ministry of Social Development. 

What are the take-home messages for us in Canada?  First, supply-side funding systems are complex because there are a number of key sources of cost variations for child care services.  We need to do our homework in creating new funding systems.  Second, it is important to account for cost variations due to factors that may affect quality, such as ECE teacher qualifications and pay levels.  Third, supply-side funding is part of a new funding system; controls on fees charged to parents and strong measures of financial accountability are equally necessary.