Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011

The question before the parliament as we consider the Family Assistance Legislation Amendment (Child Care Financial Viability) Bill 2011 is not whether the collapse of ABC Learning in 2008 and early 2009 was a bad thing and caused great inconvenient and uncertainty to parents. Of course the collapse of ABC Learning was a bad thing and caused such inconvenience and uncertainty to parents. Speaking as the parent of a 2½-year-old who presently attends long day care, I can absolutely empathise with parents about the disruptive consequences of the collapse of a childcare centre when they had made their arrangements in reliance on the ongoing operation of that centre and were suddenly required to rapidly make alternative arrangements.

That is not the question before this House. We are all in agreement that the collapse of ABC, or indeed of any childcare centre, is a bad thing. Nor is the question before this House whether it would be a good thing, if it were possible to do, to prevent the risk of such a collapse—to ensure against the possibility of any childcare centre ever collapsing. Clearly, if that could be done, that would be worth doing. The question is this: will the measure which is before this House be of any material benefit in actually reducing the risk of the collapse of a childcare centre, and how is such benefit as may fairly be attributed to this measure to be weighed up against the costs of imposing this measure?

I want to put three arguments to the House in the brief time that I have available to me. Firstly, I think there are grounds to doubt whether this measure makes any real difference at all. Secondly, I do believe there is a risk that this measure could impose significant costs and burdens on childcare operators, particularly in view of the breadth of the drafting of the provisions in this legislation. Thirdly, there is, I submit, real doubt as to whether this measure actually achieves anything or is simply a piece of window dressing.

Let me turn to the first issue. On a fair and reasonable assessment, what practical difference will this measure make? There are two key elements in the bill. The first is a requirement for large childcare centre providers to report certain information to the Department of Education, Employment and Workplace Relations on an annual basis. The second is the power for the secretary of that department to call, should he choose to do so, for an audit of individual large childcare centre operators. The premise underlying these measures appears to be that officials of the Department of Education, Employment and Workplace Relations will have some superior capacity to assess the risks of the financial collapse of a childcare centre operator, a superior capacity beyond that presently available to and exercised by the other bodies which have regulatory responsibility for the ongoing financial viability of companies of all kinds.

I think it is worthwhile testing the viability of this assumption by having a look at what actually happened in relation to the collapse of ABC Learning. I reiterate that it is not contested that the collapse of ABC Learning was a bad thing and caused deep inconvenience and anxiety to many thousands of parents. ABC Learning was a publicly listed entity subject to continuous disclosure obligations. That meant it was required to provide all kinds of detailed financial reporting to the stock exchange and there is an obligation on the directors and senior management of a publicly listed company to provide, effectively immediately, any information which materially changes the assessment that an investor would make of the value of the securities in that entity. Having myself been a member of the senior management team of a listed company responsible for complying with those continuous disclosure obligations, I can testify that they are onerous and that they exercise, quite properly, the continuing attention of the senior management team and directors of any listed company.

The second point to make is that such information as was disclosed under this regime by ABC Learning was subject to continuous scrutiny and examination by a whole class of expert financial analysts: equity analysts employed by the major investment banks, investors in ABC Learning who had a clear financial incentive to be watching like a hawk for any indication that something was wrong. As the historical record shows, ABC Learning collapsed in 2008-09 but concerns about the financial viability of ABC Learning had been raised significantly earlier. In fact, according to one press report that I have reviewed this morning, concerns were raised with the corporate regulator, the Australian Securities and Investment Commission, in 2006.

I do not argue that the continuous disclosure obligations immediately and instantly picked up signs of trouble as the historical record clearly shows it took some time for the consequences of ABC Learning's financial management to be realised. But the question I simply ask is this: if the specialist corporate regulator, with all of its resources in relation to financial management, or if all of the organisations and individuals who had an incentive to monitor and scrutinise the information disclosed by ABC Learning under the continuous disclosure obligations, were unable to identify until very late in the day that there was a serious problem with the financial viability of ABC Learning, then on what possible basis can we believe that officials of the Department of Education, Employment and Workplace Relations will in some way have such superior financial acumen and such an enhanced capacity to see into the financial future that they are going to identify risks which are not identified by the regulator—which is specifically responsible for corporate and financial activities—and which are not identified by all of the players that have a clear incentive to be looking out for such signs of trouble?

It is instructive, I believe, that the regulatory impact statement prepared as part of the explanatory memorandum for this bill says the following:

The options assessed in this RIS are:

-          Option 1: No change

-          Option 2: Legislate for the ongoing annual assessment of financial viability ...

Self-regulatory and quasi-regulatory options are not explored for several reasons.

I will tell you the main reason that they were not explored. It is the philosophy of this government that whenever there is any doubt you simply hand more power to a bureaucrat and that in some miraculous way is going to solve the problem. But we have not seen any explanation of the rationale for giving these powers of financial scrutiny to a department which has no competence or experience or specialisation in this role. I do not say that to be in any sense critical of that particular department. It does important work. I am simply making the point that this is not their core mission and this is not their area of expertise. Nor have we seen adequate demonstration in the materials provided to this House in respect of the existing regulatory mechanisms to scrutinise and monitor the financial performance of companies of all kinds and all organisations of all kinds including the obligations on directors not to trade while insolvent, including the obligations to provide annual accounts and including, in the case of listed companies, the continuous disclosure obligations. We have seen no evidence that this additional measure is going to provide some extra level of support. I do not say, lest my arguments be mischaracterised, that the present arrangements are perfect and automatically and instantly pick up signs of trouble. Of course, they do not. We live in a complex and difficult world and no human institution has yet been devised which can achieve that.

But I will say this to the House: I am very confident that the particular institutional measures proposed in this bill will not advance the cause. They do not in any material way add significant useful, reliable tools to achieve the purported objective. The second point that I want to make in the brief time available to me is that there is one thing that these measures certainly do, and that is to impose additional regulatory costs and obligations. There is an annual reporting requirement and there is also a questionnaire about which the explanatory memorandum is troublingly opaque. But let me make this confident prediction: the length of that questionnaire will increase each year. Every year somebody will have new ideas about what should go into that questionnaire. There will be people whose career assessments, whose performance assessments within the department, depend upon how long and voluminous that questionnaire is. The reporting obligations will grow and grow and grow—and, of course, the reporting obligations under this measure have the force of law.

There is a long list of people upon whom obligations can be imposed by virtue of a notice being issued by the secretary of the department to provide financial information, not just the operator of a childcare centre but a person who at any time owns 15 per cent or more of the operator; 'a person who, at any time during the financial year, is owed a debt by the operator'; or a person who acts, or is accustomed to act, 'in accordance with the directions, instructions or wishes of, or in concert with' the operator or 'if the operator consists of more than one person—any of those persons'. The draftspeople have gone to town. This is a textbook example of bureaucrats—I do not say this critically but I say it analytically—filling out the pages to make this measure look as substantial as possible because they know in their hearts that it materially does very little indeed.

But of course there is a press release on this matter, issued by the Gillard government, and the unfortunate public officials have been charged with coming up with some piece of window-dressing that can be alleged to substantiate the wafty, broad claims made in the press release dated 11 May 2010. We are told that there will be, amongst other things: … $1.9 million to support new regulatory measures to help achieve ongoing stability in the child care market in the wake of the ABC Learning crisis. This includes developing measures that require large child care providers entering the market to prove their financial viability.

I pause parenthetically to make the point that the measures which are before the House today do nothing towards this stated objective of requiring large childcare providers entering the market to prove their financial viability. In fact, they are a set of measures which require existing participants in the market to file annual accounts. Indeed, the explanatory memorandum is somewhat conflicted, because on the one hand we are told that this is a sweeping measure which will deliver new security, new confidence, new assurance, to parents all around Australia but on the other hand we are told, 'Oh, well, in fact all that you'll need to do to comply with this is to provide the financial accounts which you are already required to provide under other reporting requirements.'

This again raises the very obvious question that I have already asked: if these organisations are already required to provide these accounts under other reporting obligations, what is the possible purpose of imposing this additional piece of bureaucratic artifice? It allegedly provides additional safety and security to parents but in reality provides a piece of convenient window-dressing to substantiate a couple of lines that were whacked into a press release in a desire to demonstrate to parents around Australia, who are naturally and properly concerned about the risk of a childcare centre collapsing, that this government has a measure to deal with it.

This measure does nothing seriously or materially to address the risks which it purports to address. Indeed, if you look at the expert commentary, one of the real issues that arose with the collapse of ABC Learning was that it had such a large share of the market, a very high degree of concentration. This measure does absolutely nothing to deal with that issue, but it does one thing with certainty. It imposes additional regulatory requirements and obligations on businesses, and for that reason I think the case for it has not been made.