JobKeeper Child Care Subsidy inching towards end: What about Education Stocks like GEM?

Summary

• Childcare sector, first one to witness the end of JobKeeper payment in July. 
• A review of the payment was needed for the firms for whom revenue had recovered, but the reintroduction of fees would be tough for parents who do not have jobs.
• G8 Education’s share price rose by 8.213% (as on 9 June) post the announcement about government’s ECEC Relief Package was made.
• Market experts anticipate some businesses to see early cut-off in payments, while others will receive an extension ahead of September.

On 8 June, Education Minister, Dan Tehan declared that the free childcare scheme would end on 12 July. The programme was intended to stop the childcare sector from dissolving due to a slump in demand from parents whose jobs were in jeopardy amid coronavirus outbreak, and subsequent non-affordability to put their children in childcare. The scheme was originally due to end by 28 June.

In April, Prime Minister Scott Morrison announced that childcare would be free of cost to help parents to continue working during the pandemic. He asserted on the need of people going to work and access childcare as they want. The Federal government pledged an estimated $1.6 billion in April when the scheme was introduced to strengthen the grappling sector and planned to pay half of the operating costs of the country’s 13,000 childcare and early learning centres.

Free childcare scheme to end in July

The Federal Government is expected to abandon the scheme in July and reinstate childcare subsidies for parents and put an end to JobKeeper payment for the workers in the sector. The programme introduced in April is expected to come to an end in July with an extension of $708 million support package for 3 months to the sector from 13 July.

As per the new rules introduced, parents will have to pay for their children’s care with the restoration of childcare subsidy, but the government will relax the standards for subsidised care for families affected by the economic fallout of coronavirus pandemic.

Further, government will relax the activity test requirements until 4 October to help eligible financially affected families whose employment has been disturbed due to coronavirus. Such families will get up to 100 hours of subsidised care fortnightly during this time.

The government’s $708 million support package would need employment levels to be assured to move them out of JobKeeper. The funding will also be dependent on childcare fees capped at late February levels. The transition funding will end up to 27 September.

Mr Tehan stated that after an interaction with various childcare suppliers, the government felt that more reasonable assistance could be given to the sector by swapping JobKeeper with some other payments. However, he admitted that the staff might earn less when JobKeeper payment comes to an end for the sector on 20 July.

He asserted that the system needed change, and free childcare policy is not needed anymore as the demand is now growing.

G8 Education Limited 

G8 Education Limited (ASX:GEM) provided an update dated 8 June concerning the withdrawal of payments to childcare sector by the government and how normal Child Care Subsidy (CCS) procedures will return.

While the wage subsidy (JobKeeper) will stop for employees on 20 July, early learning and care suppliers, including G8 Education, will obtain a Transition Payment equal to 25% of each centre’s fee levels preceding the impact of COVID-19. The transition payment would be paid from 13 July to 27 September 2020 provisional on care providers holding on to average gross employment levels during this period.

Further, the government’s announcement on easing activity test requirements for families affected by COVID-19 until 4 October will help in making early learning more accessible and affordable to certain families especially whose employment is in jeopardy due to the virus.

Gary Carroll, G8 Chief Executive Officer and Managing Director stated that the transitional provisions revealed are appreciated as they offer operators with improved flexibility to support families when the economy recovers.

Even at more subdued occupancy levels than current, G8 anticipates being in no worse a position compared to the earlier support measures. It has also confirmed that total cost savings are on track with the target defined in the Investor Presentation released on 9 April 2020.

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Further, G8 Education will produce revenue from the amended Childcare subsidy and parent co-payments from 13 July 2020, which are to be paid based on bookings at G8 centres every week instead of physical attendance. The Group’s booked occupancy is at present approximately 65%, while physical attendance is roughly 52% as some parents remain to decide to keep their children at home regardless of having a booking at a centre.

Booked occupancy is likely to be affected by a variety of considerations that includes the restoration of parent co-payments under the CCS procedures, students going back to school while parents back on their jobs and unemployment rates. As per G8, the gap between booked occupancy and attendance levels is expected to remain to narrow, but the net effect of the factors on booked occupancy remains ambiguous.

Shares of G8 on 9 June last traded at $1.12, up 8.213% from its last close.

Comment on JobKeeper cut on the childcare sector

After the childcare cut, economist Danielle Wood of Grattan Institute stated that the wage subsidy changes for the childcare sector are concerning and restoration of fees would be hard for parents who have lost their jobs and could impact the feasibility of some centres.

Nonetheless, she affirmed that the government needed to revaluate the payment and slash it before September for the firms who have retrieved their revenue. One month’s notice must be given to the firm if it had recouped its revenue, but it should be done on firm by firm basis as sectors placed in different states will bode differently.

Ms Wood also claimed that JobKeeper must be extended to hospitality and tourism companies who had not witnessed their business come back to normal. JobKeeper payments are being reviewed by the Treasury with results to be declared on 23 July in Government’s economic and fiscal update.