What economics predicts about pre-school fees after subsidies

8 October, 2019

Photo: ‘Children flying their kites on the Marina Barrage’ from SRN’s SG Photobank

In September, one month after enhanced subsidies for childcare were announced at the National Day Rally, the Early Childhood Development Agency announced that one-fifth of childcare centres in Singapore (which is 330 of them) would be raising full-day childcare fees due to rising costs. Parents worried that the fee increases would negate the subsidies, which are meant to make childcare more affordable. In an editorial in The Straits Times, Dr Kelvin Seah Kah Cheng (NUS Department of Economics) states that it is unrealistic to expect for-profit childcare centres to keep fees constant amidst increased subsidies, even if there was no change in costs.

Dr Seah asserts that according to economics, with the subsidy, childcare centres are likely to raise fees to realise a larger profit since they are unlikely to lose demand for their services. This is because the price hike will be cushioned by the subsidy – parents will still be paying less than before the subsidies. Indeed, although subsidised pre-school is provided to parents in Singapore, both parents and childcare providers will adjust their behaviours to reap the benefits of the subsidy. Dr Seah explains that the rising costs for many childcare centres, such as increasing rents and staff salaries, merely provide additional impetus to raise fees.

Dr Seah believes that the government’s intention to make childcare more affordable will only be countered if the increase in childcare centre fees turns out to be greater than the increase in childcare subsidies given to parents.

Read the article here.