Funding – Why Funding is Under Constant Pressure and the Sector Keeps Asking for More

Funding – Why the Early Childhood Sector Keeps Asking for More

Funding in early childhood education is under constant pressure, and Dr Sarah Alexander explains why lobbyists keep demanding more and what’s going wrong behind the scenes.

SARAH’S VIEW – OPINION COLUMN
March 1, 2026

1. Funding Growth vs. Funding Claims

Government spending on early childhood education (ECE) has risen sharply over the past decade, yet claims of underfunding persist. Vote Education funding for ECE increased from $1.72 billion in 2015/16 to $2.7 billion in 2023/24 – a 57% rise.

Year	Vote Education ECE Appropriation ($000)
2015/16	1,720,518
2016/17	1,784,929
2017/18	1,825,604
2018/19	1,879,000
2019/20	1,990,223
2020/21	2,119,895
2021/22	2,238,026
2022/23	2,342,383
2023/24	2,697,035
2024/25	2,917,414

The Terms of Reference for Minister Seymour’s 2025 Funding Review Group puts total ECE spending even higher, at $3.1 billion – an 80% increase over ten years.

So why do lobbyists for service providers keep calling for more funding despite such substantial growth?

2. Limited Evidence That More Funding Will Prevent Closures or Stop Fee Increases

A substantial funding increase would undoubtedly be welcomed by services, but there is little evidence it would prevent closures or stop fees from rising. Current data does not show that services are closing because funding is insufficient, nor that pay‑parity funding for teacher wages is driving centre closures.

The lobby group campaigning for a 5.76% increase has even acknowledged that additional government funding may simply flow to profit. When asked whether a 5.76% funding increase would enable services to lower fees, the group’s chief executive, Simon Laube, confirmed that it would not – an admission that raises real questions about whether families would see any benefit at all.

1. Pay parity is not driving closures.
   Analysis of openings and closures from 2022-2024 shows no evidence that pay parity (funding levels and requirements) is driving centres out of the sector. 
2. Fee increases are driven by provider interests and service models, not funding levels.
   For‑profit services set their fees based on what they believe parents can afford, rather than on government funding rates. When families struggle to pay, pressure shifts to government to increase the Childcare Subsidy or expand FamilyBoost. Once these supports rise, services can lift their fees again because parents now have greater ability to pay. This creates a cycle in which fee increases reflect provider incentives and market dynamics, and not the level of government funding paid directly to services.  [For discussion of how competition affects what families pay and the quality they and their children receive, see point 6(b).]
3. Closures occur for many reasons, and financial pressures often stem from non‑funding factors.
   ECE services close for a wide range of reasons that are not directly related to government funding. These include owner retirement, loss of lease, licence non‑compliance, low enrolments, over‑expansion and unmanageable debt, or other business decisions such as selling the property or moving into a different line of work.  In 2024, 87 services closed, with reasons spread across several categories:
   • 8 closed for financial reasons
   • 6 closed due to declining rolls
   • 10 closed because they did not meet licensing requirements
   • 57 were voluntary closures
   • 6 closed for other reasons

In 2023, 173 services closed, but 52 were from a single company that went into receivership owing more than $19 million following serious compliance and financial failures. Once this one-off event is removed, closure numbers in 2024 were broadly consistent with the previous year.

3. Indicators of Profitability

1. ECE is marketed as a high‑return investment.
   Early childhood centres are routinely advertised to everyday “mum and dad” investors as strong, low‑risk investment opportunities. Listings commonly promote 12-18% returns for freehold going‑concern centres and 20-25% returns for leasehold centres, depending on lease terms and business features. These advertised returns indicate that many services can operate with healthy profit margins under current funding settings, contradicting claims that the sector is universally underfunded.
2. The sector is promoted as one of New Zealand’s most reliable investments.
   Government funding has proven durable and resilient, continuing even during COVID‑19 when centres were closed. This stability is now used in investment marketing to position ECE as a low‑risk, defensive asset class. Investment firms describe ECE as a stable, government‑backed sector. PMG, which operates the largest childcare property investment fund available to retail investors, markets ECE as one of the best investment options in NZ, noting: “Few commercial property sectors benefit from the level of government involvement that childcare does… This funding provides consistency across economic cycles and strengthens the ability of centres to meet rental obligation.” (quote link). This messaging reinforces that public funding provides a predictable revenue stream that supports both operators and investors.
3. The sector attracts overseas investors and private equity firms.
   ECE is now a target for large-scale commercial investment. The presence of private equity and international pension funds signals that the sector is viewed as profitable, stable, and primed for growth – not as a sector struggling to survive. Examples include:
   • Busy Bees, majority‑owned by the Ontario Teachers’ Pension Plan (Canada), acquiring Provincial Education from Waterman Private Capital, Ascentro Capital, and its founders.
   • And very recently, Milford Private Equity, which has a 49% stake in New Shoots Children’s Centres, acquiring the national chain Educare Early Learning Centres, making New Shoots now one of the largest private ECE providers.
4. The removal of network management indicates confidence in funding sufficiency and ongoing profitability.
   The removal of network management signals confidence within the sector that current funding levels and profitability are sufficient to keep services viable, even if increased competition leads to thinner enrolments and more empty places. The Government’s decision to end the requirement for new services to demonstrate community need was welcomed by sector lobbyists as “common sense”. Ministry of Education advice to the Minister noted that, despite the absence of consultation and the policy having been in place for only a year, its own early childhood advisory committee (ECAC) and specifically the Early Childhood Council identified the removal of network management as a “quick win” for the sector. Their advocacy for this change, and their positive responses to it, indicates an expectation that services will remain financially sustainable even when new, similar services open nearby and the local market becomes more crowded.
5. Growth in private ownership reflects strong investor confidence.
   The continued rise in the number and share of privately owned services indicates that, despite claims of financial strain, investors still view ECE as a sector offering strong and reliable returns. (Read: Large Private ECE Providers Swallowed up Most Funding)
6. Profitability is enabled by public funding and weak oversight.
   Strong investor interest is supported by the fact that ECE services face relatively light financial and regulatory oversight. This allows providers to extract profits even when ongoing problems with quality, safety, and families’ ability to access suitable places remain.

4. How the System Enables Waste and Workarounds

1. Weak funding conditions and persistent lobbying undermine policy intentions.
   Lobby groups for service operators routinely warn of mass closures or steep fee increases whenever stronger funding conditions are proposed. These tactics have repeatedly pressured governments into softening or removing requirements designed to improve quality, teacher pay, and ensure public money is well used. The result is a policy environment where funding grows, but the conditions needed to deliver better outcomes erode.
2. The 20 Hours ECE policy shows how easily well‑intentioned settings can be weakened in practice.
   The Ministry of Education states that 20 Hours ECE means no fees can be charged for those hours, yet many families still end up paying. In reality, the 20 Hours ECE policy is working far better for service providers than for parents. For example, services can charge a full‑day fee once a child attends a seventh hour, require attendance across all five days and then charge a full weekly fee, or add “optional charges” for essentials such as food. As a result, 20 Hours ECE no longer guarantees free access. In practice, it functions as a higher funding rate for 3‑ and 4‑year‑olds, and services value it highly. It now makes up 52 percent of all service‑subsidy funding, yet there are few safeguards to ensure families receive the intended benefit.
3. Teacher qualification funding settings are progressively loosened in response to lobbying.
   Funding bands were originally designed to reward services that had higher proportions of ECE‑qualified, certificated teachers. Over time, however, these settings have been steadily weakened. Since 2010, primary‑qualified teachers have been counted for funding purposes. From 2020, they could also serve as the person responsible, meaning that at times no staff member with specialist early childhood training may be working with children. In 2021, the number of discretionary hours in which non‑certificated teachers could be counted doubled from 40 to 80 per funding period despite officials warning this could become “the new norm,” – which is exactly what occurred.
4. Recent decisions continue the pattern of weakening funding conditions in ways that financially benefit providers.
   At the end of 2024, sector lobbyists called for financial relief by loosening funding rules, and the Government agreed to two of their requests. It removed the requirement for services to keep evidence that they had tried to contact a certificated teacher before placing an unqualified teacher in a certificated role under the 80‑hour discretionary provision. It also relaxed pay‑parity attestation rules for teachers on non‑permanent contracts, allowing services to pay relief and fixed‑term teachers less while still receiving the same funding rate. These changes were calculated to leave around $21 million per year (about $85 million over four years) with service providers rather than flowing directly to teacher pay. When asked whether services might simply retain the additional funding as profit rather than spending it on children or improving quality, Minister Seymour acknowledged the possibility, saying “It is possible that some services may use savings from this change in this way. However, we are making this change in good faith that any resource freed up will be used for improving the service offered”.
5. These workarounds occur in a system with very limited financial transparency.
   Policy and funding decisions are being made without access to full financial accounts from private services, without checks on whether community‑based providers are redirecting ECE revenue to activities outside early childhood education, and without evidence about how these practices affect children or long‑term quality. (Note that under the current funding rules private services are not required to provide full accounts to the Ministry of Education, and community‑based services may aggregate multiple services for financial reporting). This lack of visibility makes it difficult for government to assess value for money or ensure that public funding is being used as intended.
6. The result is a funding system that is vulnerable to exploitation.
7. The funding system cannot demonstrate that public investment consistently delivers a clear public benefit for every dollar spent.

5. A Funding System Built to Be Milked

1. Public funding can be turned into private assets and capital gains.
   ECE services can be established on privately owned land, with ECE funding used to cover mortgages and other financing costs. Over time, this publicly supported revenue stream builds both equity and profit for the owner. When the property is eventually sold, the owner keeps the capital gain as well as the financial benefits accumulated through years of taxpayer‑funded mortgage servicing. None of this value returns to the public, even though public funding helped create the asset.
2. Lease arrangements can lock services into paying escalating, inflexible, costs.
   Two common types of lease agreements are putting significant financial pressure on ECE services. Both arrangements expose services to rising, inflexible costs while guaranteeing stable, increasing returns for property developers and landlords:
   • Annual CPI‑plus rent increases – Operators sign-up to leases that rise each year by CPI plus an additional margin. These increases can quickly outpace government funding, which is not always indexed to CPI.
   • Per‑child‑space leases – Some leases charge rent based on the number of licensed child spaces, meaning services pay the same amount even when enrolments fall and revenue drops.
3. ECE lacks the public property model used in schooling.
   The Ministry of Education does not know how many ECE services are on public land – it has not kept a record.
   The Government purchases and maintains school land and buildings, giving it leverage over costs and long‑term planning. ECE does not operate under this model, leaving many services dependent on private landlords and property companies. This dependence limits public oversight over costs and exposes services to commercial pressures unrelated to children’s education and wellbeing.
4. Profit extraction reduces the resources available for quality.
   When funding is diverted into mortgage payments, lease costs, or profit margins, less remains for staffing levels, wages, professional development, or improvements that benefit children and families. This creates a funding model that allows operators, property owners, and investors to extract value while shifting the financial burden onto families, teaching staff, and taxpayers.

6. The ECE Market Illusion: A System That Cannot Deliver on Market Promises

1. ECE lacks the transparency needed for a functioning market.
   ECE services are not required to publish fee schedules, making it difficult for parents to compare prices. Fees can be raised without clear justification, and inadequate funding is often cited as the default explanation. At the same time, community‑based services do not have to publish service‑level financial accounts, and private providers are not required to disclose profit levels, equity movements, or how much public funding is retained or distributed. This lack of transparency prevents families from making informed choices and weakens any competitive pressure on fees.
   The ECE Parents’ Council has called for government action to ensure services make fees comparable and explain how cost increases are determined (ECE parents’ petition: https://our.actionstation.org.nz/p/put-children-first)
2. Parents’ choices are limited, and competition can’t be relied on to improve quality or affordability.
   Parents’ choices depend on where they live and work, the hours they need, and whether a service has space for a child of the right age. Most families use ECE close to home or work, and switching is difficult when distance, limited vacancies, and travel costs are barriers. When families cannot easily move between services, competition weakens or disappears altogether. In areas with many similar services, fee competition tends to be brief. Providers may lower fees temporarily to attract enrolments, but once a child is settled, parents are reluctant to move them.
   Services that struggle to maintain full rolls may offer discounts or even 30 hours free because government funding can cover basic operating costs. To maintain profit margins, however, this often leads providers to cut operational spending in ways that compromise quality and safety – for example, delaying playground maintenance, cancelling staff non‑contact time, reducing staff numbers, or operating closer to (and at times below) minimum regulatory standards.
   These dynamics mean providers face little sustained pressure to reduce fees or improve quality. Instead of functioning as a competitive market, the system operates as a set of fixed local options that families must navigate within tight practical constraints. Read more: ECE Deserts: Limited Choices of ECE Services in Parts of Aotearoa.
3. Investment patterns reinforce inequity.
   Private and corporate providers tend to open centres in high‑income, high‑demand suburbs where financial returns are strongest. This leads to oversupply in some areas while many regional and lower‑income communities remain underserved. The pattern reflects commercial incentives rather than equitable access for children and families.
4. Government and the Ministry of Education place service‑provider lobbyists at the centre of decision‑making.
   The ministry’s early childhood advisory group (ECAC), the Minister’s early learning funding review group, and current policy settings all give significant weight to the interests of service providers and to protecting the commercial position of ECEs businesses – rather than to children, parents, communities, or independent expertise.
   Recent decisions have lowered standards, reduced oversight, softened consequences for non‑compliance, and weakened requirements for ECE‑qualified teachers. Minister Seymour has also signalled shifting regulatory responsibility from the Ministry of Education to the Education Review Office. These changes reduce compliance pressures on providers but have not improved quality or safety, reduced fees, or expanded meaningful choice for families – and there is no evidence they will.
5. Public funding continues to grow, but its impact is unclear.
   Despite rising public investment, there is no clear reporting on how that funding and revenue from other sources such as fees is actually used. It’s impossible to see how much money goes toward children’s education, and how much is kept as profit.
6. Turning ECE into a labour‑market tool entrenches existing problems
   Legislating that ECE regulation must prioritise parents’ participation in the labour market locks in the weaknesses of the current funding system. It explicitly puts economic goals ahead of children’s needs, rights, and education. It is also likely to speed up the shift toward long‑day, for‑profit models, further entrenching the commercial pressures that already distort provision and limit quality. Making labour‑market participation a core purpose of ECE is also out of step with primary and secondary schooling, which support parents to work but are not defined by that objective.

7. Fixing the System So More Funding Can Actually Work

Early childhood education sits on a funding treadmill

Investment keeps rising, yet the system allows money to be wasted, diverted into profit, or absorbed by costs that do nothing to support children’s wellbeing and improve their experiences and quality of education.

The core problem is not simply a lack of funding

Weak policy settings and limited oversight mean public investment is not consistently used to improve access, quality, or equity. Higher funding rates do little to stop for‑profit services from increasing fees, lowering quality, or operating at or below minimum regulatory standards especially when families have few real alternatives. They also do little to prevent lobbyists representing business interests from pushing to lower regulatory standards, reduce staff qualification requirements, or pay.

Changes that will make funding work better

A shift in approach is needed. That means:

1. Imposing strong conditions on public funding grants and subsidies, with loopholes in the rules closed so every service provider – not just some – uses public money only for its intended purpose.

2. Robust accountability for how funding is used, including clear expectations and real, enforceable consequences when they are not met.

3. Full financial transparency for every publicly funded service, so families and government can see where all the revenue – funding, fees and other income – goes, whether spending aligns with public goals, and whether fee increases or claims of financial hardship are credible.

4. Limits on, or removal of, profit extraction and property‑based wealth building, which divert resources away from children.

5. A funding model centred on children’s education and wellbeing, rather than the financial interests of service providers.

6. Exploring public ownership of ECE land and premises, to reduce or remove the cost pressures on services created by private leases and ensure property costs are controlled so more funding can flow to teaching, quality improvement, and reducing costs to parents – instead of high rents and capital gains.

In conclusion …

ECE can’t continue to be funded the way it has been. 

More money alone cannot fix a system that allows public investment to leak into profit, property, and inefficiency.

Political leaders face a straightforward choice, either:

• keep patching the system with annual funding boosts and eased conditions in response to provider lobbying, or
• address the structural weaknesses that allow well‑intentioned funding to be diluted and diverted.

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