Commercial childcare giant G8 Education shocked the market this week with the brutal news that it planned to shut 40 centres, which will leave thousands of parents, and the future of about a thousand staff, in peril.
But what really set alarm bells ringing was its claim that the sex abuse scandal it was mired in last year was only a modest factor in this drastic decision, which was deemed necessary to keep faith with investors if not the children in its care.
G8 boss Pejman Okhovat blamed a combination of factors including rising costs and their impact on affordability, competition from new centres, and declining birth rates. As G8 points out, these are issues that should be impacting on the entire sector.
“The near term operating environment continues to be challenging, with global inflation, declining birth rates, rising interest rates and cost-of-living pressures for families influencing occupancy and operating conditions,” Okhovat said, as G8 has reported a steep drop in occupancy levels to just 56 per cent.
“While new supply continues to enter the sector, the pace of growth is slowing. We continue to respond to rapid regulatory changes, differing in each state and territory, which further adds complexity and cost to compliance, staffing and daily operations,” he said.
Parents, childcare operators and their employees are not the only ones who should be alarmed.
Taxpayers pour more than $20 billion into childcare each year, with the vast majority of this money going to commercial providers looking to make a buck.
Some of the rise in costs, like CCTV in centres, is to prevent a repeat of the behaviour alleged against former G8 worker Joshua Dale Brown, who was charged with more than 70 sex offences against eight children aged under two at some of its centres in Victoria.
What does it say about the state of this market-based solution if more for-profit providers are forced to dump children in their care to make ends meet under these conditions?
As G8 chair Debra Singh succinctly put it: “Our focus remains on disciplined execution, strengthening performance, and delivering sustainable value for shareholders.”
It’s cold comfort for G8 investors whose shares have lost 87 per cent of their value in less than a year.
But the spread of the G8 centres facing closure backs up Okhovat’s contention that the sex abuse scandal is only part of the equation.
The list reveals that 12 face closure in Victoria, ground zero for the scandal and its aftermath, but just as many face closure in Western Australia.
So what of the other operator at the heart of the sex abuse scandal, the private equity-owned Affinity Education?
It just so happens that Affinity released its financial accounts last week, confirming losses soared almost 400 per cent to $79.5 million last year, and it shed 11 centres – a sharp reversal from the 18 it added in 2024.
In all, G8 and Affinity recorded losses totalling $380 million for the year ending December 31, 2025.
Is Affinity looking at a similar cull to the 249 centres it currently operates in Australia, to help make ends meet?
“In recent months, complaints and breaches have fallen, staff turnover has decreased and
occupancy is growing, reflecting families’ trust in our services,” a spokesperson for Affinity says.
“In terms of overall numbers across our network as a whole, the total number of centres in our national network has been stable recently, reflecting our deliberate focus on delivering safe, high quality and consistent early education and care.”
Affinity won’t be drawn on future plans for its centres but, following G8’s announcement, UBS analyst Tim Plumbe warned that occupancy declines at the ASX-listed group will get worse over the next year, exacerbated by worsening economic conditions from Donald Trump’s Iranian conflagration.
“We not only see a continuation of the [minus] 7.9 per cent year-to-date occupancy [decline] but we also incorporate further [minus] 1.5 per cent underlying headwinds in both [December half] 2026 and [June half] 2027 – as consumers tighten their belts,” Plumbe said in response to the G8 announcement.
The big question is whether this macroeconomic and financial turmoil is being experienced by the not-for-profit sector.
Christine Legg, chief executive of one of Australia’s largest not-for-profit providers, KU Children’s Services, says centre closures are a rarity for the group.
“At this point in time we have no plans to close any other services at all, and we don’t do it lightly,” Legg said, and noted the different focus for not-for-profits.
“It is a bit of a different mindset. We view our stakeholders as our children and our families.”
She noted that while declining births are having an impact, she cited the sex abuse scandal as a significant factor affecting enrolments – particularly for new parents with no previous experience of childcare.
“I think they’re really quite apprehensive. So I think that that is something that’s impacting on the whole sector,” Legg said.
It suggests that federal Education Minister Jason Clare will face more questions about childcare centre closures and will need a stronger line than “it’s a commercial decision”.
As United Workers Union director of early childhood education Carolyn Smith told AAP, G8 has a significant number of centres outside major cities in so-called “childcare deserts”.
If these fail, it will be up to the federal government to step in.
The government could add to the $20 billion bill it already picks up for childcare.
But it could also look at who is benefiting from the current system, which appears to be failing both parents and childcare operators, and see if there is a solution there.
You don’t have to look far to find the culprits.
Purpose-built early learning centres are reportedly changing hands for $10 million each in Sydney. By comparison, Affinity paid less than $4 million on average for the 18 childcare operations it acquired in 2024, which would lease their buildings from commercial landlords.
The gap reflects how lucrative building and leasing the centres are, compared with actually operating them, and may be driving the oversupply of centres that is impacting on occupancy.
Market forces may soon address this but parents and their young children may not appreciate the creative destruction involved.
As Michele Carnegie, who heads Community Early Learning Australia, the peak body for smaller operators, says: “We should be very concerned about an early education system that allows providers to grow such a large footprint. When these providers fail, families pay the price.”
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
