When it comes to family, we all want what's best, whether it be for our kids or ageing parents. As a society, we've expected governments to help us in that endeavour, which has resulted in subsidies on a grand scale for child care and for aged care.

And in the past couple of years, corporate players have been attracted to both areas like bees to a honeypot.

Surely, the more operators that exist, the better the competition and the better the service we can expect, especially given it is taxpayers who are helping foot the bill.

Not necessarily. As we've seen with the recent collapse of ABC Learning Centres, a vast injection of taxpayer funds into the private sector can lead to unintended and rather disastrous consequences. Despite the mostly noble intentions of government, massive subsidies often encourage dangerous short-term reactions and tend merely to skew investment decisions.

Corporations are answerable primarily to their shareholders and they have a duty to maximise profits. If that can be achieved by chasing taxpayer funds, that is what they will do.

In the past few years, ABC has been on the receiving end of hundreds of millions of dollars a year in Federal Government subsidies, via the parents who have their kids in the centres.

It was that cash that helped underwrite the company's rapid expansion, convinced its lenders to fork out more than $1 billion and attracted billions of dollars from investors.

The ABC collapse should provide a federal Senate committee with some salient lessons as it conducted an inquiry into the Aged Care Amendment Bill 2008.

One submission, prepared by the School of Management at the University of Technology, Sydney, and lodged a few weeks ago, questions why subsidies are handed out willy-nilly, without regard for whether the operators of aged-care establishments are charitable organisations or profit-driven corporations. The authors, Marie dela Rama, Melissa Edwards and Bronwen Dalton, have drawn comparisons with the taxpayer subsidies to the child-care sector and, in particular, the ABC Learning collapse. "At its height, ABC Learning evolved into a highly sophisticated property and finance exemplar with its raison d'etre - the provision of child care - seemingly becoming rather peripheral to the company's success and growth," the submission says.

The subsidies encouraged a near monopoly in some areas, particularly in rural and regional areas, which now face a crisis in child care.

That market dominance did little to encourage excellence, or even more affordable child care, or even more places. "Arguably, as is typical of a monopolised market, there is more money to be made from constraining the market and charging high fees than from expanding the number of child-care places," Professor Deb Brennan argues.

The parallels with aged care are obvious. In the past few years, corporations have jumped into the sector, lured by the handouts. Non-profit organisations still dominate aged care, with more than 61 per cent of operators charitable or non-profit entities. But private-equity groups and some of our big institutions have taken the plunge in recent times. Macquarie Group, Babcock & Brown, CVC Asia Pacific, Citigroup, Westpac, ANZ and AMP have all plunged into the aged-care sector in the past five years.

Many private-equity groups treat the businesses merely as trading opportunities. Babcock & Brown flicked its Primelife centres to Lend Lease and Stockland a few months ago, after three years. CVC and Citigroup, meanwhile, offloaded the DCA Group to the British health-insurance giant BUPA last year after holding it for just one year.

The amount of money involved is staggering. CVC and Citigroup picked up $1.225 billion for the sale of DCA.

Valuations are driven by earnings. And the earnings for many of these corporations are coming directly from the pockets of taxpayers.

Macquarie Bank revealed that 70 per cent of the operating income in its aged-care facilities comes from the Federal Government. Compare that with ABC Learning, where 44 per cent of its earnings emanated from the taxpayer. For operators such as Macquarie, this is pure gold. The Commonwealth has an AAA credit rating, virtually eliminating any risk, and while the organisation is at the mercy of changes in government policy, aged care is an issue that is so hot politically there is little likelihood of massive cuts in expenditure.

ANZ Capital boasted that the stability of cash flow for its aged-care offshoot IBIS Care was such that it was able to offer the company "access to investment banking solutions that are historically only available for Wall Street-sized firms".

There is nothing inherently wrong with privately owned, profit-making corporations being involved in aged care.

But as the submission's authors point out, the Government needs to be aware that subsidies can encourage private owners to merely capitalise on government funding rather than addressing the long-term needs of aged care in Australia.

The lessons from ABC Learning cannot be overlooked. As the Federal Government desperately seeks to salvage something from the company's wreckage, taxpayers will be forced to dig even deeper.

ABC's founder, Eddy Groves, however, summed up the position to me this week: "It's [the collapse] got nothing to do with me. I wasn't a director when the company was put into administration."

The Sydney Morning Herald - Ian Verrender - Opinion