'New subsidies will only help a quarter of families using childcare'

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An estimated 250,000 low- and middle-income families with more than one child in care are set to benefit from a $1.7 billion subsidy boost, but experts say the changes will only help a quarter of families using childcare.

Parents today face a binary choice: forgo work to stay at home and look after their children, or go to work while putting their children in care. The reform seeks to make the latter the financially sensible choice.

As Treasurer Josh Frydenberg stated in his budget speech, "childcare is an important driver of higher workforce participation and women's economic security".

federal budget night 2021 childcare

Currently, the maximum subsidy payable is 85% of childcare fees, regardless of how many children a family has in care.

Under the changes, the subsidy will increase 30% to a maximum subsidy of 95% of fees paid for second and subsequent children.

Now, a family earning $110,000 a year will have the subsidy for their second child increase from 72% to 95%, saving them $95 a week for four days of care.

A family of three children who pull in $80,000 would have the subsidy increase from 82% to 95% for their second and third child, leaving them $108 a week better off for four days of care.

The $10,560 cap on the childcare subsidy will also be removed, which the government estimates will benefit about 18,000 families.

Peter Hurley, a fellow at Victoria University's Mitchell Institute, says the reform is a step in the right direction because childcare can be very unaffordable for many families.

"Costs do start to multiply if you have more than one child in childcare," he tells Money.

However, the Mitchell Institute notes that while 250,000 families with more than one child in care will benefit from the increased subsidies, around a million families currently have children in care.

Its analysis suggests that 41% of families with one child aged under five years will continue to spend more than 7% of their disposable income on childcare.

Claire Tanner, a lecturer in sociology in the School of Social Sciences at Monash University, says the reforms are likely to benefit the families, and mothers, in higher-paying jobs with more than one child who are close in age.

"For example, the current second child subsidy is set to increase by 30% for families with combined incomes of $140 000 and $180 000 respectively," she says.

"This is in comparison to lower-income or single-income families earning annual incomes of $40, 000 and $80, 000 where the second child subsidy is set to increase by 10% and 13% respectively. This means that those earning the most will save the most if they thread the needle of having multiple children close in age."

Tanner also points out that lower-income families are proportionally spending more of their income on childcare than higher-income families.

"This money is taken away from tight budgets required to clothe and feed their families, so it seems reasonable that we should ensure that reforms are targeted at benefiting these families the most - which doesn't appear to be the case here.

"Single-child families also lose out in this deal. As do families who may have children far apart in age, and who may only enjoy these benefits for the period of time that all children are in childcare."

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David Thornton is a journalist at Money magazine and is one of the hosts of the Friends With Money podcast. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.