What the new childcare subsidies will mean for families


For many families with young children, the federal government's new childcare arrangements can't come soon enough.

Ninety-six per cent of families (1.26 million) will be better off with the higher childcare subsidies, according to the government.

The more generous payments for childcare means more women and men will be able to work additional hours and boost their family income.

childcare subsidies

"There is an awful lot of talent we aren't tapping into," says Danielle Wood, CEO of the Grattan Institute, a policy think tank.

Australian childcare is one of the most expensive in the OECD, particularly when measured against countries with leading-edge services, such as Sweden, Germany and Canada. Childcare costs Australian parents around 24% of their earnings, compared with 1% in Germany, 5% in Sweden and 16% in Canada, according to a report by The Parenthood, a movement of parents and carers.

This means the high cost of childcare is an entrenched disincentive to working mothers to do a five-day week and put their babies and small children into long daycare.

"Enabling women who want to participate more in the labour market to do so would deepen our pools of talent and boost national productivity," says Wood.

The new childcare subsidies could be an additional $6000 a year per child for children in long daycare, depending on a family's income and other factors. The subsidy for the first child jumps from 85% to 90%pa. Families with more than one child in childcare will get a higher subsidy.

There are also better benefits for school-age children in care outside school hours.

But, frustratingly for families, the boost won't arrive until the middle of 2023.

Why so long? The childcare sector has plenty of flaws to iron out. There are currently around 7300 childcare employers looking after around one million children. But the sector is beset by shortages of childcare educator staff, who are burnt out and have low morale. Childcare educator staff are poorly paid and many plan to leave their job in the coming year or so.

In early September, 1000 childcare centres closed as staff went on strike over low pay. Around 60% of childcare workers are typically paid the bare-bones minimum wage, with 60% receiving the award rates compared with around 23% of the workforce as a whole, according to the National Workforce Census.

Ramping up childcare subsidies will boost demand for childcare, but the catch is that there won't be the staff to meet it.

Typically, higher subsidies trigger a rise in fees. Out-of-pocket childcare costs have grown on average by more than 3% a year above inflation over the past decade, the second-fastest-growing component of the consumer price index over that time, according to Wood.  Only the cost of tobacco has grown faster.

Subsidies can be a double-edged sword, because while they help improve affordability, they also contribute to higher costs. Some centres have increased fees already ahead of the higher subsidies.

Reform of the sector is anticipated following reviews by the Productivity Commission (PC) and the Australian Competition and Consumer Commission (ACCC). The PC is looking into how to make sure childcare is high quality, affordable, flexible and more accessible, particularly to groups such as Aboriginal and Torres Strait Islander Peoples, and vulnerable and disadvantaged children.

Labor has said the ACCC will design a price regulation mechanism to drive out-of-pocket costs down for good.

Finding good-quality full-time childcare is a huge issue for families. There are 113,000 Australians, most of them women, who want to work but cannot because they can't access affordable childcare, according to Bureau of Statistics data.

Dropping off a small child at a childcare centre that you have reservations about is horrible. I still feel guilty about sending my elder daughter to a centre  that was pretty awful. It wasn't easy to find a vacancy, but eventually I moved her to another centre - but it wasn't great either. Eventually I found a terrific carer called Dianne who ran a wonderful family daycare centre. My daughter was happy and loved going to Dianne's. I was less stressed and didn't feel as guilty going to work.

But while I had choices living in the city, nine million Australians live in a childcare desert, where there are three or more children under five for every available place, according to research by the Mitchell Institute at Victoria University.

Childcare deserts are more likely in regional and remote areas, but often cities have pockets where the number of children wanting childcare outnumbers the places available.

The Mitchell Institute report comes as research shows that lack of access to childcare costs women earning the median wage about $118,000 in superannuation over their lifetime. It found that nine million Australians (35.2% of the population) live in one of the deserts, with a distinct correlation between wealth and childcare availability and cost.

Rewards from paid parental leave

To help encourage more women back into the workforce, momentum is building to lift paid parental leave by eight weeks to 26 weeks.

At the September jobs summit, there was almost unanimous support from business, unions and  employers for 26 weeks of paid parental leave.

While it would cost the government around $600 million a year, according to the Grattan Institute, it could boost GDP by $900 million a year because more women would be working. It would also increase the average mother's lifetime earnings by $30,000.

Around half of employers pay new parents some form of parental leave - just how much depends on the employer. Typically it is offered to women as paid maternity leave but increasingly companies are ramping up paid leave to new dads.

Companies such as Deloitte offer 18 weeks to new dads while Telstra provides 16 weeks.

Policies that encourage greater sharing of unpaid care in a child's early years result in better father engagement through their child's life, according to the Grattan Institute. This gives mothers scope to participate more in paid work.

It makes good sense for companies to offer attractive, family-friendly policies to draw in top candidates. But there are plenty of bonding and emotional rewards for men by giving them the opportunity to spend time raising their kids. Research from the US shows that it can mean a reduction in divorce rates.

What the changes will mean

Nearly all families will be winners from the $5.4 billion boost to the childcare subsidy over the next four years. The base rate is being lifted from 85% to 90%.

A new cohort of higher-income families earning between $355,000 and $530,000 will for the first time benefit from subsidies.

While details are yet to be finalised, the information provider Entitlemate estimates that a family with $200,000 of income who have a child in long daycare (100 hours a fortnight) will receive a maximum subsidy of $21,000 from the government and will be $5121 better off with the new subsidy. Families earning around $150,000 with one child will be $5600pa better off while a family with an income of $175,000 will have $6720 more.

The family with a $200,000 income and a second child under 6 will get an overall subsidy for the two children in care of up to $46,700. That is more than $23,000 for each child - at least double the maximum from last year. If a family has three children in care under six, the average amount of subsidy per child goes to $24,000.

While the current subsidy cuts out for families on an income of $354,305, the new threshold is lifted to $530,000. This means that a family with an income of $400,000 and three kids under six in care will be eligible for a subsidy of nearly $25,000pa.

There will be an increased subsidy to care outside school hours, too.

The current childcare subsidy is paid directly to childcare centres. It is based on various conditions to maximise the benefit, such as family income, the age of the child, use of an approved childcare centre and how much work, volunteering or study you do.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.