Impact of the new Child Care Subsidy

On 10 April 2019, the Government released data on children and families using child care services for the September 2018 quarter, the first three months of the new Child Care Subsidy (CCS). The data release provides a small snapshot into the impact of the recent changes to child care funding compared to previous quarters (Table 1).

Table 1: child care use and child care payment expenditure

Quarterly report Number of
children in
approved care
Number of
families using
approved care
Expenditure on
child care
payments, $’0001
Jun. 2016 1,268,140 874,020 $1,602,477
Sep. 2017 1,312,650 901,640 $1,907,482
Dec. 2017 1,302,940 897,880 $1,827,192
Mar. 2018 1,287,900 887,490 $1,607,423
Jun. 2018 1,269,260 882,540 $1,553,972
Sep. 2018 1,316,350 931,030 $1,948,649

(1) Total Child Care Benefit and Child Care Rebate; Child Care Subsidy for September 2018.

Sources: Department of Education and Training (DET), Early Childhood and Child Care in Summary, DET, Canberra, June 2016–June 2018; DET, Child Care in Australia, DET, Canberra, April 2019.

The new child care package

The CCS, a payment to assist families with the costs of child care, commenced on 2 July 2018 and replaced the two previous payments: Child Care Benefit and Child Care Rebate. A supplementary payment was also introduced at the same time, the Additional Child Care Subsidy (ACCS) which provides additional assistance for children at risk of abuse or neglect, families experiencing financial hardship, those transitioning from income support to work, grandparent carers on income support, and some low-income families. The ACCS replaced a number of previous payments including Special Child Care Benefit, Grandparent Child Care Benefit and the Jobs, Education and Training Child Care Fee Assistance payment.

The CCS is income tested and activity tested. The income test determines the rate of CCS: a percentage of either the fee charged or a set hourly fee cap, whichever is lower. The activity test determines how many hours of child care per fortnight can be subsidised by the CCS. The Child Care Benefit was a means-tested and activity-tested payment paid at set hourly rates and targeted at lower-income families. The Child Care Rebate was not means tested and provided a 50 per cent rebate on out-of-pocket child care costs, up to maximum annual amount ($7,613 in 2017–18).

Modelling by the Department of Education and Training prior to the CCS commencing, released under Freedom of Information, suggested around 70.7 per cent of families would receive increased assistance under the CCS compared to the previous system. Around 24.3 per cent would receive decreased assistance and the remainder would have no change.

Children and families accessing child care

In the September 2018 quarter 1,316,250 children from 931,030 families accessed child care services approved to receive the CCS.  In the June 2018 quarter 1,269,260 children from 882,540 families accessed approved services. This suggests a 3.7 per cent increase in the number of children accessing child care and a 5.5 per cent increase in the number of families since the introduction of the CCS. However, usage rates vary between quarters.  In the September 2017 quarter, there were 1,312,650 children from 901,640 families in approved care—this suggests a more modest 0.3 per cent increase in the number children and 3.2 per cent increase in the number of families using approved care following the introduction of the CCS.

The number of Indigenous children using approved care increased from 34,440 in the September 2017 quarter to 50,210 in the September 2018 quarter. However, this increase is primarily a result of two factors:

  • many services in the former Budget Based Funded program (the majority of which were aimed at Indigenous children) are now being included in the statistics as ‘approved services’ and
  • the definition of Indigenous children has been broadened to encompass a larger group.

Government expenditure

Expenditure on the CCS in the September 2018 quarter was $1.9 billion, an increase of 25.4 per cent on the previous quarter’s $1.6 billion total spend for Child Care Benefit and Child Care Rebate. However, under the previous payment system, many families reached the Child Care Rebate annual limit towards the end of the financial year and expenditure is typically lower in the June quarter. Compared to the September 2017 quarter, expenditure only increased 2.2 per cent with the introduction of the CCS.

When announced in May 2015, the CCS was part of a package which would see an additional $3.5 billion spent on child care by the Australian Government. However, estimated expenditure on the new payment has been consistently revised downwards since a revised and delayed package was announced in December 2015. The 2016–17 Budget estimated that expenditure on the CCS would total $23.2 billion over its first two years. The 2019–20 Budget estimates that CCS expenditure will be $16.0 billion in its first two years. The only significant change to CCS policy in this time was the exclusion of families earning over around $350,000 from eligibility. The decrease in estimated expenditure appears to have being mainly driven by parameter changes, including lower estimates of children accessing child care, and compliance measures. For example, the Mid-Year Economic and Fiscal Outlook 2016–17 revised expenditure on child care payments down by $7.6 billion over four years as a result of parameter variations.

Child care fees

Average hourly fees for all child care service types have increased by 5.8 per cent between September 2017 and September 2018. Average fees are currently below the CCS hourly fee caps (CCS pays a percentage of actual fees or the hourly fee caps, whichever is lower). However, the hourly fee caps are adjusted once a year in line with inflation as measured by the Consumer Price Index (CPI)—CPI grew by 1.9 per cent between September 2017 and September 2018.  If fees continue to grow at a higher rate than the CPI—the Government forecasts that fees for long day care will grow by more than four per cent each year over the forward estimates—then they will overtake the hourly fee caps and families will be required to cover more of the growing costs of care.

Unlike previous publications, the Department of Education and Training’s new quarterly data report did not include information on costs of care before and after government subsidies as a percentage of disposable income for different income brackets. If such information is included in future releases, this will allow for a comparison of the affordability of child care under the different payment models.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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