Michael Klapdor and
Marilyn Harrington, Social Policy
The 45th Parliament will need to decide between competing approaches to the way in which government assists families with the costs of child care.
The future of early childhood education services will also have to be considered with the key national partnership agreement expiring in 2017.
Snapshot of child care in Australia
In 2015, around
1.2 million children were attending formal child care services. The median
hourly fee for a long day care service in 2015 was around eight dollars an
hour. A family with gross income under $100,000 per year would spend
around ten per cent of their disposable income on child care if they had
one child in care for 50 hours a week (after receiving government fee
assistance). Child care fees have
been increasing, on average, by around seven per cent per year over the
Australian Government assistance
The two main payments by which the Australian
Government assists families with the cost of child care are Child Care Benefit
(CCB) and Child Care Rebate (CCR).
CCB is income tested, paid at hourly rates and available to
those using services approved by or registered with the Australian Government. Parents/carers
must meet an activity test (work, training or study for at least 15 hours a
week) to be eligible for more than 24 hours of CCB per child per week (up to a
maximum of 50 hours per child per week). CCR is a non-means tested payment that
covers 50 per cent of out-of-pocket costs of approved child care services up to
a maximum of $7,500 per child per financial year. CCR has an activity test as
well but there is no minimum hourly requirement.
The Government also provides payments to specific
groups such as those on income support looking for work, and provides funding
directly to some services which offer care to disadvantaged groups or in areas
where it is otherwise unfeasible to operate.
The Government estimates
that it will spend around $8.6 billion on CCB, CCR and other support for the
child care system in 2016–17.
Jobs for Families package
In May 2015, the Abbott Government announced
the most significant changes to fee assistance payments in more than 15 years:
the Jobs for Families package. The package was in response to a Productivity
Commission report on child care and early childhood learning. The package
was later revised
in December 2015, primarily to make it less generous to higher income earners.
The centrepiece of the package is the Child
Care Subsidy (CCS) which would replace existing child care payments. The
CCS would offer a payment based on a percentage of an hourly benchmark price or
the actual child care service fee, whichever is lower, with the benchmark set
by government and differentiating by service type. The benchmark would be based,
initially, on average fees plus an additional loading. It would only be increased
in line with inflation rather than in line with average fee increases. The rate
offered varies by family income:
Table 1: Child Care Subsidy income test
| Annual family income
|| Subsidy rate — % of actual fee or benchmark (whichever is lower)
|Up to $65,710
|>$65,710 to <$170,710
||Tapering from 85% to 50% for each $3,000
|$170,710 to <$250,000
|$250,000 to <$340,000
||Tapering from 50% to 20% for each $3,000
Source: Department of Education and
Training (DET), Overview:
Jobs for Families child care package, DET, Canberra, 3 May 2016.
The hours of child care to be subsidised would be
based on the number of hours per fortnight parents/carers spent in approved
activities such as work, training, study, volunteering or looking for work. Eight to sixteen hours of activities would offer 36 hours of CCS per fortnight; 17–48 hours
provides up to 72 hours of CCS; 49 hours+ provides up to 100 hours of CCS. For
couples, the partner with the lower number of hours would determine the CCS
entitlement. Families with income under $65,000, who do not meet the activity
test, would be eligible for a maximum of 24 hours of CCS. Families with income
over $185,000 would have their CCS entitlement capped at $10,000 per year.
Cost and timing
When first announced,
the package was to cost an additional $3.5 billion over five years including
$327.7 million for targeted support to disadvantaged and vulnerable families
separate from the CCS. The Government stated
that cuts to the Family Tax Benefit program would be used to fund the
additional cost. The revised package saw a reduction in estimated expenditure in
the first two years on the CCS of around $1.2 billion.
The CCS was originally intended to commence on 1
July 2017. However, in the 2016–17
Budget, the Government announced that the CCS would be deferred until 1 July 2018,
citing the failure of the Senate to support the Family Tax Benefit savings.
Reform or patch-up
The Jobs for Families package represents a
significant change in direction for child care funding aimed at better
targeting assistance, slowing growth in costs for families, and providing
simple levers for government to constrain costs. The package is expected to see
an increase in parents’ workforce participation—but the increase in labour
supply is projected
to be relatively small given the $2 billion in additional expenditure on the
package its first two years. Criticisms have been made of the activity test,
the method for setting the benchmark price, and the number of families worse off
under the changes.
At the 2016 election the Australian Labor Party
to using the expenditure allocated to the Jobs for Families package for a new
child care policy to commence from 1 January 2017, which includes: increasing
CCB rates by 15 per cent, increasing the annual CCR cap from $7,500 per child
to $10,000 per child and new administrative powers to constrain excessive fee
Labor’s proposals do not address key issues with
the current system identified in the Productivity Commission’s report such as the
complexity of the payment system, poor targeting of some programs, and long-term
fiscal sustainability. However, the proposals would deliver more immediate
relief to families with the costs of child care. While the Government’s policy
offers an improvement on the existing system—in terms of simplification and
increased assistance to most families—and comes with a sizeable amount of
additional investment in child care, there remain issues with its design and
the fact that the additional funding is to be drawn from other forms of family
assistance. While the Family Tax Benefit cuts do not affect higher income
families, low and middle-income families will see the benefits of the CCS partly
offset by reductions to these other payments.
Early childhood education—is Australia doing
The imperative for good quality early childhood
education (ECE), particularly for children from disadvantaged backgrounds, is
A recent Organisation for Economic Co-operation and
Development report, What
Are the Benefits From Early Childhood Education, reasserts the benefits
of ECE (preschool). It also presents evidence about the long-term benefits of
ECE participation as shown by the performance of 15-year-old students in the
2009 Programme for International Student Assessment (PISA).
An Australian study of national
literacy and numeracy tests (NAPLAN) results, Early
Bird Catches the Worm, also showed the positive
effect of ECE participation.
State and territory governments have primary responsibility
for the funding of ECE services. This funding, since 2009, has been augmented
by the Australian Government through a series
of short-term national partnerships (NPs). The current
NP will provide $840.0 million from 2016 to 2017.
Through the NPs, all governments have committed to
access’ to ECE. The aim is to provide every child with access to a quality
ECE program of 15 hours per week or 600 hours in the year prior to full-time
A question remains, however, as to whether
Australia is doing enough in ECE provision. According to the Australian Early
Development Census National Report 2015, which assesses children
in their first year of school, about one in five children were developmentally
vulnerable in one or more areas (domains).
A review found that, in 2013, most jurisdictions
were not meeting the NP enrolment targets for disadvantaged and Indigenous
children in 2013; hence, the current NP’s focus on these children. There is
also concern from state and territory governments and ECE services about the NP’s continuing
short-term nature which, it is claimed, has led to increased uncertainty for
service delivery and impedes long-term planning.
Australia’s ECE provision is not keeping up with
that of other countries. Professor
Edward Melhuish from Oxford University is amongst those who argue
that Australia is being left behind—other countries are now providing two years
M Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015, Bills digest, 110, 2015–16, Parliamentary Library, Canberra, 2016.
M Harrington, ‘The review of universal access to early childhood education’, FlagPost, Parliamentary Library blog, 30 March 2015.
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