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This FlagPost was first published on 6 April 2020. It was amended on 19 May 2020 to correct an error in the section detailing the cost of the new child care funding arrangements.

On 2 April 2020, the Government announced new funding arrangements for the early childhood education and care (ECEC) sector in response to the coronavirus (COVID-19) pandemic and its impact on child care enrolments and attendance. The new arrangements make child care services fee-free for families. The changes took effect on 6 April 2020 and remain in place until 28 June 2020. The main changes were made via a legislative instrument: the Child Care Subsidy Amendment (Coronavirus Response Measures No. 2) Minister’s Rules 2020.

The new system will be reviewed after one month and an extension will be considered after three months.

Previous funding arrangements

Until 6 April 2020, the Australian Government provided both child care fee assistance to families and direct assistance to services. Most of the assistance was delivered through a fee assistance payment: the Child Care Subsidy (CCS).

The CCS was means tested with rates of payment based on family income, hours of care used, type of care used, and parents’/carers’ level of work, training or study. Families received a percentage of the fees charged or the hourly fee cap (an amount set by the government)—whichever was lower. The percentage received was determined by the family’s income and the hours subsidised determined by the parents’/carers’ level of work, training or study.

The payment was paid directly to providers to be delivered to families in the form of a fee reduction.

In 2018–19, the Australian Government spent $7.4 billion on the CCS (p. 37). An additional $268.5 million was spent on other programs to support child care providers.

Changes to funding arrangements

In response to the coronavirus pandemic, many families have unenrolled their children from child care. Some families have done this out of health concerns and some because they are now providing care to their children at home as a result of being stood down, losing employment or working from home. The decline in enrolments affects the revenue of providers and their ability to keep operating. On 2 April peak body Early Childhood Australia estimated that 650 ECEC services had already closed—most of which were outside school hours care services affected by the significant decline in school attendance.

Under the new funding arrangements, the CCS system is suspended and child care services will receive a weekly ‘business continuity payment’ equivalent to 50 per cent of fees charged (up to the CCS hourly fee cap) for sessions of care in the fortnight preceding 2 March 2020 (17 February 2020 to 28 February 2020). The payment for vacation care services will be based on the first fortnight of revenue in the school holidays between Term 3 and 4 of 2019. This will mean services can receive a payment worth up to half of their pre-pandemic fee revenue. 

The Department of Education, Skills and Employment published the following example: if a service charged $20,000 in fees for that fortnight (and charged fees at or under the hourly fee cap), then 50 per cent of their fee revenue for that fortnight is $10,000 and the weekly payment from 6 April would be $5,000.

In order to be eligible for this new payment, a child care service must:

• stay open with at least one child actively enrolled (except where the service is made to close on public health advice or for other health and safety reasons)
• not charge families any fees
• continue and prioritise care for essential workers, vulnerable and disadvantaged children and previously enrolled children
• comply with other regulatory requirements under the National Quality Framework and the conditions for approval for the CCS.

Services will need to encourage families that recently ceased enrolment to re-enrol so that they will be eligible for the CCS when the free child care arrangements cease.

State and territory education ministers also announced regulatory changes on 2 April to assist the ECEC sector: waiving fees and charges for ‘pandemic-related applications’ (this may include fees for approval applications or for the waiver of certain regulatory requirements), fast-tracking qualification waivers, suspending quality assessments and ratings, and ‘making rapid operational adjustments’ where required. The Council of Australian Governments’ Education Council also agreed that child care services would remain open for any families that need care with any future decisions to be consistent with advice from the Australian Health Protection Principal Committee.

Other support for providers

While the new funding arrangements will only cover a portion of child care providers’ previous earnings, other government support may be available, particularly the proposed JobKeeper Payment. The JobKeeper Payment will help to cover eligible child care providers’ wage costs.

The JobKeeper Payment will provide a flat-rate $1,500 per fortnight payment to all eligible employees, including full-time, part-time and long-term casual staff. This includes employees that have been stood-down. It will be paid via employers and all eligible employees receive the full $1,500 amount, regardless of their normal earnings. Employers will be able to provide employees previously earning more than this amount with a top-up. To be eligible, employers will need to have experienced a decline in turnover of between 30–50 per cent depending on the size of the business. On 5 April 2020, Treasurer Josh Frydenberg announced that not-for-profit entities would only need to experience a decline in turnover of 15 per cent in response to the coronavirus, regardless of size.

Providers experiencing financial difficulties may have applied for grants through the Community Child Care Fund. However, no new applications for Special Circumstances grants under the Community Child Care Fund will be accepted from 3 April 2020. Child care providers may be able to access other business support announced as part of the Government’s economic response to the coronavirus pandemic.

Prior to the 2 April funding announcement, the Government had announced a range of changes to the CCS system in response to the coronavirus pandemic. Changes were particularly aimed at addressing the issue of children not attending child care but families still being charged fees (as was required under the CCS system). Changes included allowing providers to waive fees for families whose children were not attending and increasing the number of allowable absences (where children are absent from care but still eligible for the CCS).

Key issues

Who can access free child care?

Any family whose children are enrolled in an approved child care service which remains operating will be able to access fee-free child care. Approved child care services are those that meet the eligibility requirements for the CCS which include regulatory requirements under the National Quality Framework. Free access will apply to all service-types if they remain open and receive the new government payment: this includes centre-based care, family day care and vacation care. Services will receive the new funding based on their pre-2 March revenue regardless of the number of children who attend the service from 6 April.

Where there are limited spaces, providers have to give priority to ‘essential workers’, vulnerable and disadvantaged children and children who were previously enrolled at the service. It is unclear who will be considered an essential worker but Minister for Education Dan Tehan has stated: ‘We want people to understand that the priority will be given to those who need to be working. The priority will be given to those who can’t care for their children’.

The CCS income test and activity test will not apply under the new arrangements.

Will services be able to keep operating?

The key factor in the success of the new funding arrangements will be whether it will offer enough funding for services to remain viable and keep operating. The new payment will only fund around half of a provider’s previous fee revenue. Not all providers will be eligible for the JobKeeper Payment or not enough employees may be eligible. For example some providers may not have experienced the revenue drop to be eligible. The largest provider in Australia, Goodstart Early Learning initially expressed concern that it would not meet the 50 per cent drop in turnover to qualify for the JobKeeper Payment. In a media release responding to the Government’s announcement, the company stated:

We have repeatedly explained to the Federal Government, as recently as this morning, that unless Goodstart is given access to the JobKeeper scheme we will not be able to keep our centres open – not for essential workers and vulnerable children now and not when the rebuild begins.

The Treasurer’s announcement on 5 April to require a lower revenue decline for not-for-profits could enable more providers, including Goodstart Early Learning, to access the JobKeeper payment.

The United Services Union in NSW has also warned that child care services operated by local governments will not be eligible for the JobKeeper Payment and will need additional funding from local government in order to keep operating.

For those employers eligible for the JobKeeper Payment, they may find that not all employees will be eligible: for example casual workers who have been employed for fewer than 12 months and workers on temporary visas.

Media reports have suggested that the combined funding measures may not be enough to prevent services closing or limiting places and staff hours. Some families have reportedly offered to continue to pay fees to providers but this would make the providers ineligible for business continuity payments.

The Department of Education, Skills and Employment has advised that providers may be able to apply for additional funding under the new arrangements but this would be decided on a case by case basis:

The Government will also make payments of higher amounts (to the 50 per cent) available in exceptional circumstances, such as where greater funding is required due to an increase in enrolments to meet demand to address the needs of essential workers or vulnerable children. 

Cost of the new arrangements

The cost of the new funding arrangements is estimated at around $1.6 billion over three months. The Government also estimates that the ECEC sector will receive around $1.0 billion through the JobKeeper Payment. The Government estimated that under the CCS system, taking into account reduced enrolments, the sector would have received around $1.3 billion in fee revenue and subsidies over the next three months. The $2.6 billion offered through the new funding arrangements and JobKeeper Payment is slightly more than the $2.2 billion in subsidies paid in the most recent quarter for which data is available (September 2019)—however, this does not include revenue from fee-paying parents. The new funding arrangements provide the ECEC sector with more support than they were expected to receive during this period under the CCS arrangements, but providers will still face a stark drop in revenue over the coming months.

In a separate measure, the Government announced it would provide $453.2 million to extend the funding provided for preschools under the National Partnership for Universal Access to Early Childhood Education by one year (the 2021 calendar year). This is equivalent to the funding provided for the 2020 calendar year in the 2019–20 Budget.

Stakeholder reaction

Peak body Early Childhood Australia welcomed the new funding arrangements. CEO Samantha Page stated that the announcement ‘tackles most of the big issues that services and families have been grappling with over the past month’. Page also noted that there were ‘complexities to work through’ particularly regarding which services would be eligible for the JobKeeper Payment.

The Australian Childcare Alliance, which represents private providers, commended the Government for the package. President Paul Mondo stated: ‘We believe the new financial measures, coupled with the JobKeeper Payment, and the other existing support mechanisms, will allow the early learning sector to continue playing its essential role in educating and caring for Australia’s young children’.