Bills Digest 49 1996-97 Child Care Legislation Amendment Bill 1996

Numerical Index | Alphabetical Index

This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 29 October 1996.


Passage History

Child Care Legislation Amendment Bill 1996

Date Introduced: 10 October 1996
House: House of Representatives
Portfolio: Health and Family Services
Commencement: Generally, at Royal Assent; however, Schedule 1 (which effects amendments to the Child Care Act 1972) is to commence on 1 July 1997. It should also be noted that because of the administrative arrangements relating to the Child Care Cash Rebate, the actual date of effect to changes to the Childcare Rebate Act 1993 will be the week beginning 7 April 1997.


The Child Care Legislation Amendment Bill 1996 (the Bill) proposes to implement the following Budget-related measures:

  • discontinue the operational subsidy to community based long day care centres, to take effect from 1 July 1997; and
  • amend the Childcare Rebate Act 1993 to: reduce the Childcare Cash Rebate from 30 per cent to 20 per cent for families with taxable income in the current year higher than the family income cut offs for Part A of the Family Tax Initiative (which is currently $70,000 per annum for a family with one child.)


The Child Care Act 1972

The Child Care Act 1972 provides the legislative basis for Commonwealth Government funding of child care. It was enacted by the Liberal-Country Party Government of William McMahon, in recognition of the increase in labour force participation by women, and the consequent need to provide affordable quality child care to their children. It was indicative of that Government's policy that the Act was administered by the Department of Labour.(1)

Originally, the Act introduced capital and recurrent funding of 'local' child care centres. Operational subsidies were subsequently extended to other types of child care services, including Family Day Care (FDC), Occasional Care, and Outside School Hours Care.

The funding arrangements are part of the Children's Services Program (CSP), which is administered by the Health and Family Services Portfolio. To receive an operational subsidy, an 'eligible child care centre' (ie. one operated or proposed to be operated by a not-for-profit body corporate, or a local Government authority, or by a Commonwealth, State, or Territory body, or a religious or charitable organisation) is required to put in a submission for funding. Once the centre has been approved for funding, the operational subsidy becomes part of the Commonwealth's recurrent expenditure.

It has been argued that the number of centres approved for receipt of the operational subsidy appears to be more contingent upon the funding that the Government has appropriated in respect of child care, rather than demonstrated need for centres.(2) In addition, it has been suggested that the submission model of funding results in funds going to those groups who have the skills and resources to put together a funding submission.(3) It was for this reason that Kim Beazley (sen.), the Opposition spokesman on child care, argued against the submission-based model. However, his proposed amendment to the Child Care Bill was defeated in the Senate.

Community-based long day care centres

Long day care centres are centres that open for at least 8 hours a day during normal working days (ie. Monday to Friday) and operate for at least 48 weeks of the year. As mentioned above, community-based LDCs are not-for profit centres, generally operated by a local government authority, a community organisation, or a religious or charitable organisation. The centres themselves are normally administered by a management committee consisting of parents and other members of the community.(4)

The establishment and subsidisation of community-based child care centres represented an attempt to give parents and local communities control over the child care services in their area. Proponents of community-based child care services argue that this form of management results in benefits to the children, the parents, and the service itself. Supporters argue that parental involvement on committees ensures that the centre is more responsive to the needs of parents and children. This is reinforced by the fact that the parents on the management committee will also experience the effects of any decisions that they make. Furthermore, as parents are given a greater opportunity to influence the type of care their child receives, they are much more likely to be satisfied with the quality of the care.(5)

Location of community-based LDCs

Although community-based child care centres are located in urban and rural Australia, in rural and remote Australia, they make up a greater proportion of the child care services available than they do in urban areas.(6) This is explained in part by the fact that commercial operators do not perceive that long day centres in these areas (particularly small rural centres and remote areas) as being viable. On the other hand, the operating subsidy received by community-based long day care centres can be used to offset the greater expense of operating a long day care centre in rural and remote areas.(7)

In its report into the operation of federal child care legislation, the Australian Law Reform Commission (ALRC) examined the situation of families living in rural and remote areas. A consistent theme of the submissions from child care providers in rural areas in remote areas was that these services are disadvantaged because services costs more to operate, and it is more difficult for these services to remain viable. The ALRC noted that the increased expense arose as a result of a number of factors, including: the need to offer financial incentives to attract staff from urban areas; the increased cost of food, building materials, etc as a result of additional transport costs; greater training, transport and 'phone costs.

The nature of the operational subsidy

From 1972 - 1985, the operational subsidy provided to community-based LDCs equalled 75 per cent of the salaries of approved qualified staff, based on attendance of children on a particular representative day. The funding formula was based on one nurse for each 20 children over the age of three, one teacher for every 15 children over the age of three, and 1 nurse for every ten children under three years of age.

In November 1985, the funding formula was changed; an amount of subsidy is paid per child, based on approved places and utilisation rates, reducing the amount of operational subsidy, on average, by approximately 50 per cent.(8) The subsidies are currently indexed, and the present levels of subsidy are as follows:

  • $21.40 for children under three years of age; and
  • $14.35 for children aged three years of age and over.

Removal of the operational subsidy

The Federal Government announced the removal of the operational subsidy for community-based LDCs as part of Budget '96. It is anticipated that the removal of the operational subsidy in respect of community-based LDCs will save the Government $118.4 million over three years. To assist community-based LDCs to adjust to the removal of the operational subsidy, the Government has allocated $8.3 million over the next four years. With this funding, community-based LDCs are supposed to hire consultants to help them to restructure their service and improve efficiency without raising fees. (9)

In addition, the Government has undertaken, over the next four years, to provide $12.5 million to ensure that families in severely disadvantaged areas do not lose access to child care , plus $10.9 million to provide capital funding to ensure that '...families in rural and remote areas and places of special need have access to flexible child care...'(10)

However, despite the allocation of funding to help them adjust to the loss of the operating subsidy, community-based LDCs have argued that this will not be sufficient, and they will be forced to pass on the costs to parents.(11) It has been suggested that a low-income family with one child under the age of three receiving maximum Childcare Assistance ($2.30 per hour, or $115.00 for 50 hours) would, after the Childcare Cash Rebate was factored in, experience a rise in the cost of care for that child per week from $29.50 to $50.90.(12) The question must also be asked as to whether community-based organisations would consider it worthwhile or feasible to continue operating a long day care centre in the absence of an operational subsidy.

The removal of operational subsidies (in respect of all child care services) has been advocated by a number of commentators and groups for almost two decades. The removal of subsidies was first proposed during the Fraser Government. During its period in office, the Labor Government conducted a number of reviews relating to the provision of child care services. Supporters of its removal (eg the then Senator Walsh) argued that the subsidy should be replaced by a voucher system. (13)

In addition, providers of commercial child care services (eg. commercial long day care centres, which do not receive operational subsidy) have called for the Government to cease providing operational subsidies to child care providers, including community-based long day care centres. In so doing, they argue that they already provide the services (eg provide places for under-twos) provided by community-based long day care centres, and do so more efficiently.(14)

On the other hand, supporters of the retention of the operational subsidy for community-based LDCs argue that commercial long day care centres are able to reinvest their profits to improve their services. Community-based LDCs, being operated on a non-profit basis, rely on the operational subsidy in order to provide quality, affordable child care. In addition, as the original formula for the provision of the operational subsidy was premised on the need to employ highly trained nursing and teaching staff, the establishment of community-based LDCs has led to an increase in the quality of child care overall, as it has encouraged commercial operators to improve the quality of their child care services in order to compete.(15)

The National Commission of Audit Report, and the EPAC Report into Future Child Care provision in Australia

The Government's decision to remove the operating subsidy for community-based child care centres is broadly consistent with recommendations made in both the National Commission of Audit Report, and the EPAC Report into Future Child Care Provision in Australia. (16)

Both reports recommended the abolition of the operational subsidy in respect of all child care services. However, there was a divergence of views as to whether and how the funds saved should be redirected. The National Commission of Audit recommended that, as part of reducing the complexity of Commonwealth-State financial arrangements and service delivery, that sole responsibility for the provision of child care services should be devolved to the States, with Commonwealth funding support being provided by means of untied general purpose grants.(17) More specifically, it recommended the withdrawal of operational subsidies from '...publicly funded child care centres to ensure competitive neutrality and improved equity in payments amongst parents using public and private sector providers.'(18)

The EPAC Report, on the other hand, recommended that operational and capital subsidies paid in relation to all types of child care services should be abolished and folded into a single Child Care Benefit. Exceptions were proposed in relation to children with special needs (ie. children with disabilities, Aboriginal and Torres Strait Islander children, and children living in rural and remote areas). This was regarded as being the most equitable means of delivering child care services.(19)

Rather than adopt either of the recommended approaches, the Government appears to have adopted a course which falls somewhere between them, (ie. remove the operational subsidy, but not replace it, as suggested in the EPAC Report).

The Family Tax Initiative, Child care assistance and child care cash rebate

The Child Care Cash Rebate Scheme is administered by the Health Insurance Commission, through its Medicare offices. At present, it is not means tested. 'Eligible families' are required to register and establish with Medicare that the child care expenses for which they are seeking the Child Care Cash Rebate (the Rebate) are 'work related'. Rebate payments are based on the presentation of receipts from registered carers. At present, the Rebate is not means-tested.

To a certain extent, the Rebate complements the Childcare Assistance Scheme; as it is payable on the amount paid by a family for child care after Childcare Assistance has been deducted. (However, it should be noted that, unlike Childcare Assistance, the Rebate is available in respect of child care provided by informal registered carers.)

The Commonwealth Childcare Assistance Scheme (CCAS) provides funds to approved child care services, to enable them to charge families who are eligible for assistance a lower fee than they would otherwise pay. As for the amount of assistance, this is calculated upon a sliding scale according to family income and the number of dependent children.(20) The Childcare Assistance threshold for maximum Childcare Assistance benefit is currently $476.00 per week. The maximum fee ceiling on which Child care Assistance will be paid is $2.30 per hour, or $115.00 for 50 hours per week.(21)

The other amendments to the Bill propose to impose a partial means test upon the Child Care Cash Rebate. Families with dependent children will be able to claim the full 30% rebate if their combined income per annum is below the threshold for Part A of the Family Tax Initiative (ie $70,000 per annum), or they receive a certificate from the Department of Social Security (DSS) stating that they are eligible for Family Payment. Despite the partial means-testing of the Rebate, this is unlikely to silence the criticisms of commentators who believe that the Rebate does not target those families who are in need, and the greatest benefit is derived by families on middle to high incomes.

Main Provisions

Schedule 1 - amendments to the Child Care Act 1972

Item 2 proposes the repeal of section 11 of the Child Care Act 1972 (the Act). At present, section 11 provides for the Minister to approve payment of operational subsidy to operators of community-based long day care centres. Subsection 11(7) of the Act allows the Minister to determine levels of subsidy and notify them in the Gazette.

Schedule 2 - Amendments to the Childcare Rebate Act 1993

Items 2 to 5 propose a number of amendments to section 4 of the Childcare Rebate Act (CCR Act) for the purpose of clarifying the distinction between de facto partners and business partners for the purposes of the legislation.

Item 7 adds subsection 10(2), which provides for the HIC to determine that a person is taken to be a parent of a child, where that person '...has day-to-day care of the child on a long-term basis'. In other words, a person need not have guardianship of a child to be entitled to apply for a determination that they be taken to be a parent.

Item 12 amends the definition of 'child care' set out in section 27 of the Act. The salient difference is the amendment of paragraph 27(1)(d). Currently, this paragraph defines 'child care' by reference to the premises at which a child care service (ie a service whose operation is partially subsidised by the Commonwealth and/or a State or Territory, or a child care service as determined by the Minister). Paragraph 27(1)(d) is to be replaced by paragraph 27(1)(b), which, rather than define 'child care' by reference to premises, provides for the HIC to determine other forms of child care as 'child care', for the purposes of the Act. New subsection 27(3) provides for a person to make an application to the HIC for a determination pursuant to 27(2).

Item 13 of the Bill repeals existing paragraph 36(c) and replaces it with a new provision. The application of the paragraph will be extended, to ensure that Child Care Cash Rebate is not paid to a 'registered carer' in respect of care provided to dependent children of a de facto partner, or a business partner.

Item 14 of the Bill attempts to address the situation where a claim is made in respect of two sets of fees for one period of care. At present, section 36(1)(d) provides that Child Care Cash Rebate is not payable where the claimant, or a member of the claimant's family, has already made a claim in relation to child care provided to the child or children specified in the claim, for the same period. Item 14 applies to the calculation of the rebate from the week beginning on 7 April 1997.

Subsection 36(2) provides for the Minister to determine circumstances in which the rebate will be payable in respect of both sets of fees. A determination under subsection (2) is a disallowable instrument.

Processing of claims for Child Care Cash Rebate and review of decisions

Item 15 of the Bill proposes the insertion of proposed section 36AA, which deals with the processing of claims. The HIC is to make a decision on a claim within 14 days after the claim is made. Where the HIC considers that the rebate may not be payable, it is obliged to give notice to the claimant as soon as is practicable. Once notice is given, the HIC may defer the making of a decision on the claim until the end of 28 days after the notice was given, or the Commission is satisfied that the claim as to whether or not the rebate is payable in respect of the claim, whichever occurs first.

Proposed subsection 36(4) provides that where the HIC has not informed the claimant in writing before the end of 28 days after the provision of notice, the HIC is taken to have made a decision that the rebate is not payable in respect of the claim. Where the HIC decides that the rebate is not payable, section 55 of the Act provides for the claimant to apply to the HIC for a reconsideration of the decision. Subsections 55(2) and (3) provide that the application must be in writing, and must be made within 28 days of the applicant being informed of the decision (or such period as extended by the HIC).

However, there is no express provision in the Childcare Rebate Act stating that the HIC to notify a claimant that their claim for rebate has been refused. Rather, the legislation imports the obligations on decision-makers that are set out in section 27A of the Administrative Appeals Tribunal Act 1975 (the AAT Act).

Section 27A of the AAT Act requires a person who makes a reviewable decision to take such steps as are reasonable in the circumstances to notify a person who is affected by a decision of the making of the decision and their right to have the decision reviewed. In so doing, the decision maker must have regard to the Code of Practice for Notification of Reviewable Decisions and Rights of Review (the Code) determined by the Attorney-General under section 27B. The provisions of the Code are legally binding upon decision-makers. However, it must also be noted that section 27A(3) provides that a failure to notify an affected person of a decision will not affect its validity.

  • As the decision of the HIC on reconsideration is reviewable by the Administrative Appeals Tribunal, a decision that a claimant is not entitled to the rebate is a reviewable decision for the purposes of the AAT Act (section 27A(4)(i)).

The Code sets minimum standards of practice for notification of reviewable decisions and rights of review, and agencies are encouraged to supplement them in their area of operation.(22)

In relation to a person's right to seek a review of a first-instance decision made by the HIC, a note in similar terms to the note below section 57 should be inserted beneath subsection 36(4) of the CCR Act.

Item 15 also inserts section 36AB, which provides for the suspension of payments pending inquiries into the registration of a family or carer. This suspension continues until either the end of 28 days after the notice of suspension was given, or until the HIC notifies the registered family or carer that the suspension is revoked, or the registration is cancelled. Where a suspension has ended, a registered family or carer's right to receive the rebate is taken not to have been affected.

Calculation of Child Care Cash Rebate and Compliance issues

Item 18 repeals the current sections 45 and 46, which deal with the calculation of the rebate. A registered carer or family will only be entitled to the rebate if the cost of care in a particular week exceeds the minimum weekly threshold. The formulae for the calculation of the rebate are contained in the proposed subsections 45(2) and (3). These are as follows:

  • Where the claim is less than the maximum claimable amount, the rebate is the difference between the child care expenditure for that week and the minimum weekly threshold, multiplied by the rebate percentage (either 30 percent or 20 percent, depending on which applies);
  • Where the claim exceeds the maximum claimable amount, the rebate is the difference between the maximum claimable amount and the minimum weekly threshold, multiplied by the rebate percentage.

'minimum weekly threshold' - is the difference between the fee relief ceiling and the maximum amount of relief that would be payable under the guidelines in force under section 12A of the Child Care Act in respect of a child care centre for providing a child with 50 hours of child care.

'fee relief ceiling' - is the maximum fee on which Childcare Assistance will be paid. At present, this is $2.30 per hour; the total for 50 hours a week at this rate is $115.00, and applies in approved long day care centres, family day care schemes and some occasional care centres.

For those families that are eligible, the Rebate is payable in respect of the 'gap fee', which is the fee that is payable by a family where a child care service charges more than the fee ceiling. Where another claim has already been made in respect of child care, the amount of rebate payable will be deducted by the amount of rebate paid or payable in respect of those claims.

Section 46 deals with the issue and cancellation of family payment notices and family income notices. (The criteria governing eligibility for, and the issue of, these notices are those contained in the Social Security Act 1991 (SSA Act). Where a notice is cancelled, that person must notify the HIC within 14 days of receipt of the notice; failure to do so attracts a penalty of 20 penalty units ($2,000).

Section 46 also allow DSS to impose obligations upon recipients of a family income or family payment notice to provide information to DSS in relation to changes in circumstances which might affect eligibility for the entitlement. Refusal or failure to comply with such obligations attracts a penalty ($2,000).

In addition, section 46 imports the internal review provisions of the SSA [section 1240(1)] in respect of decisions not to issue, or to cancel, notices.

Item 20 proposes amendments to section 49(4), which deals with matters that are to be included in a notice provided to a registered carer. This item imposes an obligation upon registered carers to notify the HIC of matters affecting eligibility for registration, under (new) section 50A (inserted by Item 22). The HIC is to determine the matters in relation to which registered carers are required to notify the Commission.

Items 23 -25 clarify that decisions made at first instance by the HIC are reviewable decisions for the purpose of the Act, and add classes of decisions that are reviewable.

Item 27 inserts section 62AA, which provides for the Minister to make guidelines about matters in respect of which the Commission, in making determinations, must comply.

Item 28 is a savings provision, to ensure that guidelines that were in force under section 17 of the CCR Act immediately before the commencement of Item 11 (ie the repeal of section 17) will continue in force as if they had been made under section 62AA of the CCR Act 1993.


  1. Gifford, Jean, Child Care Funding Re-assessed: operational subsidies, fee relief and taxation issues, Australian Early Childhood Association; Canberra, 1992, p.31.
  2. Gifford, p.5.
  3. Brennan, Deborah, The Politics of Australian Child Care: From Philanthropy to Feminism, Cambridge University Press, 1994, pp.92-93.
  4. Australian Law Reform Commission, Report No.70 (Interim), Child Care for Kids: A review of legislation administered by the Department of Human Services and Health, 1994, p.84.
  5. Australian Law Reform Commission, Report No.70 (Interim), Child Care for Kids: A review of legislation administered by the Department of Human Services and Health, 1994, p.86.
  6. This conclusion is derived from a comparison of randomly selected urban and rural Federal electorates; Australian Electoral Commission, Portfolio Strategies Group, Electorate Profiles; Calare, Canberra, Perth, Franklin, Northern Territory, Kalgoorlie.
  7. It should be noted that, until recently, there were no community-based LDCs in South Australia (five centres have recently opened in Adelaide). Queensland has the highest percentage of community-based LDCs.
  8. Gifford, p.11.
  9. Budget 1996/97, Child Care Budget Initiatives, 20 August 1996.
  10. Budget 1996/97, Child Care Budget Initiatives, 20 August 1996.
  11. Gunn, Michelle, 'First steps in childcare industry overhaul', The Australian, 24 August 1996.
  12. Bagwell, Sheryle, 'Fair-to-meddling deal on kids', Financial Review, 28 August 1996.
  13. Walsh, Peter, 'Care for the rich kids', Australian Financial Review, 27 August 1996.
  14. EPAC, Child Care Task Force Interim Report: Future Child Care Provision in Australia, June 1996, p.100.
  15. Gifford, p.19
  16. Economic Planning Advisory Commission, Future Child Care Provision in Australia (Interim Report), Canberra, June 1996; National Commission of Audit, Report to the Commonwealth Government, AGPS, June 1996.
  17. National Commission of Audit, p. xiii
  18. National Commission of Audit, p.68.
  19. EPAC Report, p.106.
  20. Lindsay, Mary, 'Some recent developments in child care: 1 January 1994 - 30 September 1995, Current Issues Briefs (Social Policy Group), No.6, 1995/96, 4 October 1995; p.3.
  21. Childcare Assistance (Fee Relief) Guidelines, Commonwealth of Australia Gazette, No. S 368, 29 September 1995. (A variation to the current Guidelines has been laid before both Houses of Parliament. Subject to disallowance, it is due to take effect on 1 April 1997.)
  22. Code of Practice for Notification of Reviewable Decisions and Rights of Review, Michael Lavarch, Attorney-General, 30 November 1994.

Contact Officer and Copyright Details

Elen Perdikogiannis Ph. 06 277 2699
25 October 1996
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9031
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 30 October 1996

Back to top