The Family Assistance Legislation Amendment (Child Care Measures) Bill
(No. 2) 2014 (the bill) provides for the paused indexation of the Child Care
Benefit (CCB) income thresholds for a further three years from 1 July 2014.
The bill sought to maintain the CCB income thresholds at the amounts applicable
as at 30 June 2014. As the bill was not passed by the Parliament before 1 July
2014, the current figures reflect the CCB indexed from 7 July 2014.
Broadly speaking, concerns brought to the committee's attention centred
on the bill's potential impact on the affordability and accessibility to child
care for low to middle income families.
Some submitters also questioned the modelling used by the government with
respect to the proposed measures and emphasised the need for the bill to be
considered in the context of the Productivity Commission's (PC) Inquiry into
Child Care and Early Childhood Learning (Inquiry into Childcare)
The PC released the draft report of the Inquiry into Childcare on 22
While some concerns were raised about the proposed measures,others
acknowledged the difficult fiscal environment and welcomed the government's
investment of $28.5 billion over four years in child care fee assistance.
Affordability and accessibility of childcare
Under the proposed amendment the CCB income test threshold will remain
As such, CCB rates would be unaffected by the measures proposed in the bill as
they would continue to be indexed annually in line with movement in the
Consumer Price Index (CPI). However, under the proposed amendments the
indexation of the CCB income test would remain the same for three income years.
Some submitters questioned the ability of the proposed measures to keep
pace with the cost of education and care, arguing that CCB thresholds should
receive at least a CPI increase annually, so that CCB rates adjust in
accordance with the cost of education and care.
The Municipal Association of Victoria (MAV) expressed concerns about the
proposed CCB amendment to the A New Tax System (Family Assistance) Act 1999
(Cth) (New Tax Act), arguing that the budget reform will:
...dramatically affect Victoria's Family Day Care operators and
could cause families to miss out on affordable accessible child care from next
Further, Early Childhood Australia (ECA) submitted that:
[T]he proposed measures [that]... freeze Child Care Benefit
thresholds will exacerbate the decline in real value of the subsidies. This
will affect the affordability of ECEC [early childhood education and care] for
families, and particularly low and middle income families.
ECA contended that the proposed changes to CCB will have a 'bracket
That is, 'as house hold income increases, and the thresholds are not increased
commensurate with inflation, families will move along the CCB taper rate
receiving less CCB every year.'
In line with this argument, some submitters argued that unless the income
thresholds increase in line with increases in income, those with lower incomes
will receive less benefits making early education and care less affordable for
those on low incomes.
In support of this position, Goodstart Early Learning noted:
CPI is inadequate to keep up with both the cost of ECEC... or
average wages... This impacts both the income thresholds and the rates for CCB.
This means fewer and fewer families are eligible for CCB, and those that are
eligible are receiving proportionally less assistance, leading to higher
The Australian Council of Social Services also submitted that 'affected
families will receive reduced assistance and face higher out of pocket costs as
family incomes increase despite the likelihood that child care fees will
continue to rise.'
National Welfare Rights Network (NWRN) also raised concerns consistent
with other submissions received by the committee
when it stated that:
Freezing the income thresholds for CCB until 30 June 2017
will mean that more families will receive less CCB or will lose it entirely. As
their CCB payments reduce, their out of pocket costs increase and they will hit
the $7,500 cap far CCR sooner.
In contrast to the above submissions, the committee also received
evidence from submitters in support of the bill.
These submitters argued that the proposed measures would have no impact on
families with income below the lower income threshold for CCB, and minimal
impact on those above the threshold.
The current lower and upper CCB income thresholds are $42 997 and $100 268.
Ai Group argued that the proposed amendment would not have a significant
impact on affordable accessible childcare.
The suspension of indexation of the eligibility threshold
will reduce by a small amount the quantity of CCB that families with incomes
above the threshold would receive relative to the amount they would have been
eligible to receive were indexation not suspended.
The Department of Education (department) explained that:
Families that receive less Child Care Benefit as a result of
this measure may be able to claim Child Care Rebate that covers up to fifty per
cent of out-of-pocket child care costs for working families.
In evidence before the committee the department highlighted that as CCB
hourly and weekly rates would continue to be indexed under the bill, 'some
people because of... the possibility of offset for CCR, if they are eligible... can
actually get more CCB, more childcare as a whole.'
Pausing indexation does not
constitute a 'cut'
Upon introduction of the bill into Parliament, the Hon Sussan Ley MP,
Deputy Assistant Minister for Employment (Minister), emphasised that the CCB,
as with all means tested payments, changes according to your circumstances.
Further, the Minister explained that the proposed amendment to pause the CCB
income threshold does not constitute a 'cut'.
If a family's income and circumstances do not change from one
financial year to the next there should be no negative impact on their
assistance. In fact, since the government is increasing the child care benefit
hourly rate, many families will see an increase in their child care benefit
payment. As with all means tested payments, a change to your circumstances –
for example, a pay rise – can change what you are able to receive.
Early Childhood Australia (ECA), Social Policy Research Centre (NSW) and
United Voice (UV) acknowledged that the costs of child care over the last
decade have increased at rates above inflation and that a significant
percentage of these costs have been borne by the government.
The government is committed to providing affordable and accessible
child care options for Australian working families, through the provision of
financial assistance under the CCB.
Child care subsidies are one of the fastest growing areas of
Australian Government outlay, driven principally by increased numbers of
children in care, increased hours in care and rises in fees. Overall the
Government will increase child care fee assistance to $28.5 billion over the
next four years. This includes $13.6 billion to reduce child care fees under
the Child Care Benefit, and $14.9 billion to assist working families with
out-of-pocket child care expenses under the Child Care Rebate.
Further, when the former bill was introduced into the Senate on
19 June 2014, the Hon Simon Birmingham, Parliamentary Secretary to the
Minister for the Environment, noted during the second reading speech that many
families will not be affected by the proposed changes to the CCB.
Questions were raised at the hearing about the modelling used by the
government with respect to the proposed measure. The department explained that
'the methodology and the modelling outcomes for budget measures are agreed with
the Department of Finance to confirm that they are accurate.'
With specific reference to the modelling used for this measure, the department
The model is usually updated at least twice a year in
relation to the factors that are put into it. The main ones that change...
include the estimated growth in fees over the out years. If there is a history
of changes and our data changes, that gets modified. The other one that
move[s]... with an agreement between Finance and Treasury... is growth in children
and families in care.
As the modelling is done as required and changes to the modelling
parameters are usually implemented in conjunction with the Budget, the
modelling for this measure 'is based on the data of 700,000-odd families and
1.1 million children that is provided by the child care management system....
from November 2012.'
The department indicated that they are looking to update the reference using
data from 2013 but emphasised that modelling is used to extrapolate out
'conservative estimates' for future years.
The department also explained that the modelling undertaken has been the
modelling in use for a number of years and that under the current government
there have been no changes to the form of modelling used.
The modelling that we have done to date is a full-year
effect; it has not broken it down by periods, although logically there will be
people throughout the year who do or don't use or who drop off or drop on to
CCB. The department has not done any modelling in relation to the measures since
it was prepared for the budget.
The department provided evidence that this type of methodology and
modelling had been conducted and utilised historically, including under the
former government. Further, the department explained that the modelling used
has been approved by Treasury.
In its submission to the committee, ECA provided six scenarios analysing
the bill's impact on families based on ECA's analysis.
The department indicated that it had reviewed this modelling with ECA and
explained that it was unable to replicate the ECA's findings.
We did have some discussions with ECA after they had released
their modelling to discuss some of the methodology. In the simplest terms, it
is probably fair to say that we think their estimates are overstated in a number
of ways... Their modelling includes the freezes, and it was both CCR and CCB that
they were modelling at that time, both of those freezes being in effect in
2017-18 as well—so it was a four-year freeze rather than a three-year one—so
some of their total amounts were slightly overstated. We were talking to them
about some of their growth factors for families and rates, and they did not
align with the department's views of what those growth rates would be, so we
think they were overstated as well...
We did not try to replicate their modelling. But, just in
talking to them about, as I said, some of the factors and the underpinnings
that they were using, we did not agree that they were appropriate and some them
The committee notes the department took steps to understand the ECA's
modelling, but did not try to replicate this modelling. The committee is
satisfied that the department has undertaken appropriate modelling.
The explanatory memorandum,
Minister's second reading speech
and the submission received from the department
are silent as to whether the CCB indexation pause will be applied
retrospectively. As such, the committee sought clarification from the
department on this issue. The department provided evidence before the committee
As the bill was not passed by the parliament before 1 July
2014, the childcare benefit income thresholds were indexed with effect from 7
July 2014, which is essentially the start date of the first full childcare
week. Because the CCB income thresholds were indexed in July 2014, the
government is now considering its options in relation to the bill. It would not
be appropriate for the department to speculate on the government's possible
options. When this measure is proposed to commence is subject to a decision by
In addressing the committee's concerns about the potential practical and
financial impacts of the measures, the department explained that:
... if your income is below the minimum income threshold again
there would not be a change. And for those people whose income was above the
maximum limit, [$]150,000 plus, who are not receiving anything at the moment,
they would also still not receive anything. For people in between, it would
mean that the income threshold rate would not increase by CPI and it may have
an impact on what your entitlement may be. The best way to check that: we
normally reference people back to the calculator that the HS [Human Services]
use because it is hard to say, particularly in bulk emails and letters, what
the impacts were. They need to double check with the Department of Human
Services what their entitlements will be.
The department emphasised their commitment to communicating with
families to ensure they do not experience confusion about their level of CCB
entitlement. They provided evidence before the committee that in addition to
taking steps such as updating the website, sending emails and letters, families
in receipt of CCB would need to check online to ascertain their hourly and
weekly CCB rates.
The committee believes it is important to remember that the CCB, as with
all means tested payments, changes according to individual circumstances and
that the proposed amendment to pause the CCB income threshold does not
constitute a 'cut'.
It is the view of the committee that this represents a fair and reasonable
approach to providing CCB to families, and one that meets community
The committee also notes that the form of modelling utilised by the
department to develop the policy behind this bill has been used both
historically and under the former government.
Productivity Commission Inquiry
On 22 November 2013, the Treasurer, the Hon Joe Hockey MP, directed the
PC to undertake an Inquiry into Childcare with a specific focus on
developing a system which would address children's learning and development
needs whilst supporting workforce participation.
The PC has been asked to report and make recommendations on a number of issues
affecting the childcare sector, including: 'options – within existing funding
parameters – for improving the accessibility, flexibility and affordability of
childcare for families with diverse circumstances.'
The government has asked the PC to provide its final report of the Inquiry
into Childcare by 31 October 2014.
A number of submitters suggested that the proposed legislative changes
to the CCB be postponed until the conclusion of the PC Inquiry into
Other submitters raised concerns that the bill is independent of the
draft recommendations of the PC
which propose that the CCR and CCB be combined into a single means-tested
In response to these concerns the department's submission explains the
measure as a:
...limited and targeted savings measures to help address short
term fiscal concerns. In particular, this measure does not pre-empt the
outcomes of the Productivity Commission Inquiry into Child Care and Early
Childhood Learning, which is a once in a generation opportunity to reform child
care and early learning. The Government will use the Productivity Commission
Inquiry process and outcomes to ensure better child care policies into the
This explanation addresses concerns that the CCB measure should not be
taken ahead of the PC's report on the Inquiry into Childcare because it
is both limited and targeted and will not prevent the government taking on
board any recommendations the PC may make about Australia's broader child care
and early childhood learning needs in its final report.
2.35 The committee acknowledges the government's ongoing commitment to
providing affordable and accessible child care options for Australian working
families through the provision of financial assistance under the CCB. In
particular, the committee is persuaded that the provisions in the bill are a
responsible legislative reform that will support sustainability in Australia's
family payment system.
While the committee notes concerns about maintaining the current CCB
income thresholds for three years, it is not persuaded that childcare will
become unaffordable or inaccessible as a result of this measure. It also notes
the PC Inquiry into Childcare will be given due consideration by the
government in the development of future policy in this area.
The committee is persuaded that the proposed measure is limited, well
targeted and for a finite period of time, and is a necessary part of the
broader government agenda of repairing the budget and strengthening the
economy. Further, the committee believes that the measure meets community
expectations that CCB be paid according to a family's particular circumstances.
2.38 The committee recommends that the bill be passed.
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