Budget explainer: What's on the table for childcare?

The current childcare system is hideously complex. Child Care Benefit, Child Care Rebate and a perverse system of means- and activity-testing combine to create an expensive ($10 billion a year and counting…) behemoth that still just doesn’t deliver for families. Here’s what the Turnbull Government have put on the table – and what should be there.

Simplify

The Jobs for Families package, first announced in last year’s Budget, brings much-needed simplification of existing policy. Instead of two different payments – one calculated as a dollar figure and the other as a percentage of fees – both Child Care Benefit and Child Care Rebate will be combined for a simply subsidy based on a percentage.

Prioritise need

The package delivers for low- and middle-income families, particularly those who work. It includes new spending, which is largely targeted at low- and middle-income earners. The lowest-income families will have their childcare subsidised up to 85%, and the $7,500 cap on the Child Care Rebate will be abolished for middle-income families.
The activity test has been tightened to provide more support for working families. Eight hours of work, study, training or volunteering a fortnight will enable families to claim 36 hours of subsidised care. For low-income families who do not meet this test, 24 hours a fortnight of subsidised care can be claimed.

There is also a Nanny Pilot Programme for families who cannot access standard hours of care. This year’s Budget announced there will be a second round of applications to take part, subject to strict parental eligibility criteria. The amount of subsidy per child will also be increased from $5.95 to $8.50 an hour, in a change that will hopefully make the program more accessible to more families.

Control costs

With a package that’s more generous to the majority of families, there needs to be a way to control costs. One measure is to implement caps on hourly fees. Subsidies will be paid based on a benchmark price for fees, rather than the actual fee charged. This will make providers think twice about over-charging parents, and prevents people who choose premium services from passing that cost on to the taxpayer — leaving less funding to improve access for those who need it most.

The new means-test will be less generous to the highest-income families. Though the cap on the subsidy will be lifted to $10,000 per child per year (from $7,500 currently), the rate of subsidy will be tapered at a family income of $250,000 from 50% to 20% for families with incomes of $340,000 or above. This is more stringent than what was announced at last year’s budget.

What’s missing?

The biggest problem with the Jobs for Families package is that there is nothing to increase the supply of childcare places. One proposal from the government is to encourage more services to provide shorter ‘sessions of care’, so that part-time workers or job-sharers can place their child in care for half the day when they need it, and not be forced to pay for a 10- or 12-hour day that they don’t need – but someone else might.

It also does little to address price problems in the longer term. Though more generous subsidies and fee caps will provide relief for families, there has been no real analysis of how far these reforms can really go to create affordability for parents in light of the costly National Quality Framework regulations.

The other problem is that funding is uncertain. The government has tried to minimise the net cost to the budget by linking the new package to cuts in other areas of family payments, but the legislation hasn’t been passed such that the start date of the program has been pushed out by a year to July 2018.

What can be said is that the government has outlined a clear policy program for childcare, should they win a second term in government. The Opposition’s Budget response on Thursday will draw clear battlelines for the upcoming election.

Trisha Jha is a Policy Analyst at the Centre for Independent Studies and the author of the research reports Complex Family Payments: What it Costs the Village to Raise a Child and Regulating for Quality in Childcare: The Evidence Base.