Fact file: How the Government's childcare plan could change things for families.

The Federal Government has announced that there will be changes to the way childcare payments are determined in the 2015 budget.

Social Services Minister Scott Morrison said the changes will more strongly tie childcare payments to workforce participation.

“What has been guiding us on childcare has been the objective of workforce participation. It’s not a welfare payment. It’s not an income support payment or anything like that. It is there to encourage people to be in work, stay in work, so families can have choices,” he said.

This has raised concerns that a new activity test will result in 1.1 million families losing subsidies, which could lead to some of the 1.6 million children using approved childcare places dropping out of the system.

Opposition spokeswoman for families, Jenny Macklin, said the change could mean families won’t be able to afford childcare.

“One of the big concerns we have with what we know about the Government’s plans so far is that the Government may end up locking out around 100,000 families from child care,” she said.

ABC Fact Check takes a look at the proposal.

What the Government has foreshadowed

Although the full detail of the changes have not yet been released, Mr Morrison has flagged the activity test as one area of reform.

At a press conference on May 1, Mr Morrison said he wanted to increase activity requirements for families before they receive childcare subsidies.

He said the tests would consider “whether they are in paid work, whether they are looking for paid work, whether they are in study or in some formal voluntary capacity” during the course of a week.

“But at the same time we understand the need for a safety net for families on low incomes as currently exists to be able to access a regular period of early childhood learning and we will certainly ensure that continues,” Mr Morrison said.

In February Prime Minister Tony Abbott scrapped his controversial paid parental leave scheme and said the focus needed to be on childcare if Australians wanted higher participation and a stronger economy.

“Women, after all, are our country’s most under-utilised source of skills and entrepreneurship,” Mr Abbott said.

“If female participation in Australia were 6 per cent higher, at Canada’s level, GDP would be higher by $25 billion a year. So a better childcare policy is good economic policy as well as fairer family policy.”

Little incentive for women to work

The Productivity Commission says the way the tax system works in Australia provides little incentive for many women to return to work.

This is because a mother’s income is often added to her partner’s, pushing the family’s income into a higher bracket for the family tax benefit.

This view is reinforced in a submission to the Productivity Commission from the Grattan Institute, a public policy research institute.

It said the current policy settings “make returning to work so financially unattractive for many women that they remain out of the workforce for long periods”.

It also said the situation is particularly bad for women with lower earning capacity because “they take home a smaller proportion of any money they do earn — and a much smaller dollar amount”.

Mothers’ work participation rates

Since 1996 the number of child care places has risen 77 per cent.

Over a similar period, the participation rate of mothers with a child aged under 15 years has increased from 57 per cent to 67 per cent, which the Productivity Commission described as substantial growth.

Despite this, the participation rates of mothers aged 25 to 54 year with children under 15 remains below that of women in the same age group without children.

Figures from the OECD used in the Productivity Commission report show that in 2009, Australia’s employment rate for mothers was 62 per cent.

This was below the OECD average of 66 per cent, and “below all other countries under comparison”.

No activity test for some childcare payments

There are three main government payments which subsidise the cost of childcare for parents: the childcare benefit; the childcare rebate; and the Jobs, Education and Training child care fee assistance program (JET).

The childcare benefit, which cost the government $3.1 billion this year, is only paid to families who earn less than $150,000 a year.

Currently, there is no activity test for parents who claim less than 24 hours of the childcare benefit each week.

This means irrespective of whether parents work or study, the government currently pays about $4.00 an hour for each hour a child is in care up to 24 hours a week.

It is generally paid directly to a childcare centre, or can be recouped by parents from Centrelink.

If both parents have work or study related commitments of at least 15 hours a week, the family can receive up to 50 hours of child care benefit per child per week.

Who might lose the childcare benefit?

Early Childhood Australia, the national peak advocacy group for early childhood, has been suggesting nearly 100,000 children may lose the childcare benefit if the Government implements an activity test.

A spokesman for Early Childhood Australia told Fact Check this figure was from the 2014-15 budget which shows 97,000 children were predicted to access the childcare benefit alone.

The spokesman said the childcare benefit was the only childcare subsidy that requires no activity test whatsoever, and this is why his organisation chose these figures.

The number of children claiming the benefit alone was forecast in the last budget to rise to 100,000 next financial year, and 104,000 in 2016-17.

A budget briefing document by Early Childhood Australia says: “It is expected that, without subsidies, many families not meeting the new activity test will withdraw their children from early childhood services.”

Rebate payments could also be affected

But families who only access the childcare benefit may not be the only ones affected.

This year the government expects to pay more than $3 billion in child care rebate payments which are not means tested.

The childcare rebate is designed to cover 50 per cent of parents’ out-of-pocket childcare expenses.

Last year’s budget estimated 750,000 families will receive both the child care benefit and child care rebate in 2014-2015.

A further 220,000 families are estimated to access only the rebate, presumably because they are expected to earn more than $150,000 per annum and do not qualify for the childcare benefit.

The rebate does have an activity test, but it has a very low threshold; it says parents must demonstrate they both participate in work-related commitments at “some time during the week”.

No minimum number of hours is required.

This leaves the door wide open for parents to claim the payment, capped at $7,500 per year, even if they are participating in less than one hour of work per week.

Only when a family claims the child care benefit for more than 24 hours a week do both parents need to demonstrate they work or study at least 15 hours per week.

Government urged to link payments to work or study

In wide-ranging reviews of child care released in early 2015 both the National Commission of Audit and the Productivity Commission recommended activity tests be strengthened in order for parents to access childcare payments.

The Commission of Audit’s report says it “considers it reasonable that child care should only be subsidised by government when it is used to enable parents to work, train or study”.

The Productivity Commission recommends an activity test of 24 hours per fortnight in order for parents to receive any taxpayer assistance for early childhood education.

However the Productivity Commission report said it wanted to ensure children from very low income families do not miss out on early childhood education and care due to their parents’ lack of workforce activity.

“This is one group for whom [child care] has been shown to make a noticeable difference to child development outcomes,” the report says.

A safety net

A spokesman for Mr Morrison told Fact Check that “claims on the activity test are based on commentary concerning the Productivity Commission’s recommendations, not Government proposals”.

While Mr Morrison has flagged tightening the activity test, he has also repeatedly said some income support recipients will be exempt from the test.

A version of this story was originally published on ABC.

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