Time to read : 3 Minutes
Understanding The Complicated New Child Care Subsidy Rules
Many young families tell us that, after the mortgage, child care is often the biggest expense. Fees have been increasing for years, even before the recent inflation surge and cost-of-living pressures.
From 10 July, the federal government will deliver on a $5.4 billion election commitment to reduce the childcare costs for about 1.2 million families. However, there are concerns that due to inflation, some parents won't see much of a reduction.
The federal government has been criticised for structuring its childcare payments in a way that means some families have to pay more out of pocket than others, even if they earn the same income. We'll get into that later.
Key points:
The federal government has implemented a new Child Care Subsidy (CCS) regime to reduce costs for 1.2 million families.
Inflation may still negate the subsidy increase for some parents.
CCS rules lead to discrepancies in how much families pay for child care, based on factors such as opening hours and hourly rates.
Advocacy groups want a universal entitlement to childcare to address these inequities.
So how does it work, and how much could you save?
What are the childcare changes?
The new Child Care Subsidy (CCS) will cover a larger percentage of most families' childcare fees, and more families will also qualify for the subsidy.
Families earning less than $80,000 a year currently get up to 85 per cent of their childcare fees covered. That will increase to 90 per cent. The more a family earns, the more the subsidy will be reduced.
The income cap for eligibility is being increased from $356,756 to $530,000, making more higher-income families eligible.
Aboriginal and Torres Strait Islander children will get at least 36 hours of care subsidised each fortnight regardless of income or activity levels.
Early Childhood Education Minister Anne Aly says the changes would ease pressure on families and increase women's workforce participation.
"It's about making early childhood education and care more affordable for families and thereby enabling primary caregivers – mostly women – to be able to take on more hours, to go back to work, to go back to study if they want to."
Will inflation swallow the subsidy increase?
Many families have already seen childcare centres hiking their fees ahead of the CCS increase. But with inflation hovering near 7 per cent, the industry says it has little choice.
Australian Childcare Alliance chief executive Paul Mondo says services were struggling with the rising costs of wages, rent, electricity, and groceries themselves and had to pass costs onto parents.
The fact remains that even if childcare centres don't raise prices again, many families will be using any extra cash to cover other expenses. Even so, Aly says, without the subsidy changes, parents would have been worse off.
"Every family with a child or children in early childhood education and care will see a benefit from our boost to the childcare subsidy," she says.
Why will some families get more than others?
It's complicated, but CCS rules mean some families will pay more for child care than others on the same household income. It comes down to a mismatch between the way childcare centres bill and how the government calculates subsidies.
The result is that parents who send their kids to child care with shorter opening hours can end up paying far more out of pocket.
Most childcare centres charge a daily fee, which is a flat cost all parents pay regardless of how many hours their child spends there on a given day.
But the government pays the subsidy based on an "hourly rate" which is capped at $13.73. It calculates a centre's hourly rate by dividing it's daily fee by how many hours it is open.
Shorter hours result in a higher hourly rate. And if that higher hourly rate exceeds $13.73, then that's a smaller proportion covered by the government.
Case study
Families earning $80,000 are entitled to a 90 per cent subsidy.
Childcare centre A and childcare centre B both charge $150 per day but have different opening hours:
Childcare centre A: 90 per cent of 12 hours @ $12.50 = subsidy of $135.00
Childcare centre B: 90 per cent of 10 hours @ $13.73 = subsidy of $111.21
Families at childcare centre A will pay a $15 gap each day.
Families at childcare centre B will pay a $38.79 gap each day, just because their centre is open for fewer hours.
A new activity test also determines how many hours of subsidised care a parent can get. This may lead to a mismatch between childcare fees billed per day and subsidies that are calculated per hour.
Parents who spend more hours working, studying, or volunteering are entitled to more hours of subsidised care. However, because many childcare centres bill daily, places with longer operating hours can chew up more of your allocated hours.
This issue can also compound the hourly rate problem we explained earlier.
A family allocated 72 hours a fortnight might need to choose a childcare centre with shorter hours so that they can have more 'days' covered by the subsidy. But as explained earlier, shorter days can mean higher gap fees – and when this gap fee is multiplied over more days, it adds up.
The Australian Childcare Alliance wants a universal entitlement to care for all children, with every child entitled to a minimum of three days of child care a week. If parents worked full-time, their children would be entitled to five days of care.
"Simplifying the way that services and families are funded would significantly improve outcomes for families," Mondo says. "We would definitely ask that the activity test is reviewed and simplified to mitigate some of these complications that exist."
The Bottom Line
Parents should closely review the opening hours of their childcare centre to ensure they're getting maximum benefit from the CCS.
Young families can investigate other ways to find savings that don't impinge on childcare choices, such as better deals on utilities, insurances and finance.
The Productivity Commission is examining a government election policy for universal childcare access that would see all families get a flat 90 per cent rebate. We won't know the outcome until until June next year.
Go deeper: The 10 July changes to CCS (in a nutshell)
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
