What the new child care subsidies will mean for families

For many families with young children, the federal government’s new child care arrangements cannot come soon enough.

According to the government, 96% of families (1.26 million) will be better off with higher childcare subsidies.

More generous payments for childcare mean more women and men will be able to work overtime and increase their family income.

“There’s an awful lot of talent we’re not tapping into,” says Danielle Wood, CEO of the Grattan Institute, a policy think tank.

Australian childcare is one of the most expensive in the OECD, especially when compared to countries with top services, such as Sweden, Germany and Canada. Childcare costs Australian parents about 24% of their income, compared to 1% in Germany, 5% in Sweden and 16% in Canada, according to a report by The Parenthood, a parent and carer movement.

This means that the high cost of child care is an entrenched deterrent for working mothers to work a five-day week and place their babies and young children in long-term care.

“Enabling women who want to participate more in the workforce to do so would broaden our talent pools and boost national productivity,” Wood said.

The new child care subsidies could add up to $6,000 more per year per child for children in long-term care, depending on family income and other factors. The subsidy for the first child increases from 85% to 90% per year. Families with more than one child in daycare will receive a higher subsidy.

There are also better benefits for school-age children cared for outside school hours.

But, frustratingly for families, the boost won’t arrive until mid-2023.

Why so long? The child care industry has a lot of flaws to iron out. There are currently approximately 7,300 child care employers caring for approximately one million children. But the sector suffers from a shortage of childcare workers, exhausted and with low morale. Child care staff are poorly paid and many plan to leave their jobs in the coming year.

In early September, 1,000 crèches closed as staff went on strike over low pay. According to the National Workforce Census, approximately 60% of child care workers typically receive minimum minimum wage, with 60% receiving award rates, compared to approximately 23% of the workforce in general.

Increased child care subsidies will spur demand for child care, but the catch is that there won’t be the staff to meet it.

Generally, higher grants result in higher fees. Childcare costs for dependent children have risen on average more than 3% per year above inflation over the past decade, the second component of the consumer price index at fastest growing during this period, according to Wood. Only the cost of tobacco has risen faster.

Subsidies can be a double-edged sword because while they help improve affordability, they also help increase costs. Some centers have already increased fees before the increase in grants.

Reform of the sector is planned following reviews by the Productivity Commission (PC) and the Australian Competition and Consumer Commission (ACCC). The PC is looking at how to ensure that childcare services are high quality, affordable, flexible and more accessible, particularly for groups such as Aboriginal and Torres Strait Islander people, as well as vulnerable children and disadvantaged.

Labor said the ACCC would design a price regulation mechanism to permanently reduce disbursements.

Finding good quality full-time child care is a huge problem for families. According to data from the Bureau of Statistics, 113,000 Australians, mostly women, want to work but cannot because they lack access to affordable childcare.

Dropping a small child off at a daycare you have reservations about is horrible. I still feel guilty for sending my eldest daughter to a center that was pretty awful. It wasn’t easy to find a vacancy, but eventually I transferred her to another center – but that wasn’t great either. Eventually I found a wonderful caregiver called Dianne who ran a wonderful family daycare. My daughter was happy and loved going to Dianne’s. I was less stressed and felt less guilty about going to work.

But while I had the choice of living in the city, nine million Australians live in a childcare desert, where there are three or more children under the age of five for every available space, according to a study by the Mitchell Institute at the University of Victoria.

Childcare deserts are more likely in regional and remote areas, but often cities have pockets where the number of children wanting childcare exceeds the number of spaces available.

The report from the Mitchell Institute comes as research shows that lack of access to child care costs women earning the median salary an estimated $118,000 in retirement pensions over their lifetime. It revealed that nine million Australians (35.2% of the population) live in one of the deserts, with a distinct correlation between wealth and the availability and cost of childcare.

Paid Parental Leave Rewards

To help encourage more women to re-enter the workforce, momentum is building to increase paid parental leave from eight weeks to 26 weeks.

At the September jobs summit, businesses, unions and employers almost unanimously backed 26 weeks of paid parental leave.

While this would cost the government about $600 million a year, according to the Grattan Institute, it could increase GDP by $900 million a year because more women would work. It would also increase a mother’s average lifetime earnings by $30,000.

About half of employers pay new parents some form of parental leave – the amount depends on the employer. Typically, it’s offered to women as paid maternity leave, but more and more companies are extending paid leave to new dads.

Companies such as Deloitte offer 18 weeks for new dads while Telstra offers 16 weeks.

According to the Grattan Institute, policies that encourage more sharing of unpaid caregiving in a child’s early years result in better father engagement throughout their child’s life. This gives mothers the opportunity to participate more in paid work.

It makes sense for companies to offer attractive, family-friendly policies to attract the best candidates. But there are a lot of emotional connections and rewards for men giving them the opportunity to spend time raising their children. Research from the United States shows that this can mean lower divorce rates.

What the changes will mean

Almost every family will be the winners of the $5.4 billion child care subsidy increase over the next four years. The base rate is raised from 85% to 90%.

A new cohort of high-income families earning between $355,000 and $530,000 will benefit from subsidies for the first time.

Although details are yet to be finalized, information provider Entitlemate estimates that a family with $200,000 in income who have a child in long term care (100 hours per fortnight) will receive a maximum grant of $21,000 from the government. and will be better off by $5,121 with the new grant. Families earning around $150,000 with one child will be better off by $5,600 a year, while a family earning $175,000 will be $6,720 more.

The family with an income of $200,000 and a second child under age 6 will receive a block grant for the two children in care of up to $46,700. That’s more than $23,000 for each child – at least double last year’s maximum. If a family has three children under age six in care, the average grant amount per child is $24,000.

While the current subsidy is eliminated for families with an income of $354,305, the new threshold is raised to $530,000. This means that a family with an income of $400,000 and three supported children under the age of six will be eligible for a grant of almost $25,000 per year.

There will also be an increase in the out-of-school care subsidy.

The current childcare allowance is paid directly to crèches. It is based on various conditions to maximize the benefit, such as family income, age of the child, use of a licensed daycare center and the amount of work, volunteering or schooling you do.

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