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Budget 2021: Federal Government’s childcare reform a ‘targeted’ & ‘proportional’ investment, but for whom?


The Australian Government has announced major changes to its childcare subsidy ahead of the May 11 federal budget, but who will benefit?

The government will add $1.7 billion to the current annual child care budget of $10.3 billion over a three-year period. The changes, which will take effect on July 1, 2022, are intended to support mostly low-to-middle income households with “half the families set to benefit having a household income under $130,000.”

The added spending, which aims to lower workforce disincentive rates, will assist families who have two or more children under five by boosting their subsidies by up to 30 percentage points (a maximum of 95 per cent) for the second child and subsequent children.

Households with a combined income of more than $189,390 will also benefit due to the dropping of the subsidy cap that restricts them to $10,560 per child per year (after which they are required to pay the full costs of care).

“The key message here in terms of childcare is for parents not get too hung up over the costs of it in the next year or two but look at the much larger financial impact in the long term and over your career,” CEO of Life Sherpa Vince Scully said.

“Rather than focus on the weekly cost of childcare, think of the much greater cost or impacts there might be to the families’ income and your career through not using childcare.

“Having children is a public good as well as a private expense which is why the government is involved with childcare support, but remember these changes do not help with the first child and do not kick in for another year.”


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How affordable is ‘affordable?’

Although the proposed changes represent a step in the right direction towards improved childcare, they also bring to the surface issues of accessibility and affordability with no concrete plan as of yet to address them.

Despite the promising figures of the new policy package, Kate Noble and Peter Hurley, writing for The Conversation, point out that the reform is unlikely to make much of a difference to the affordability of childcare for lower to middle income families – nor will it do much to address underlying systemic problems.

Part of the problem lies with a lack of understanding as to what ‘affordability’ actually means for childcare. A lot of the current discussion is concerned with per-hour costs and anecdotal evidence relating to families’ unique circumstances.

Although families’ lived experiences and average out-of-pocket expenses are important, there is currently no comparable threshold in Australia for childcare affordability (although there is for other sectors like housing and energy).

The US Department of Health and Human Services has an ‘affordability threshold’ for low to middle income families of 7 per cent of take-home income – that is, if they are spending more than 7 per cent, childcare is considered ‘unaffordable’. In Australia, however, there is no equivalent.

The impact on affordability

According to the Government, the policy package will help 250,000 families – those with two or more children under five years old and in childcare – by an average of $2,260 per year. However, with almost one million families relying on childcare, the benefits will remain inaccessible to many.

Labor’s spokesperson for Early Childhood Education Amanda Rishworth has said the policy excludes too many families, including those with just one child in care.

“Families right across the country are struggling with the cost of childcare,” Ms Rishworth said.

“The most recent [Australian Bureau of Statistics] figures have indicated that they are the highest-ever out-of-pocket costs facing Australian families.

“So now is not the time to pick a few families to get the benefit, now is the time to reform the system so the majority of families get the benefit.”

Noble and Hurley’s analysis indicates that 41 per cent of families with one child below the age of five will continue to spend more than 7 per cent of their disposable income on childcare, including half of all households with an annual disposable income between $100,001 and $125,000.

This means that families with a combined gross annual income of $102,000 will still still be slapped with full-time childcare costs of about $11,000 a year out of their own pockets.

The effect on preschool

The childcare reform applies only to children under the age of five, leaving those in preschool, vacation care, and before and after school care out.

It is possible that the increase in childcare subsidies results in more parents taking their children out of preschools and placing them into cheaper childcare alternatives, which could negatively impact their transition to school and the quality ratings of preschools.

On the other hand, some families may opt to start their children in school earlier to take advantage of the under five age bracket, which could result in significant cost shifting to the states and territories.


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The focus on economic growth and workforce participation

Treasurer Josh Frydenberg has said the focus of the childcare reform “has been on ensuring that families have a choice” to return to work or lift hours.

“This is a targeted and proportionate investment that simultaneously makes childcare more affordable, increases workforce participation and boosts the Australian economy by up to $1.5bn per year,” Mr Frydenberg said.

“Without this package, there would not be as much choice for families where the parent would want to work that fourth or fifth extra day.”

CEO of Xplor Technologies (Education) Mark Woodland says the focus of the childcare reform should not only be the lives of those already here, but also those that are coming into the world.

“Over the past 12 months, we’ve seen childcare services adapt to new needs, new methods of educating and adopting technologies that help families stay connected to their children every step of the way,” Mr Woodland said.

“This is a great start and gets me excited about how much more we can do. Education will only be impacted by working with the strongest leaders in education to help children around the world gain access to learning.

“It will take community engagement. It will take building new technology and trying new ideas, and it will take making mistakes and learning many lessons before achieving these goals.

“If the Australian Government is able to follow through with their proposed education budget agenda, Australia will be leading in this space.”


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