Understanding the new Child Care Subsidy

By Katrina Nair

1 July 2018

On July 2 the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 will be implemented across Australia, changing the way that families receive assistance in paying for child care.

Currently the Government provides two forms of assistance to families receiving child care, they are:

  • The Child Care Benefit

  • The Child Care Rebate

The Child Care Benefit depends on the age of your children, the family’s current year income, the number of children in care, and the hours of care used. The Child Care Benefit is means tested. 

The Child Care Rebate is not means tested. It covers 50% of families out of pocket costs up to $7,500 per child.

From July 2 the Child Care Benefit and the Child Care Rebate will be combined into a single payment called the Child Care Subsidy.  Three things will determine what level of Child Care Subsidy available to a family:

  • A family’s income

  • An activity test

  • The type of child care service used

Income

Families with a combined family income of up to $65,710 will receive a subsidy of 85% of what they pay. The subsidy rate tapers down as familial income increases from there. There will be a cap of $10,000 on total Child Care Subsidy payments available to families with an income greater than $185,710.

To calculate the Child Care Subsidy entitlement for each child, families will need to provide a family income estimate to Centrelink when making a claim for the Subsidy. At the end of the financial year, Centrelink will balance the family’s payments by comparing the estimated income to the actual income (generally after their tax return has been lodged). Families are able to update their family income estimate at any time during the year and their Subsidy will percentage will be adjusted accordingly.

Families where parents work irregular hours will be asked to estimate the highest number of hours they expect to work in a fortnight over the following 3 month period.

The Activity Test

The new scheme requires families to pass an Activity Test, in a two parent family both parents are required to meet the activity test, where the activities of the person with the lowest number of hours are used to determine the relevant ‘step’ of the Activity Test. The more of an approved activity that families complete, the higher the amount of subsidised childcare they can access – up to 100 hours per fortnight, per child. 

Approved activities under the new scheme include: paid work (including leave), study and training, unpaid work in a family business, looking for work, volunteering, self-employment and other activities on a case by case basis. Families are asked to self-declare their activity to the Department of Human Services. Although no evidence is required to accompany the self-declaration, the Department of Human Services may undertake random spot checks in which families may be required to provide evidence of an approved activity.  Families are advised to update their activity test details whenever they change in order to avoid getting a debt. Grandparents who are the primary carers for their grandchildren are exempt from the activity test.

Families with a combined annual income of less than $65,710 who do not meet the activity test will be able to access up to 24 hours of subsidised care per child per fortnight, as part of the Child Care Safety Net. However, families who earn over $65,710 will no longer receive subsidised care unless they meet other requirements.

Step

Hours of activity*

Maximum number of hours of subsidy per child*

1

8 hours to 16 hours

36 hours

2

More than 16 hours to 48 hours

72 hours

3

More than 48 hours

100 hours

*Per fortnight

Community Concerns

There are concerns that income assessment component is unduly onerous on those who work on a casual basis, those who have insecure access to work, or those who rely on highly variable seasonal work, in addition to contractors or consultants. These families will be forced to choose between underestimating their work hours and potentially missing out on care, or taking the risk that they will get the work hours, and potentially having to repay the money at a later date.

There are also concerns that some families will be significantly worse off under the new scheme as a result of failing to meet the Activity Test. There are also fears that the Test could potentially disadvantage families living in regions where access to education, employment and volunteering opportunities can be hard to come by.

Implicit in the Activity Test is the belief that the purpose of childcare is to enable parents to get back to work, rather than a principle that all children should have access to early education services, and the very tangible benefits that children receive as a result, an underlying principle of the Leor model.

Service Type

The new policy includes fee caps – an attempt by the government to prevent higher subsidies from leading directly to increased prices. The fee caps will be indexed to the consumer price index (CPI). The new Subsidy will not apply to what families actually pay, but rather to the new hourly fee caps.

If a family’s carer or childcare centre charges less than this per hour, the family will receive a subsidy based on the actual rate the family is charged. If the carer or centre charges more than the maximum hourly rate cap for subsidy calculation, the family will pay the gap out of pocket.

Alternative Options to Childcare Centres

What is clear is that some families will be better off under the new scheme, there will also be some families that are worse off.

Some families may be looking for alternative care options as a result of the new scheme. Some families may look at putting children who are eligible into a community pre-school. Community pre-schools are not eligible for the Subsidy, however their daily rates tend to be much lower than those charged by long day care centres. Some States, however, do subsidise community based preschools.

Families who are not eligible to receive subsidised care may no longer be able to afford to have their children in a formal care arrangement. This may force some parents to decrease their work hours or withdraw from the workforce altogether. Other parents may be forced to rely more heavily on unpaid care options, such as grandparents or friends.

Those families whose combined income means they no longer receive any financial assistance may look for options outside of the traditional childcare centre or family day care model. Given they no longer receive a subsidy they may look for alternative options that afford them greater convenience. Families may wonder why they put themselves through the hassle of the daily drop-off/ pick-up routine, and risk paying late pick up fees when they no longer receive any financial assistance. Some families may be looking for more flexible care options, or in-home services that reduce the logistical burden of accessing childcare.

This article is an opinion piece only and does not constitute tax, legal or any other form of advice.

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