The 2018 childcare package was partly designed to help families work more. But the benefits were too modest to matter
- Written by Rob Bray, Research Fellow, Australian National University
The federal government introduced the Jobs for Families Child Care Package[1] in July 2018. Then Education Minister Simon Birmingham had said[2] the package would create a “simpler, more affordable, more accessible and more flexible early education and childcare system”.
He said the introduced new activity test and fee subsidy structure would
ensure that taxpayers’ support for child care is targeted to those who depend on child care to work or work additional hours […] [and] align the hours of subsidised care more closely with the combined hours of work, training, study or other recognised activity undertaken.
The package was also intended to control what had been incessant increases in childcare fees.
When initially announced in 2015, then Prime Minister Malcolm Turnbull described the package[3] as “the most significant reform to the early education and care system in 40 years”.
We were members of a team which conducted an evaluation of the package. This was commissioned by the government and included researchers from the Australian Institute of Family Studies, the Australian National University and the Social Policy Research Centre of the University of New South Wales.
The report of the evaluation[4], released in recent days, found that, while for a majority of families the package had a positive financial benefit, this tended to be relatively modest. And the policy had little impact on longer term costs, access, flexibility or workforce engagement.
The subsidy helped many lower and middle income families
Simon Birmingham said[5] the package was
targeted to those who need it most – low- and middle-income families who are juggling work and parenting responsibilities.
The package introduced a new subsidy structure. For families with incomes of up to $68,163 in 2019-20, the rate of subsidy was 85% of the actual fee or a benchmark price, whichever is lower. The rate of subsidy reduced with income and stopped at $352,453 of total family earnings.
For the subsidy, families had to meet a tighter activity test than in the previous policy. This more closely linked the hours of subsidised childcare to parents’ approved activity such as work and study. In couples the activity level was based on the partner who had the lowest activity.
Parents who did not meet the activity test were still allowed a certain number of subsidised hours per fortnight, but the hours in this new package were lower than under the previously policy.
Read more: Childcare package neither bold or sustainable[6]
Our modelling used detailed administrative data. It estimated that, relative to the previous subsidy arrangements, about 686,000 families (62.2%) received more childcare subsidy than they previously would have been entitled to.
On average the net annual cost of childcare for these families fell by $1,386 – from $5,412 to $4,026. For the median family in this group, it fell by $1,036 – from $3,472 to $2,436.
But we also identified that costs increased for 323,000 of families (29.2%). The average net costs for these families, who tended to be on higher incomes, increased by $1,261.
We estimated the remaining 95,000 (8.6%) of families had no change to cost.
The effect of the new subsidy arrangements varied across family income. The figure above shows the distinct pattern of the largest average increases in subsidy being recorded for the lower to middle income groups, with declines for those on the highest incomes. This reflects the intent of the package.
Little impact on families working more hours
Families who work more often find they lose much of the extra income they earn due to what is known as[8] an “effective marginal tax rate”. This is where any extra earnings interact with policies including income tax rates, the Medicare levy and the loss of family benefits, combined with the net cost of child care.
Read more: Mothers have little to show for extra days of work under new tax changes[9]
Our evaluation found, despite some gains, the effective marginal tax rates on employment still remain high. Families on average incomes see half to almost three quarters of any additional earnings being lost through a combination of reduced transfer payments from government, income tax and the cost of having to use more childcare.
