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Preparing for introduction
of the Single Child Care Subsidy
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After agreeing on several compromises with Senate crossbenchers earlier this year, the Turnbull government passed its $1.6bn child care package and its $2.4bn welfare savings in 2017.
The child care package will introduce a single means-tested subsidy for families to replace the existing rebate and benefit. Depending on income, the single subsidy will cover up to 85 per cent of child care for some families, with low income households receiving the highest benefit. The new subsidy will be paid directly to service providers who will need to be aware how these changes impact them.
What are the changes?
Under the new package the subsidy value is determined by an "activity test" of how much recognised activity such as work, training, study and volunteering is done by the parents with an entry point of four hours of activity per week. Those four hours are "worth" 18 hours of subsidised child care with a maximum claim of 50 hours of subsidised care per week. Families earning less than $65,710 or who fail the activity test will be able to access 12 hours child care each week subsidised at 85 per cent.
The maximum hourly rate the Government will subsidise is based on the type of child care service. The hourly rate caps will be indexed by the Consumer Price Index (CPI) prior to implementation in July 2018. These caps place an upper limit on the amount of Child Care Subsidy the Australian Government will provide. The rate cap will be used, in combination with family's income and level of activity to calculate the amount of subsidy a family is entitled to receive.1
To get the reforms through the Government agreed families earning over $350,000 a year would not be eligible for subsidy. Families earning more than $185,710 have had subsidies capped to $10,000 but there is no cap for families earning $185,710 or less.
Although Government figures estimate that almost 816,000 families will be better off, there are concerns that around 128,000 families will potentially receive reduced subsidies mainly because they may not meet the new activity tests of at least four hours of work, study or volunteering per week.
How does it affect services?
Services should be aware of how the changes may affect them and ensure they have updated the Department of Education and Training of their centre's details before the start date.
From July 2018, services will be required to operate for a minimum of 48 weeks per year, or 7 weeks per year if the service only provides care outside of term time. Services are free to determine the hours of care provided per day, or days per week.
Changes to the approvals process for child care services requirements introduces new obligations for services to better comply with the Family Assistance Law. These are designed to protect the integrity of the payments system, including a requirement for approved providers to report educator 'Working with children check' details as well as a 28-day limit on backdating children's attendance records. This will clearly add an administration cost to service providers and require some adjustment.
What can providers do to smooth the transition?
It is advisable for service providers to introduce a new IT system that will replace the current Child Care Management System (CCMS). The new integrated Child Care IT System will provide a simpler user interface for families and services; increasing automation of child care payments and programs; and minimize the chance of fraud or non-compliance.
Crucially, service providers should be engaging with solicitors and accountants to look at the unique legal and financial implications for their business. As with any new policy there will be a knock-on effect and a steep learning curve so it’s important to get ahead of the issues.
Overall, the policy seems positive for families with less expensive child care however, the inevitable uncertainly of how families will adapt to the activity tests and whether services operating in different demographics will see different impacts to their turnover and profitability, will be interesting to watch.
1. Source: Department of Education
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