Cheaper childcare on the horizon

Families struggling with the current cost of living crisis could soon have some relief with cheaper childcare coming mid-year after the government passed child care subsidy reforms. This was a component of Labor’s election platform with a promise to make early childhood education and childcare more affordable for families. According to the government, with the passing of the legislation, 96% of families with children in early childhood education and care will benefit, with no family being worse off.

From 1 July 2023, the rate of child care subsidy (CCS) that Australian families are entitled to receive will increase. Currently, the highest CCS percentage families can receive for their first child in care is 85%. This rate is reserved for families with a combined income of up to $72,466. Then between the family income thresholds of $72,467 and $177,465 the CCS percentage reduces by 1% for every $3,000 of income the family earns. Effectively, this drops the CCS percentage down to 50% at the family income of between $177,465 and $256,755. In addition, families that presently earn between $256,756 and below $346,755 receive a CCS of between 50% and 20%. Those that earn between $346,756 and $356,755 receive a 20% rate for CCS and those that earn $356,756 or more receive no child care subsidy at all from the government.

With the passing of the legislation, families that earn up to $80,000 will receive a CCS rate of 90%, which will taper down by 1% for each additional $5,000 of family income until it reaches 0% for families earning $530,000. The existing measure that provides a higher CCS rate for families with multiple children under 5 years old in childcare will continue to apply so that for second and younger children 5 years and under in care, families will receive an additional 30% up to a maximum of 95%.

The new rates will apply from the first CCS fortnight starting on 1 July 2023 and the base rate threshold of $80,000 will be indexed annually with CPI increases, although the amount will not be indexed in 2023. Example Ian and Valerie have one child under 5 who goes to childcare. They have a family income of $346,755. Under the current system, the childcare subsidy percentage they receive is 20%, which largely means that the government will subsidise 20% of their childcare fees (although it may be lower in reality as there is a 5% withholding and is also capped at a maximum of $12.74 per hour).

Under the new CCS system coming in 1 July 2023, Ian and Valerie will be able to receive a higher CCS of 36.65% for their childcare fees at the same family income. The legislation also extends the FBT exemption for staff discounts to include cooks employed or otherwise engaged in child care services. It is estimated by the government that the CCS reforms will cut the cost of child care for around 1.26m families. It is hoped that by making these reforms, many more parents will re-enter the work force or have the opportunity to work more if they choose.

Speak to one of our accountants if you have any questions about the changes to childcare.