Purpose of the bill
1.1
The purpose of the Family Assistance Legislation Amendment (Cheaper Child Care) Bill 2022 (bill) is to enact the Australian Government's Plan for Cheaper Child Care, in order to fulfil its commitment to make early childhood education and care (ECEC) more affordable for 96 per cent of families using child care, with no families being worse off.
1.2
The bill would implement measures to increase the level of Child Care Subsidy (CCS) for families, improve child care provider transparency and accountability, and strengthen payment integrity. The bill would also provide additional support to increase First Nations families' access to ECEC.
1.3
The Explanatory Memorandum states these measures would improve child care affordability and support parents and carers, particularly women, to enter the workforce or increase their participation. This is predicted to have wider economic benefits, as well as contributing to the Government's gender equality agenda and supporting children's learning and development.
Context of the bill
ECEC affordability and workforce participation
1.4
The cost of ECEC is recognised as a significant expense for families. In his second reading speech, the Minister for Education, the Hon Jason Clare MP (Minister), described it as 'a massive roadblock' for parents who would like to re-join the workforce or work more hours.
1.5
The Minister went on to note that, currently, 'where both parents are working and have two or more children in child care, one parent can lose between 80 and 100 per cent of their take-home pay for working a fourth or fifth day each week'.
1.6
Similarly, a 2021 report by Victoria University's Mitchell Institute found that child care was unaffordable for 386 000 Australian families (or 39 per cent of families who use care). The report found that, in many cases, this results in parents—usually women—deciding not to work or working fewer hours.
1.7
According to the Australian Bureau of Statistics, in 2021 almost 73 000 Australians who wanted to work reported they were not in the labour force due to the cost of ECEC.
Education outcomes for First Nations children
1.8
Quality ECEC plays an important role in childhood learning and development, with children who participate in ECEC prior to their first year of school being less likely to be developmentally vulnerable compared to those who do not.
1.9
As noted by the Minister, the 2021 Australian Early Development Census (AEDC) found that two in five First Nations children are developmentally vulnerable in one or more domains when they start school—compared with one in five children from non-Indigenous backgrounds.
1.10
Closing the Gap Target 4 aims to increase the proportion of First Nations children who are assessed as developmentally on track in the AEDC to 55 per cent by 2031. However, in 2021, the proportion of First Nations children assessed as developmentally on-track in all five AEDC domains dropped for the first time—from 35.2 per cent in 2018 to 34.3 per cent in 2021.
The long-term vision for ECEC
1.11
In addition to the measures outlined in the bill, the Australian Government is taking a number of other steps to address long-standing issues in the ECEC sector. These include:
as a national priority—working with state and territory governments to develop a long-term vision for ECEC, including ways to support parental workforce participation and improved child development outcomes, as well as a focus on workforce shortages in the ECEC sector;
an inquiry by the Australian Competition and Consumer Commission (ACCC) into the supply of child care services in Australia;
a comprehensive review by the Productivity Commission of the ECEC sector, which will examine ways to improve affordability and access, including consideration of a universal 90 per cent CCS rate for all families.
The Child Care Subsidy
1.12
The CCS is the main form of child care fee assistance provided by the Australian Government. It is paid directly to approved child care providers and passed on to families as a fee reduction. To qualify for the CCS, families must meet eligibility criteria. The amount of CCS a family gets depends on income, the number of children in care, family activity levels, and the type of care used.
Income – a family’s CCS percentage determines the amount that will be subsidised. The percentage is based on an estimate of family income and applies to the hourly fee or the relevant hourly rate cap, whichever is lower.
Number of children in care – families with more than one child aged five or under in care can get a higher CCS for their second child and younger children (an extra 30 per cent on top of their income tested rate for eligible children, up to a maximum of 95 per cent).
Activity level – the hours of subsidised care a family can get each fortnight depends on their activity level (based on the parent with the lower activity level). There are four activity levels, with the related hours of subsidised care ranging from 0–100 hours. Recognised activities include, but are not limited to, work, paid/unpaid leave, study, training, looking for work, and volunteering.
Type of care used – a family's CCS percentage applies to the hourly fee or the relevant hourly rate cap, whichever is lower. Different care types have different hourly rate caps. The four approved care types are Centre Based Day Care, Outside School Hours Care, Family Day Care, and In Home Care.
Key provisions of the bill
1.13
The key provisions of the bill are contained in proposed Schedules 1–5, which detail the following measures to improve the affordability of child care and to increase transparency and payment integrity:
lifting the CCS rate for families earning $530 000 or less (Schedule 1);
introducing a base level of 36 subsidised hours of child care for Aboriginal and Torres Strait Islander children, regardless of activity level (Schedule 3);
legislating discounted child care fees for staff engaged as educators (Schedule 5);
expanding financial reporting requirements for large child care providers and enabling publication of certain information (Schedule 2); and
introducing measures to reduce fraud (Schedule 4).
1.14
Schedules 6–8 would make minor amendments to improve or clarify the operation of the CCS, including:
clarifying the interactions with the subsidy where providers waive gap fees for families in prescribed events or circumstances (Schedule 6);
providing additional discretion to allow payment of the subsidy for absences in exceptional circumstances (Schedule 7); and
changing the period for passing on the subsidy amounts to families in limited circumstances (Schedule 8).
Improving the affordability of early childhood education and care
Increasing the Child Care Subsidy rate
1.15
The bill would modify the CCS rate families are entitled to receive. Families earning up to $80 000 would be offered a CCS rate of 90 per cent. Families earning over $80 000 would receive a CCS rate that reduces by one per cent for each additional $5000 of family income until it reaches zero per cent for families earning $530 000. This amount would be the new CCS base rate.
1.16
The bill would retain an existing measure that provides a higher subsidy rate to families with multiple children in care that are aged five or under. Families earning less than $356 756 with a second child in care will receive an additional 30 per cent subsidy, up to a maximum of 95 per cent. Families earning over that amount would be entitled to the new CCS base rate for all children until it reaches zero per cent entitlement at $530 000.
1.17
The amendments would also give effect to the removal of phase two of the existing higher subsidy for families with multiple children, which was previously legislated to commence from July 2023, but is deemed too costly.
1.18
The changes would apply from the first CCS fortnight of the income year starting on 1 July 2023.
Improving affordability and access for First Nations families
1.19
The bill would introduce a base level of 36 subsidised hours of child care per fortnight for First Nations children, regardless of activity levels, beginning from the first CCS fortnight of the income year starting on 1 July 2023.
1.20
The CCS income test would continue to apply to determine the subsidy percentage payable for the 36 hours of subsidised care, meaning families would still be responsible for paying gap fees for subsidised hours in accordance with their income level. This measure seeks to improve affordability for First Nations families already using child care, as well as support increased engagement by First Nations children in early childhood education and care.
Legislating discounted child care fees for educators
1.21
The bill would permit child care providers to offer a discount on child care fees to staff engaged as educators, without affecting the amount of CCS payable for the educator. The measure aims to support the retention and attraction of early childhood educators and provides legislative authority for an ongoing 2021–22 Mid-Year Economic and Fiscal Outlook measure.
Increasing transparency in the child care sector
Expanding financial reporting obligations for large child care providers
1.22
The bill would increase transparency in the child care sector and ensure that the Department of Education (department) has visibility over 'the financial health of systemically important large child care providers.'
1.23
Under the provisions, existing financial reporting requirements would be expanded to include all types of approved child care providers. This would be achieved by expanding the definition of 'large child care provider' to include any provider that:
operates 25 or more approved child care services;
is one of two or more related providers who together operate 25 or more approved child care services; or
proposes to operate, or is one of two or more related providers who propose to together operate, 25 or more approved child care services.
1.24
Large child care providers would also be required to proactively report specified financial information and details of lease arrangements to the Secretary of the department.
Better information for families
1.25
In addition, the bill would empower the Secretary of the department to publish specified information received from large child care providers, such as the name and ABN of the approved provider, the name of each service operated by the provider and information about the fees charged across these services over a particular financial year. This would provide families with the ability to compare services and use more information when deciding where to send their children for care.
Improving payment integrity and reducing fraud
Reducing fraud in the child care sector
1.26
The bill would introduce measures to improve payment integrity and reduce fraud within the ECEC sector. This would include requiring providers to collect gap fees via electronic funds transfer, making good governance an eligibility requirement for provider approval, and allowing the Secretary to specify the information that must be included in provider attendance reports.
Financial implications
1.27
Taking into account the savings that are expected to result from the proposed integrity measures, the total cost of the measures included in this bill is $4.5 billion over four years from 2022–23.
Consideration by other parliamentary committees
1.28
Both the Parliamentary Joint Committee on Human Rights and the Senate Standing Committee for the Scrutiny of Bills made no comment on the bill.
Conduct of the inquiry
1.29
On 28 September 2022, the Senate referred the provisions of the Family Assistance Legislation Amendment (Cheaper Child Care) Bill 2022 to the committee for inquiry and report by 16 November 2022.
1.30
The committee advertised the inquiry on its website, issued a media release, and invited submissions by 21 October 2022. The committee received 50 submissions, listed at Appendix 1 of this report.
1.31
The committee also held public hearings in Canberra on 21 October 2022 and in Melbourne on 2 November 2022. A list of witnesses who gave evidence at the hearings is included at Appendix 2.
1.32
The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at the public hearings.