Bills Digest no. 110 2015–16

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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Michael Klapdor
Social Policy Section
20 April 2016

 

Contents

The Bills Digest at a glance
Purpose of the Bill
Structure of the Bill and the Bills Digest
Background
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions
Other provisions
Concluding comments

 

Date introduced:  2 December 2015
House:  House of Representatives
Portfolio:  Education and Training

Commencement: Schedule 1 and Part 2 of Schedule 2 on 3 July 2017; Part 1 of Schedule 2 will not commence until after the commencement of item 10 of Schedule 3 to the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Act 2015 (see ‘Note on commencement’ section below); Part 2 of Schedule 3 on 1 July 2016; Part 1 of Schedule 3, and Schedule 4 the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

The Bills Digest at a glance

The Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 (the Bill) provides for the key legislative changes required to implement the Government’s Jobs for Families child care reform package. The package was a key 2015–16 Budget measure and is based on recommendations from the Productivity Commission’s inquiry into childcare and early childhood learning. The package included an additional $3.5 billion in expenditure on child care assistance over five years.

The Bill introduces:

• a new child care fee assistance payment, the Child Care Subsidy (CCS), replacing two current payments: Child Care Benefit (CCB) and Child Care Rebate (CCR)
• a new supplementary payment, the Additional Child Care Subsidy (ACCS), which provides additional financial assistance for children at risk of abuse or neglect, families experiencing temporary financial hardship, families transitioning to work from income support, grandparent carers on income support, and low income families in certain circumstances. The Additional Child Care Subsidy partly replaces a number of current payments including Special Child Care Benefit, Grandparent Child Care Benefit and the Jobs, Education and Training Child Care Fee Assistance payment
• an enhanced compliance framework.

The new payments are to commence from July 2017, while aspects of the new compliance framework will be introduced from July 2016.

In 2014–15, the Australian Government spent close to $9 billion on early childhood education and care (ECEC) with the main expenditure item being fee assistance payments provided to parents using approved childcare services. In the March quarter of 2015, there were 1,211,200 children and 821,880 families using approved care. The Productivity Commission found that the current fee assistance system is complex, creates work disincentives, is poorly targeted and was creating fiscal pressure for government.

The new CCS payment provides a subsidy rate based on a percentage of the actual fee or an hourly benchmark price (whichever is lower). The benchmark price is different for each service type. The percentage covered is determined by family income with a subsidy rate of 85 per cent of the benchmark price or actual fee for families with incomes at or below $65,710 per annum. This rate tapers by one percentage point for every $3,000 in income over this threshold to 50 per cent for family incomes at $170,710. A flat subsidy rate of 50 per cent applies for family incomes between $170,710 and $250,000 and then tapers for incomes over $250,000 until it reaches the base rate of 20 per cent of the benchmark price (for incomes at or above $340,000 per annum). Families with incomes over $185,000 will have their CCS entitlement capped at $10,000 per child per year.

A three-part activity test determines the number of hours that can be subsidised: 8–16 hours per fortnight of approved activities provides up to 36 hours of CCS per fortnight; 17–48 hours provides up to 72 hours of CCS; more than 49 hours of approved activities provides up to 100 hours of CCS. For couple families, the partner with the lower number of hours of activity determines the CCS entitlement. Approved activities include work, training, study or certain other recognised activities such as volunteering, as well as participation requirements for income support payments. Families with incomes of up to $65,000, who do not meet the activity test, will be eligible to receive up to 24 hours of CCS per fortnight under a separate program known as the Child Care Safety Net.

The Child Care Safety Net will replace existing funding programs for service providers and also includes the ACCS. The ACCS will provide a top-up payment to the CCS for disadvantaged and vulnerable families.

The Government estimates that around 815,600 families will receive a higher level of fee assistance under the changes compared to the current funding model; around 140,500 families will receive around the same level of assistance and around 183,900 families will receive a lower level of assistance. Alternative modelling by the ANU’s Centre for Social Research and Methods estimated 582,000 families will be better off, around 330,000 families will be worse off and 126,000 families will receive around the same level of subsidy.

Providers, academics and interest groups are concerned that the activity test is too complex and will exclude many children from ECEC. There are also concerns at the new administrative requirements for providing assistance to children at risk of abuse and neglect. The design of the CCS payment may also lead to a decline in the real value of assistance provided to families over time, and significant child care fee increases will need to be borne by families without additional assistance from government.

List of abbreviations

Abbreviation	Definition
ABS	Australian Bureau of Statistics
ACA	Australian Childcare Alliance
ACCS	Additional Child Care Subsidy
ACECQA	Australian Children’s Education and Care Quality Authority
ANU	Australian National University
CCB	Child Care Benefit
CCR	Child Care Rebate
CCS	Child Care Subsidy
CPI	Consumer Price Index
ECA	Early Childhood Australia
ECEC	Early childhood education and care
FA Act	A New Tax System (Family Assistance) Act 1999
FA Admin Act	A New Tax System (Family Assistance) (Administration) Act 1999
FDC	Family day care
GST	Goods and Services Tax
IHC	In-home care
JETCCFA	Jobs, Education and Training Child Care Fee Assistance
LDC	Long day care
National Law	Education and Care Services National Law
National Regulations	Education and Care Services National Regulations
NQAECE	National Partnership Agreement on the National Quality Agenda for Early Childhood Education and Care
NQF	National Quality Framework
OSHC	Outside school-hours care
PC	Productivity Commission
PwC	PricewaterhouseCoopers
SCCB	Special Child Care Benefit

Purpose of the Bill

The purpose of the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 (the Bill) is to amend the A New Tax System (Family Assistance) Act 1999 (the FA Act),[1] the A New Tax System (Family Assistance) (Administration) Act 1999 (the FA Admin Act),[2] the A New Tax System (Goods and Services Tax) Act 1999,[3] the Early Years Quality Fund Special Account Act 2013,[4] the Fringe Benefits Tax Assessment Act 1986[5] and the Income Tax Assessment Act 1997[6], to introduce the following elements of the Government’s Jobs for Families child care package:

• a new child care fee assistance payment, the Child Care Subsidy (CCS), replacing two current payments: Child Care Benefit (CCB) and Child Care Rebate (CCR)
• a new supplementary payment, the Additional Child Care Subsidy (ACCS), which provides additional financial assistance for children at risk of abuse or neglect, families experiencing temporary financial hardship, families transitioning to work from income support, grandparent carers on income support, and low income families in certain circumstances. The ACCS partly replaces a number of current payments including Special Child Care Benefit, Grandparent Child Care Benefit and the Jobs, Education and Training Child Care Fee Assistance payment
• an enhanced compliance framework.

The new payments are to commence from July 2017, while aspects of the new compliance framework will be introduced from July 2016.

The Bill lapsed on prorogation of the Parliament on 15 April 2016. A new session of Parliament commenced on 18 April 2016. As no election was held between the two Parliamentary sessions, the Bill may be proceeded with in this new session at the stage it had previously reached, if the House of Representatives pass a resolution restoring it to the Notice Paper.[7] This had not occurred at the date of publishing this Digest.

Structure of the Bill and the Bills Digest

The Bill comprises four Schedules:

• Schedule 1 provides for the main amendments to family assistance law to provide for the introduction of the CCS and ACCS to replace the current system of child care fee assistance payments
• Schedule 2 makes consequential amendments to a number of pieces of legislation, primarily tax law, to reflect the new child care payment system and terminology around types of care. It also makes an amendment relating to immunisation requirements dependent on the commencement of item 10 of Schedule 3 of the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 (the Structural Reform Bill) as introduced (however, item 10 was removed from the Structural Reform Bill prior to it passing the Parliament—see ‘Note on commencement’ section below)
• Schedule 3 makes amendments relating to the Goods and Services Tax (GST) treatment of certain child care services (allowing for the Minister for Education and Training to determine that certain kinds of child care are GST-free) and makes amendments relating to the approval of child care services under family assistance law during the transition period to the new child care payment system, and for the cessation of enrolment advances
• Schedule 4 provides for application, transitional and savings provisions relating to the transition from the current child care payment system to the new system. The Schedule includes a provision giving broad powers to the Minister for Education and Training to make rules, including the power to modify principal legislation, ostensibly to ensure a smooth transition to the new child care payment system.

This Bills Digest will primarily focus on issues relating to the main amendments in Schedule 1 but will also address or note significant issues and provisions in the other Schedules. The Bills Digest only focuses on those aspects of the Jobs for Families package provided for in the Bill.

Note on commencement

Clause 2 of the Bill states that Part 1 of Schedule 2 is to commence immediately after the commencement of item 10 of Schedule 3 to the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Act 2015. However, the provisions do not commence at all if that item does not commence.

Schedule 3 of the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 was removed following Government amendments in the House of Representatives on 26 November 2015.[8] An identical item (which relates to immunisation requirements for child care payments) has now been included in item 10 of Schedule 3 of the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No. 2) 2015.[9]

Background

Child care in Australia

The Australian Bureau of Statistics (ABS) estimates that there were 3.8 million children aged 0–12 in Australia as at June 2014.[10] Almost half (1.8 million) received some form of child care. Nearly a quarter (919,400) attended formal care and 1.3 million attended informal care—such as care by grandparents or other relatives.[11] Around 327,800 children usually attended both formal and informal child care. Formal care is care provided by the early childhood education and care (ECEC) sector and includes:

• Long Day Care (LDC)—a centre based form of ECEC catering for children aged 0–6 years
• Family Day Care (FDC)—a flexible form of ECEC (all-day, part-time, casual, overnight, before/after school and school holiday care) provided in the home of carers (referred to within the sector as educators)
• In-Home Care (IHC)—a flexible form of ECEC provided to eligible children by an educator in the family home
• Outside School Hours Care (OSHC)—a centre-based form of ECEC for primary school aged children and available before and after school (7.30am–9.00am, 3.00pm–6.00pm), during school holidays on pupil-free days and
• Occasional Care—a flexible form of centre-based ECEC that can be accessed on a regular basis (like LDC) or as the need arises. For example, where parents have irregular or unpredictable work hours.[12]

The ECEC sector also includes preschool services—generally defined as structured, play-based learning programs delivered by degree qualified teachers to children in the year or two before they commence full time schooling.[13] While some LDC and OSHC services also deliver preschool programs, preschool is defined separately from child care and different governance and funding arrangements apply to preschool and child care services.

According to the ABS, LDC is the most attended of all formal child care services, with 13.5 per cent of all children aged 0-12 usually attending an LDC service.[14] Around 7.8 per cent of children attended OSHC services and 2.5 per cent usually attended an FDC service.[15] For younger age-groups, the percentage of children attending formal services is much higher: 41.8 per cent of two year-olds (129,300) and 49.3 per cent of three year-olds (146,200) usually attended LDC services as at June 2014.[16]

According to the Australian Children’s Education and Care Quality Authority (ACECQA), there were 15,166 children’s education and care services operating in Australia in December 2015. This number included 14,089 centre-based services and 1,077 FDC services (FDC services generally consist of a coordination unit administering or supporting a number of individual educators). The number of services by type and jurisdiction is set out in the Table 1:

Table 1: Number of children’s education and care services by type and jurisdiction, 31 December 2015

State/territory	Family Day Care	Long Day Care	Preschool/ kindergarten	Outside School Hours Care	Other	Total
ACT	20	134	95	99	0	348
NSW	401	2,790	813	1,229	0	5,233
NT	7	80	85	51	2	225
Qld	156	1,438	505	712	4	2,815
SA	37	346	407	369	1	1,160
Tas	14	117	0	94	0	225
Vic	382	1,280	1,197	1,168	0	4,027
WA	60	614	19	437	3	1,133
Total	1,077	6,799	3,121	4,159	10	15,166

Notes: LDC services offering other service types are classified as LDC services, services which provide preschool/kindergarten and OSHC services are classified as preschool/kindergarten services. Preschool/kindergarten services in Tasmania and Western Australia that are outside the scope of the National Quality Framework are not included.

Source: Australian Children’s Education and Care Quality Authority (ACECQA), NQF snapshot Q4 2015, ACECQA, Sydney, February 2016, p. 6, accessed 16 March 2016.

Government roles and responsibilities

The Australian Government and state and territory governments all have roles in supporting and regulating ECEC services. The Australian Government’s key roles and responsibilities include:

• paying child care fee assistance payments (CCB and CCR) to families using approved child care services or registered carers (CCB only)
• providing funding and support to state and territory governments to implement and administer the National Partnership Agreement on the National Quality Agenda for Early Childhood Education and Care (NQAECE)[17]
• providing funding to state and territory governments to help achieve universal access to early childhood education via the National Partnership Agreement on Universal Access to Early Childhood Education[18]
• providing operational and capital funding to some ECEC services and
• funding organisations to provide support and training to service providers.[19]

State and territory governments’ key roles and responsibilities are:

• approval or licensing, monitoring and quality assessment of services in accordance with the National Quality Framework (NQF) and other relevant regulations
• providing a legislative framework to license/register selected ECEC services not approved under the NQF
• monitoring and resourcing licensed and approved ECEC services
• providing operational and capital funding to non-government service providers
• delivering ECEC services directly (primarily preschool services)
• providing support and training for ECEC providers
• providing curriculum and policy support and advice, as well as training and development for the ECEC workforce
• planning to ensure appropriate services are available to meet the needs of the community
• providing information and advice to parents and others about operating standards and the availability of services.[20]

National Quality Framework

The NQAECE was the first major reform under the Council of Australian Governments’ Investing in the Early Years—A National Early Childhood Development Strategy.[21] The strategy is aimed at ensuring ‘by 2020 all children have the best start in life to create a better future for themselves, and for the nation’.[22] The NQAECE established an integrated and unified national system for ECEC, jointly governed and intended to drive continuous improvement in the quality of services under the National Quality Framework (NQF).[23] The NQF consists of:

• the National Quality Standard,[24] a benchmark for the provision of quality ECEC services across seven areas including learning frameworks
• a national quality rating system to describe the quality of care in individual services in terms of the National Quality Standard
• the Education and Care Services National Law (the National Law)[25] and the Education and Care Services National Regulations (the National Regulations)[26]—a national system for the regulation and enforcement of the National Quality Standard which is legislated in each jurisdiction and administered by state and territory regulatory authorities and
• ACECQA—a national body with joint federal, state and territory governance arrangements, responsible for guiding the implementation and management of the national system and assisting state and territory regulatory authorities.[27]

The Education and Care Services National Regulations set out mandatory minimum educator-to-child ratios as well as qualification requirements for educators. For LDC services, the educator-to-child ratios are 1:4 for children aged 0–24 months, 1:5 for children aged 24–36 months; and 1:11 for children aged 36 months to preschool age.[28] There are no national ratio requirements for children over preschool age but some jurisdictions have set their own requirements. Some jurisdictions have lower ratios and some declared services in Queensland and Tasmania have received an approval to operate with higher ratios.[29] For FDC services, the ratio is 1:7, with no more than four children preschool age or under.[30]

Both LDC and FDC services have qualification requirements for educators. For LDC services, the requirements are based on the number of children in care, with early childhood teachers required to attend centres for a set number of hours each day.[31] At least half of the educators required to meet the relevant educator to child rations in an LDC service must have, or be actively working toward, an approved diploma level ECEC qualification.[32] All other educators, and FDC educators, must have, or be working toward, an approved Certificate III level ECEC qualification. FDC coordinators must have an approved diploma level ECEC qualification (or above).[33]

Approvals

Provider and service approvals

LDC, FDC and OSHC operators require a provider approval and a service approval issued by state or territory regulatory authorities. Provider approvals establish that an applicant is a fit and proper person to be involved in the provision of education and care services.[34] While a provider approval is issued by one regulatory authority, it is recognised nationally and a provider does not need to have a separate approval for each jurisdiction in which it operates a service.[35] To receive a service approval, the provider must meet certain requirements to ensure the safety, health and wellbeing of children attending the service; that the service will meet the education and developmental needs of children attending the service; and that the service complies with conditions prescribed by the National Law, the National Regulations or by the regulatory authority.[36]

Approval for Child Care Benefit

Separate from the regulatory authority approval system is the Australian Government’s determination that a service is ‘approved’ for CCB purposes. CCB (and CCR) can only be paid to children using ECEC services that have met the approved care requirements under family assistance law. These requirements relate to the suitability of the operator/provider to provide the appropriate quality of care; their reporting and information obligations to the government; governance arrangements; hours of operation; the attendance of school-age children at particular services; compliance with applicable Australian Government legislation and regulations and with applicable state and territory regulations (including the National Law and National Regulations).[37] Occasional and In-Home Care services can also be approved care for CCB purposes but do not currently have to meet the NQF requirements (but are required to meet interim standards).[38]

CCB can be paid to non-approved ‘registered care’ providers—that is, grandparents, relatives, friends, neighbours, nannies or babysitters who are registered as carers with the Department of Human Services.[39]

Funding for ECEC

All three levels of government in Australia (the Commonwealth, state and territory, and local) provide funding for ECEC.[40] The Australian Government provides fee assistance payments to families and direct assistance to services to improve equity of access to child care services, encourage and support the participation of women in the workforce and to improve the quality of ECEC in order to assist with children’s development.[41] State and territory governments primarily fund or provide early childhood education (preschool) services as well as regulating ECEC services operating within their jurisdiction. Local governments also fund and provide ECEC services in response to community need and facilitate access to services through their role in land use planning.[42]

In 2014–15, total Australian and state and territory funding on ECEC services was $8.6 billion.[43] The Australian Government’s expenditure accounted for 83.0 per cent ($7.1 billion) of this total.[44] The main components of the Australian Government’s funding for ECEC is fee assistance payments, however, $356.2 million was provided to state and territory governments in 2014–15 under the National Partnership Agreement on Universal Access to Early Childhood Education (not included in the $7.1 billion total).

Table 2 sets out the expenditure estimates for key components of the Australian Government’s funding for ECEC, including the new CCS and Early Childhood Safety Net:

Table 2: Key components of Australian Government child expenditure, budget estimates, $’000

	2014-15 actual1	2015-16 Revised budget	2016-17 forward estimate	2017-18 forward estimate	2018-19 forward estimate
Child Care Benefit	3 551 579	3 657 880	3 779 073
Child Care Rebate	2 989 234	3 600 974	4 039 575	60	27
Child Care Services Support2	436 238 3	302 596	379 669	387 435	364 748
Jobs Education and Training Child Care Fee Assistance	57 267	111 645	133 617
Child Care Subsidy				9 525 899	10 348 236

1. Machinery of Government changes announced on 23 December 2014 saw responsibility for the main ECEC programs move from the Department of Education and Training to the Department of Social Services. 2014–15 figures represent the sum of the estimated actual expenditure figures reported for each portfolio. Further Machinery of Government changes announced on 21 September 2015 saw these ECEC programs move back to the Department of Education and Training.

2. Does not include funding for the Early Years Quality Fund Special Account. From 1 July 2016 the Early Childhood Safety Net will be phased-in replacing most of the existing Child Care Services Support sub-elements by 1 July 2017.
3. 2014–15 expenditure includes approximately $11 million for the Australian Early Development Census not included in this program in later years due to the Machinery of Government changes.

Sources: Australian Government, Portfolio additional estimates statements 2015–16: Social Services Portfolio, pp. 56–58; Australian Government, Portfolio additional estimates statements 2015–16: Education and Training Portfolio, pp. 34–35, 45–46, both accessed 15 March 2016.

According to the Department of Education and Training, in the March quarter of 2015, there were 1,211,200 children and 821,880 families using approved care. An estimated 759,380 families were in receipt of CCR.[45]

Child Care Benefit

CCB is paid to those using approved or registered care services who meet the means test. Parents/carers using approved care services can currently claim CCB for up to 50 hours of care per child per week (either as a fee reduction paid directly to the child care provider or as a lump sum at the end of the financial year). Single parents and both parents/carers in a couple family must meet the work, training or study test for at least 15 hours per week (or have an exemption) to be eligible for more than 24 hours of CCB per child per week. The work, training or study test looks at whether the parent(s)/carer(s) used child care for work-related commitments such as paid work, looking for work, studying, training or volunteering.

CCB for registered care is paid when a claim is made to the Department of Human Services and can be for up to 50 hours of child care per week for a non-school-aged child. For registered care, both parents/carers or the single parent/carer must meet the work, training or study test at some time during the week child care is used (there is no minimum requirement and exemptions from the test can be granted).

Eligibility for CCB requires parents/carers have their child up to date with the age-appropriate immunisation schedule (or an approved catch up schedule).[46]

Income test and payment rates

For those using approved care, the maximum CCB rate is payable to those families with an adjusted taxable income under $43,727 or to families on income support.[47] Family income over this amount reduces the maximum CCB rate and families with income above the income limit will not receive any CCB. The income limit for one child in care is currently $152,147. The income limit for two children is $157,654. For three children it is $178,023 (+$33,671 for each child after the third).[48]

The current maximum CCB rates are:

• for approved care: up to $4.17 per hour for a non-school child ($208.50 for a 50 hour week)
• for registered care: $0.696 per hour, up to $34.80 per week.[49]

Rates for school children are 85 per cent of the non-school child rates.

The calculation of CCB entitlements is complex with different rate adjustment factors taking account of the number of children a family has attending ECEC services, the type of service attended, the hours attended, whether the children are school or non-school children, the family’s adjusted taxable income, the standard hourly rate payable and the hours of care the family is eligible to receive CCB for (under the work, training or study test).[50]

Grandparent Child Care Benefit

Grandparent Child Care Benefit is a component of CCB payable to grandparents who are the primary carers of their grandchildren, meet the other CCB eligibility requirements and receive an income support payment.

Grandparent Child Care Benefit covers the full cost of the total fee charged for CCB eligible hours, up to 50 hours per child per week. It is paid directly to ECEC services.[51]

Special Child Care Benefit

Special Child Care Benefit (SCCB) is another component of CCB. SCCB provides extra assistance with the costs of child care for families and children in special circumstances, covering up to the full cost of child care for a certain period of time or providing additional hours of care on top of the usual CCB entitlement. There are two types of SCCB—one which is intended to help children at risk of abuse or neglect, and another intended to help families who are experiencing financial hardship in exceptional circumstances.

The SCCB rate is not a set amount and will usually cover the entire cost of the fees for the particular ECEC service. The general rules for CCB eligibility and attendance at child care apply. However, where a parent or carer is not eligible for CCB (for example, where they have not lodged an application form) and an approved child care service has concern for a child in regards to abuse or neglect, the child care service can itself apply to be eligible to receive SCCB on behalf of the child.[52]

SCCB is generally payable for periods of up to 13 weeks. Only the Department of Human Services can approve SCCB for periods longer than 13 weeks.

Child Care Rebate

CCR is a separate payment from CCB and assists families with their out-of-pocket costs for approved child care (but not registered care). Out-of-pocket costs are total fees minus CCB. CCR covers 50 per cent of out-of-pocket costs up to a maximum of $7,500 per financial year per child (this amount is usually indexed to CPI but indexation has been paused since 2011–12).[53]

To be eligible for CCR an individual must be eligible for CCB. Parents/carers can still be eligible for CCR even if receiving no CCB because of a high income because CCR is not means tested. That is, parents/carers must meet all the eligibility criteria for CCB except for the income test (the requirements relating to the care relationship with the child, residency, the work, training or study test, and immunisation).

CCR does have an activity test (both parents/carers or single parents/carers must work, study or train at some time during the week in which child care is used), however, there is no minimum number of hours for such activities.

CCR is paid either fortnightly, to families or directly to ECEC service, or as an annual lump sum to the family.

Jobs, Education and Training Child Care Fee Assistance

The Jobs, Education and Training Child Care Fee Assistance (JETCCFA) program helps certain income support recipients (primarily payments for the unemployed such as Newstart Allowance, Parenting Payment and Youth Allowance (Other)) who are undertaking work, study or training, with the costs of child care by covering most of the gap between the total childcare fee and the amount CCB will cover.[54] Parents and carers need to make a contribution of $1 per hour per child in ECEC and JETCCFA will cover the remaining fee cost (after CCB has been deducted) for eligible hours up to $8.14 per hour per child.[55] Any remaining costs over the JETCCFA cap have to be met by the parent (with 50 per cent of any remaining out-of-pocket costs covered by CCR). The number of eligible hours depends on the activity being undertaken by parents: those undertaking an approved activity as part of the Job Plan or Participation Plan attached to their income support payment can receive up to 24 hours of JETCCFA assistance per week per child; those undertaking a study or training activity can receive up to 36 hours per week per child.[56]

Eligibility for the JECTCCFA program is for a limited time—jobseekers are only eligible for up to 20 days while other categories of recipients (students or participants in a labour market program) may be eligible for 26–104 weeks of JETCCFA.

Funding for providers and quality support

Apart from fee subsidies, the Australian Government provides funding for ECEC services directly via the Child Care Services Support Programme. This program includes:

• the Community Support Programme which provides funding for the establishment or maintenance of ECEC services in areas where the services might not otherwise be viable or able to meet the requirements of the community (particularly communities in disadvantaged, regional and remote areas)
• the Budget Based Funded Programme which contributes towards the operational costs of just over 300 ECEC services in approved locations, primarily regional, remote and Indigenous communities and
• the Inclusion and Professional Support Programme which funds services to provide the ECEC sector with professional development, advice, access to additional resources and inclusion support for services and educators.[57]

Brief history of child care fee assistance payments

The Australian Government first provided funding for ECEC in 1972 with the passing of the Child Care Act 1972 under the McMahon Government. Funding was provided to not-for-profit organisations (and local governments) to operate centre-based services for the children of working and sick parents.[58]

In the mid-1970s, the Government expanded funding to preschools, FDC and OSHC.[59]

In the early 1980s, the Australian Government partnered with states and territories to expand the number of childcare places. Both the Australian and state and territory governments provided capital funding while the Australian Government also provided recurrent funding for the new places.[60] Standardised fee relief for not-for-profit centre based LDC services was introduced in 1984. This fee relief, paid directly to services, became known as Childcare Assistance. Further expansion of places occurred between 1985 and 1987, again through a mixture of Commonwealth and state and territory government funding.[61] In 1986, the formula for operational funding changed so that is was provided on a per child basis rather than it being based on staff costs. The reduction in operational funding was partly offset through the extension of fee relief. A limit was placed on the total fee amount that could be covered by fee relief.[62]

In 1990, fee relief (Childcare Assistance) was extended to families using for-profit services—significantly increasing the number of LDC services.[63]

In 1994, the non-means tested Childcare Cash Rebate was introduced. The Rebate was intended to assist with the cost of work-related childcare expenses—after paying a minimum fee, families could receive a 30 or 20 per cent rebate (depending on their income) on the remaining costs of care minus any Childcare Assistance received.[64] Upper limits were placed on the total amount of Childcare Cash Rebate that could be paid. The Childcare Cash Rebate could be paid for care provided by a ‘registered carer’ and allowed for nannies and informal care.[65] A work, training or study test applied but did not specify a minimum number of hours.

In 1996–97 funding for ECEC was tightened with operational subsidies for community-owned LDC services removed, Childcare Assistance limited to 50 hours per week, indexation freezes on the upper limits for Childcare Assistance and the Childcare Cash Rebate, and a reduction in the rebate for families with income above the Family Tax Initiative cut-off ($70,000 for families with one child). Further changes in the 1997–98 Budget saw a limit of 20 hours of Childcare Assistance per child where care was not being used for work-related purposes.

In July 2000, CCB replaced Childcare Assistance and the Childcare Cash Rebate.[66]

In 2004, the non-means tested Child Care Tax Rebate was introduced. It allowed families with a tax liability to offset up to 30 per cent of their out-of-pocket expenses up to an indexed cap of $4,000 per child per annum.[67]

From July 2006, the Child Care Tax Rebate was removed from the tax system and delivered as a family assistance payment via Centrelink. Families with little or no tax liability were made eligible.[68]

In July 2008, the Child Care Tax Rebate was increased to 50 per cent of out-of-pocket costs, the cap raised to $7,500 per child per year (from $4,354) and quarterly payments were introduced (rather than annual payments).[69]

In July 2009, the Child Care Tax Rebate was renamed CCR.[70] From July 2011, the CCR cap was reduced to $7,500 and fortnightly payments were introduced.[71] The cap has not been indexed since and indexation is currently frozen until July 2017.[72]

Productivity Commission inquiry into Childcare and Early Childhood Learning

During the 2013 Election, the Liberal Party and the Nationals committed to tasking the Productivity Commission (PC) with an inquiry ‘into how the child care system can be made more flexible, affordable and accessible’.[73]

Soon after winning government (on 22 November 2013), then Treasurer, Joe Hockey, requested the PC undertake an inquiry into ‘Child Care and Early Childhood Learning’ to report by the end of October 2014.[74] The PC released an issues paper on 5 December 2013 and a draft report on 22 July 2014. The final report was provided to the Government on 31 October 2014 and published 20 February 2015.[75]

Issues identified with the current design of ECEC funding

The PC’s report identified a number of key issues with the current design of ECEC fee assistance payments:

• complexity—multiple payments, and the complicated rate calculation process for CCB, make it difficult for families to determine their eligibility for assistance and what their out-of-pocket costs for ECEC will be. The interaction with other government payments, particularly Family Tax Benefit, creates overlapping income tests and can lead to work disincentives through high effective marginal tax rates. The system is also administratively complex both for service providers and government[76]
• JETCCFA is poorly targeted—the current design of the program offers a significant incentive for those eligible to remain eligible (due to very high levels of assistance), undermining the intent of the program to encourage transitions to work. There is little evidence showing the extent to which JETCCFA facilitates transitions to work from income support[77]
• sustainability—Australian Government expenditure on ECEC is growing at a high rate and has consistently exceeded budgetary estimates. CCR rates are linked to fees charged and ECEC fees (and out-of-pocket costs) have grown consistently higher than inflation.[78] Other than demand, regulatory changes under the NQF and increasing staff costs for services have, and will continue to place pressure on government expenditure. There is considerable scope to improve the sustainability of the system for taxpayers by improving the targeting of ECEC assistance.[79]

Productivity Commission’s proposed subsidy model

The PC’s final report recommended replacing the existing funding streams for ECEC services with a single child-based subsidy, known as the Early Care and Learning Subsidy.[80] The subsidy would be available for all those using mainstream centre-based and home-based care, which would include all approved LDC, FDC, OSHC, vacation care and occasional care services as well as approved nannies and in-home carers. Approved services would be those covered by the NQF. The design of the proposed payment was partly based on models proposed by the Review of Australia’s Future Tax System (the Henry Review) and by researchers from the Social Policy Research Centre at the University of New South Wales, Deborah Brennan and Elizabeth Adamson.[81] Both of these models were premised on a single payment and many of the submitters to the PC’s inquiry also proposed merging CCB and CCR.

The key components of the proposed payment model are the way payment rates are determined, the income test and the activity test determining eligibility. For the PC’s proposed Early Care and Learning Subsidy, these components were:

• a subsidy offering a percentage of an hourly benchmark price based on the median market fees charged for the type of service and, for LDC, differentiating by age of child, and paid directly to the ECEC provider of choice
• a subsidy rate of 85 per cent of the benchmark price for families with incomes at or below $60,000 per annum tapering by one percentage point for every $2,900 over this lower threshold, to a base subsidy rate of 20 per cent of the benchmark price for families with incomes at or above $250,000
• subsidy can be paid for up to 100 hours of approved ECEC per fortnight
• activity test would require 24 hours a fortnight of work, study, looking for work, volunteering or meeting participation requirements of Newstart Allowance (this includes parents on parental leave but the subsidy would not be available for the new baby during the leave period). Families on Parenting Payment would be eligible for 20 hours a fortnight of subsidised ECEC
• exemptions from the activity test would apply to families in exceptional circumstances (e.g. illness, voluntary work during emergencies, jury duty, financial hardship and sudden loss of employment); families that are unable to work (due to disability or caring responsibilities); for grandparent and other non-parental primary carers; where a child is assessed as ‘at risk’ of abuse or neglect; where a child is attending a service funded by the Community Early Learning Program; or where the child is attending a preschool program in an ECEC service (for up to 15 hours per week for 40 weeks per year).[82]

For children assessed as at risk, the subsidy rate would cover 100 per cent of the benchmark fee for up to 100 hours per fortnight.[83]

Direct funding to ECEC services for operational costs would be delivered via a capped Viability Assistance Program but only for services in rural, regional and remote areas during periods where demand has fallen below that needed for the service to be financially viable.[84] This fund could only be accessed for a maximum of three in every seven years with services assessed for viability once they have received two years of support.[85]

Impact of PC’s recommended changes

The PC modelled the likely impact of its proposed changes based on settings in 2013–14. The PC anticipated that:

• direct subsidy costs would increase from around $5.7 billion to $5.9 billion per year but the net fiscal impact would be minimal (due to increased income tax receipts and a reduction in other social security spending)
• use of ECEC services would increase by around three per cent
• labour supply would increase by around 1.2 per cent (the equivalent of 16,000 full-time equivalent workers) and Gross Domestic Product (GDP) would rise slightly by $1.3 billion in 2013–14
• families with income below $100,000 would pay a lower share of ECEC costs than under the current system but families with income over $160,000 would typically bear a higher proportion of these costs.[86]

The PC noted that the response of families to its recommended policy is inherently uncertain making it very difficult to make accurate assessments as to the impact of any changes.[87]

Jobs for Families package

Just prior to the 2015–16 Budget, the Abbott Government announced its response to the PC’s report: the Jobs for Families child care package.[88] The centrepiece of the package is the Child Care Subsidy (CCS) which is to replace CCB, CCR and JETCCFA from 1 July 2017. The CCS differs in a number of significant ways from the subsidy proposed by the PC—key features of the CCS as announced were:

• a subsidy based on a percentage of an hourly benchmark price or the actual fee, whichever is lower, with the benchmark to be set by Government and differentiating between service type (LDC, FDC, OSHC and In Home Care). The benchmark price, known as the hourly fee cap, is based on the projected average price for 2017–18, plus 17.5 per cent for LDC and OSHC and plus 5.75 per cent for FDC.[89] The hourly fee caps will be:
  • LDC: $11.55 per hour
  • OSHC: $10.10 per hour
  • FDC: $10.70 per hour
  • In Home Care: $7.00
• a subsidy rate of 85 per cent of the benchmark price or actual fee for families with incomes at or below $65,000 per annum, tapering by one percentage point for every $3,000 in income over this threshold to 50 per cent for family incomes at or above $170,000
• families with incomes over $185,000 will have their CCS entitlement capped at $10,000 per child per year
• hours of ECEC to be subsidised based on the hours undertaking approved activities in a fortnight:
  • 8–16 hours = up to 36 hours of CCS
  • 17–48 hours = up to 72 hours of CCS
  • 49 hours and above = up to 100 hours of CCS
• approved activities will include work, training, study or certain other recognised activities such as volunteering as well as participation requirements for income support payments (such as Newstart Allowance, Parenting Payment and Youth Allowance (Other))
• families with incomes of up to $65,000, who do not meet the activity test, will be eligible to receive up to 24 hours of CCS per fortnight under a separate program known as the Child Care Safety Net
• the Child Care Safety Net will replace the existing Inclusion and Professional Support Programme, the Community Support Programme and the Budget Based Funded Programme and will include the Additional Child Care Subsidy (ACCS), a new Inclusion Support Programme and the Community Child Care Fund
  • the ACCS will provide additional assistance, on top of the CCS, to disadvantaged or vulnerable families
  • the Inclusion Support Programme will assist services with staff training and equipment to support children with special needs
  • the Community Child Care Fund will provide grants to child care services to improve access in disadvantaged areas, areas of high demand but low availability, and to improve affordability for low income families in areas where fees are greater than the CCS benchmark.[90]

CCS for In Home Care is to be trialled via a pilot scheme, the Nanny Pilot Programme, which will support up to 10,000 children in families who find it difficult to access mainstream child care services.[91] The pilot commenced at the beginning of 2016 and will run for two years. Providers were selected from a field of applicants with nannies only required to hold a working with children check and first aid qualification (as well as residency requirements).[92]

Under the Budget measures, an additional $3.2 billion over five years was to be provided for the introduction of the CCS, and additional funding of $327.7 million over four years was to be provided for the Child Care Safety Net.[93] The additional funding for the CCS includes $246 million over two years for the nanny pilot program.

Revised Jobs for Families package

In December 2015, the Government announced that it had revised the package following consultation with parents and stakeholders and following difficulties in passing savings measures from the Family Tax Benefit program in the Parliament.[94] Under the revised package, the percentage of the benchmark price covered by the CCS would be set at 50 per cent of the benchmark price for families on incomes between $170,000 and $250,000 per annum but would then would continue to taper for families on incomes over $250,000 until it reached the base rate of 20 per cent of the benchmark price (for incomes at or above $340,000 per annum).[95] The revised income test is set out in Table 3 and illustrated in Chart 1:

Table 3: Revised Child Care Subsidy income test

Family income	Subsidy rate – percentage of actual fee or benchmark price, whichever is lower
Up to $65,710	85 per cent
More than $65,710 to below $170,710	Tapering from 85 to 50 per cent
$170,710 to below $250,000	50 per cent
$250,000 to below $340,000	Tapering from 50 to 20 per cent
$340,000 or more	20 per cent

Source: Department of Education and Training, Overview: Jobs for Families child care package, Department of Education and Training, Canberra, 27 January 2016, accessed 12 February 2016.

Chart 1: Rate of Child Care Subsidy by family income

Source: Parliamentary Library estimates.

The changes to the income test have contributed to a reduction in the estimated expenditure on the CCS. In the Portfolio Budget Statements released in May 2015, the CCS was expected to cost $21.02 billion in its first two years, but in the Portfolio Additional Estimates released in February 2016, the estimated expenditure in the first two years is expected to be $19.87 billion, a reduction of around $1.15 billion.[96]

On 29 November 2015 the Government also announced that grandparent carers (those who have care of their grandchildren for more than 65 per cent of the time) would be made exempt from the CCS activity test and thus eligible for up to 100 hours of subsidised care per fortnight.[97] Grandparent carers in receipt of income support (such as the Age Pension) would be eligible for a rate of up to 120 per cent of the CCS benchmark price.

The Regulation Impact Statement accompanying the Bill confirmed that the Government’s preferred option is to retain the activity test exemptions for CCB as the activity test exemptions for the CCS but would add an additional exemption for families whose child is attending a preschool program in an LDC centre (for the period of the preschool program).[98]

Impact of the revised package

The Department of Education and Training’s submission to the Senate inquiry into the Bill outlined the estimated impact of the revised package on families. The department used administrative data from the Legislative Out-years Customisable Model of Child Care (LOCMOCC) as at the 2015 Mid-Year Economic and Fiscal Outlook to estimate that around 815,700 families will receive a higher level of fee assistance under the changes compared to the current funding model; around 140,500 families will receive around the same level of assistance and around 183,900 families will receive a lower level of assistance.[99]

Of the 250,000 families earning $65,710 or less per year (the lower income threshold):

• around 104,100 will be better off (will receive a greater level of assistance than under the current system)
• around 81,000 will experience no change in the level of support
• around 52,100 will be worse off, primarily because of the impact of the activity test and
• around 12,800 families are on income support and have not reported their income and the department was unable to determine the impact of the changes on them.[100]

Of the 653,900 families with income between $65,710 and $170,710:

• around 565,400 will better off
• around 32,800 will experience no change and
• around 55,700 will be worse off, either because they do not meet the activity test requirements or are paying child care fees in excess of the hourly fee cap.[101]

Of the 178,500 families with income between $170,710 and $250,000:

• around 142,400 families will be better off
• around 19,500 will experience no change and
• around 16,600 families will be worse off, primarily as a result of paying child care fee in excess of the hourly fee cap.[102]

Of the 70,500 families with income over $250,000:

• around 3,800 families will be better off
• around 7,200 will experience no change and
• around 59,500 families will be worse off.[103]

The Minister for Education and Training has stated families earning between $65,000 and $170,000 will ‘be around $30 a week better off as a result of the child care reforms’.[104]

The Minister also stated that ‘some 240,000 Australian families are estimated to increase their workforce participation and involvement as a result of the reforms’.[105] This figure is based on the results of an online survey conducted by ORIMA Research of approximately 2,000 people where 24 per cent indicated they would be willing to work more as a result of the measures (as proposed in the Budget).[106] This 24 per cent figure was applied to 2011 census data on the number of families using child care to give the estimate of 240,000 families who would increase their participation involvement as a result of the reforms.[107] The department has not released the research report this data is taken from, and a redacted version of two pages from the report released under Freedom of Information provided no further information.[108]

The estimated impact on workforce participation derived from this survey is of limited use as it based purely on respondents indicating a willingness to work more and does not quantify the amount of additional labour market activity. The PC provided a detailed model for assessing the labour force impact of its proposed model (estimating that the changes would result in increased workforce participation equivalent to an additional 16,000 full-time equivalent workers).[109] PricewaterhouseCoopers (PwC) conducted an economic impact analysis of the CCS as proposed in the 2015 Budget (for childcare provider Goodstart Early Learning) and found that by 2050, an additional 29,000 full-time equivalent workers will have joined the workforce as a result of the payment model (with around half of this impact derived from existing workers increasing their hours).[110]

Early Childhood Australia also commissioned distributional modelling of the proposed reforms from the Australian National University’s (ANU) Centre for Social Research and Methods.[111] This modelling was based primarily on unit record data from the Australian Bureau of Statistics’ Survey of Income and Housing 2013–14 with prices and parameters adjusted to analyse the impact in 2017–18. The modelling found that an estimated 582,000 families will be better off under the package compared to the current fee assistance arrangements, around 330,000 families will be worse off and 126,000 families will receive around the same level of subsidy as they currently do. The detailed impact is set out in this table from the report:

Table 4: ANU Centre for Social Research and Methods modelling of ‘winners’ and ‘losers’ from proposed Jobs for Families policy—families

Notes: this model projects around ten per cent fewer families using child care by 2017–18 than projected by the Department of Education and Training (possible reflecting different data sources). Around 6,600 families are impacted by both the activity test and hourly price cap—all families in this group are counted towards the activity test. All families in receipt of income support payments, except for Parenting Payment (Single) and partnered families with children aged under six are assumed to have passed the activity test due to job search requirements attached to those payments.

Source: B Phillips, Distributional modelling of proposed childcare reforms in Australia, ANU Centre for Social Research and Methods, Canberra, March 2016, p. 7, accessed 8 March 2016.

The ANU’s modelling projects a much larger group of ‘losers’ as a result of the reforms than the Department of Education and Training has projected. Of the estimated 330,000 worse off, around 149,000 are affected by the proposed activity test.[112] The report notes that the main driver of the difference between its estimates of those worse off and those of the department is a much lower activity test impact estimated by the department.[113] The report notes the administrative data used for the department’s estimates has only limited information on the hours worked by parents compared to that offered by the ABS Survey.[114] The administrative data is advantaged by having data on the full population of families using approved childcare (including adjusted taxable income) compared to a limited survey sample of 1,100 income units using formal child care offered by the ABS Survey.

Table 5: Comparison of proposed subsidy models

Henry Review	Combine CCB and CCR into a single payment to either parents or directly to services. Subsidy provides percentage of actual out-of-pocket costs of care: up to 90 per cent for low income families tapering to a base rate set with reference to the marginal tax rate faced by the majority of taxpayers (35 per cent) activity test for access to the base rate (some participation in work, education or training) and parents who do not meet the activity test should only be able to access a limited number of hours of the maximum rate of assistance (15 hours per week) coverage of full costs of child care for at-risk children and children facing multiple disadvantages, without participation requirements on parents.
Brennan/Adamson	Combine CCB and CCR into a single payment known as the Early Learning Subsidy paid directly to all approved providers (including approved In-Home Care services). Subsidy provides percentage of an hourly benchmark price set with reference to reasonable costs of care (determined in consultation with sector): up to 90 per cent of reasonable costs for low-income families tapering to a base rate of between 35 and 50 per cent of reasonable costs up to 100 per cent of reasonable fees for families holding Health Care Cards activity test for access to the base rate (those using approved care for work, study or training-related reasons). Low-income families who do not meet the activity test would still be eligible for the maximum rate of subsidy, however, hours of subsidised care may be limited (possibly below current CCB entitlement of 24 hours per week). Special Early Learning Subsidy would cover 100 per cent of actual costs for children at risk of abuse or neglect, regardless of whether parents meet the activity test. Grandparent Child Care Benefit would be retained (also covering 100 per cent of costs of approved care).
Productivity Commission	Combine all fee assistance payments into a single payment, the Early Care and Learning Subsidy, paid directly to providers. Subsidy provides percentage of an hourly benchmark price set at the median fee charged by different service types and differentiating by age: up to 85 per cent of the benchmark price for families with incomes at or below $60,000 per annum tapering by one percentage point for every $2,900 over this lower threshold, to a base subsidy rate of 20 per cent of the benchmark price for families with incomes at or above $250,000 paid for up to 100 hours of ECEC per fortnight for families who meet the activity test activity test would require 24 hours a fortnight of work, study, looking for work, volunteering or meeting participation requirements for Newstart Allowance (this includes parents on parental leave but the subsidy would not be available for the new baby during the leave period). Families on Parenting Payment would be eligible for 20 hours a fortnight of subsidised ECEC exemptions from the activity test would apply to families in exceptional circumstances up to 100 per cent of the benchmark price for children assessed as at risk, for up to 100 hours per fortnight.
Jobs for Families (revised)	Combine CCB, CCR and JETCCFA into a single payment, the Child Care Subsidy (CCS), paid directly to providers. Subsidy provides percentage of actual fee or an hourly benchmark price set by legislation (whichever is lower). The benchmark price is different for each service type. The initial benchmark price is based on the projected average price at the time of implementation, plus 17.5 per cent for LDC and OSHC and plus 5.75 per cent for FDC: a subsidy rate of 85 per cent of the benchmark price or actual fee for families with incomes at or below $65,710 per annum, tapering by one percentage point for every $3,000 in income over this threshold to 50 per cent for family incomes below $170,710. A flat subsidy rate of 50 per cent would then apply for family incomes between $170,710 and $250,000 and then would again taper for incomes over $250,000 until it reached the base rate of 20 per cent of the benchmark price (for incomes at or above $340,000 per annum) families with incomes over $185,000 will have their CCS entitlement capped at $10,000 per child per year three-part activity test would determine the number of hours that can be subsidised: 8–16 hours per fortnight of approved activities provides up to 36 hours of CCS per fortnight; 17–48 hours provides up to 72 hours of CCS; 49 hours+ provides up to 100 hours of CCS. For couple families, the partner with the lower number of hours of activity would determine the CCS entitlement approved activities include work, training, study or certain other recognised activities such as volunteering as well as participation requirements for income support payments families with incomes of up to $65,000, who do not meet the activity test, will be eligible to receive up to 24 hours of CCS per fortnight under a separate program known as the Child Care Safety Net the Child Care Safety Net will replace existing funding programs for service providers and will include the Additional Child Care Subsidy (ACCS). The Additional Child Care Subsidy will provide a top-up payment to the CCS for disadvantaged and vulnerable families existing exemptions from the CCB activity test will continue and be extended to families whose child is attending a preschool program in an LDC centre. Grandparent carers are exempt and grandparent carers in receipt of income support (such as the Age Pension) would be eligible for a subsidy rate of up to 120 per cent of the CCS benchmark price.

Sources: K Henry, Australia’s future tax system, Australia’s future tax system: report to the Treasurer, (Henry Review), Part 2, vol. 2: detailed analysis, [The Treasury], [Canberra], December 2009; D Brennan and E Adamson, Financing the future: an equitable and sustainable approach to early childhood education and care, SPRC report 01/14, Social Policy Research Centre, University of New South Wales, Sydney, February 2014; Productivity Commission (PC), Childcare and early childhood learning, report, 73, vol. 1, PC, 31 October 2014; Department of Education and Training, Overview: Jobs for Families Child Care Package, op. cit., all accessed 22 February 2016.

Committee consideration

Senate Education and Employment Committee

The Bill was referred to the Senate Education and Employment Legislation Committee for inquiry and report by 17 March 2016. On 17 March 2016, the Senate granted an extension of time for reporting until 4 April 2016 and the Committee tabled its report on that date. Details of the inquiry are on the Committee’s website.[115]

The Committee recommended the Bill be passed without amendment.[116] While noting the concerns of some interest groups (outlined in the ‘Position of major interest groups section below’), particularly in regards to the activity test, the Committee found that the provisions of the Bill would ‘target taxpayer support to encourage workforce participation while providing the safety net for those families on lower income’.[117] The Committee report stated that ‘the activity test provisions of the Bill are a fair and equitable way to ensure that the Child Care Subsidy is targeted at best at the families who will need and use it most’.[118]

Both Labor Senators and Greens Senators issued dissenting reports (discussed below in the ‘Policy of non‑government parties/independents section’).

Senate Standing Committee for the Scrutiny of Bills

The Senate Scrutiny of Bills Committee considered the Bill in Alert Digest 1 of 2016.[119]

The Alert Digest raised concerns that subsection 27A(1) of the Administrative Appeals Tribunal Act 1975 would not apply to deemed refusals for either an application for a determination of risk of serious abuse or neglect (at new subsection 85CE(4) inserted by item 40 of Schedule 1)[120] or for an application for a determination of temporary financial hardship (at subsection 85CH(5)).[121] Subsection 27A(1) of the Administrative Appeals Tribunal Act requires a notice of decision and review rights to be given to any person whose interests are affected by the decision.[122] The Scrutiny of Bills Committee stated that the Explanatory Memorandum does not provide a justification and sought the Minister’s advice for the rationale for the proposed approach. The explanation provided in the Explanatory Memorandum is that the deemed refusal provisions are not intended to be relied upon and have only been included in the unlikely event that the Secretary does not meet requirements to clarify the status of an application within 28 days (new subsections 85CE(3) and 85CH(4), respectively).[123]

The Committee also raised concerns with the ‘Henry VIII’ clause at Schedule 1, item 202 (proposed section 199G) and the power to make transitional rules proposed at Schedule 4, item 12. Henry VIII clauses are those that enable delegated or subordinate legislation to override the operation of legislation which has been passed by the Parliament. The Scrutiny of Bills Committee raises concerns in regards to such clauses when the rationale for their use is not provided or is insufficient as ‘such clauses may subvert the appropriate relationship between the Parliament and the Executive branch of government’.[124] In this instance, the Committee sought advice from the Minister as to whether these clauses in the Bill could be drafted to ensure the provisions are only used beneficially (as is their stated intent in the Explanatory Memorandum).[125] These clauses are discussed in more detail in the ‘Other provisions’ section below.

The Committee also sought advice from the Minister regarding strict liability offences proposed in Schedule 1, item 202 stating that the Committee expects ‘a detailed justification of each instance of the application of strict liability’.[126] The Committee stated that these provisions may be considered to trespass unduly on personal rights and liberties.[127]

Policy position of non-government parties/independents

Australian Labor Party

The Australian Labor Party (Labor) has offered support for the additional funding for ECEC proposed by the Jobs for Families Package but have stated concerns about the impact of the Bill on families. Shadow Minister for Education and Early Childhood Kate Ellis stated: ‘It takes special [sic] a very special kind of skill for a Government to spend billions of dollars to make hundreds of thousands of families worse off’. [128]

In their Dissenting Report to the Senate Education and Employment Committee’s report on the Bill, Labor Senators stated that they believed:

… the additional investment [in ECEC] is poorly targeted to achieve policy outcomes.

One in three families will be made worse off by these changes. Many of those families will be worse off are those marginally attached to the workforce, or seeking to engage with the workforce. The proposed activity test will make workforce participation more difficult for many families. The Bill will not limit out of pocket costs for families, or put a cap on rapidly rising fess – it will only limit cost to government.

The Government simply has not convinced Labor senators of this committee of the policy merits of their child care changes, and of the merits of this Bill.[129]

The Dissenting Report recommended a number of amendments to the Bill to ensure certain vulnerable and disadvantaged groups would not be worse off under the reforms.[130] Labor Senators also recommended the Government provide modelling on the long-term impact of the proposed system and release data and research used in developing the legislation.[131]

Australian Greens

The Australian Greens also issued a Dissenting Report. The Greens raised concerns with the proposed activity test and the impact of the measures on Indigenous children and children from regional and remote areas.[132] The Greens recommended the Bill be amended so that all children would have access to a minimum of 24 hours of subsidised child care per week regardless of any activity test.[133] The Dissenting Report also recommended flexible activity reporting methods are adopted for those with irregular hours; that more detailed information on the ACCS be provided; and that mechanisms be created for increasing childcare places in areas where vacancy rates are critically low.[134]

Crossbench senators

Liberal Democrats Party Senator David Leyonhjelm has not specifically recorded a position on the Bill but has previously stated that the Party supports the abolition of childcare subsidies, ‘coupled with deregulation of the childcare sector’.[135]

Independent Senator Glenn Lazarus reportedly demanded the Government include payments for grandparents providing child care in exchange for his support for the Jobs for Families package.[136]

Independent Senator Jacqui Lambie, while welcoming additional funding for childcare, raised concerns with the Jobs for Families Package at the time of its announcement.[137] Senator Lambie criticised the use of CPI indexation to adjust the CCS benchmark price arguing that it needed to be ‘pegged to real market prices’. Senator Lambie was also concerned at the impact of the activity test on low-income and disadvantaged children and the package’s perceived failure to address accessibility issues and ECEC workforce issues.[138] The Senator also supported Senator Lazarus’s call for payments for grandparents providing child care.[139]

Family First Senator Bob Day has not specifically recorded a position on the Bill but has advocated government support for child care provided by parents and other family members in the home (to the same or similar extent as formal child care).[140] Senator Day’s policy position on child care states that ‘if child care rebates were to be consolidated, streamlined, simplified or means-tested, they should be targeted at low to middle income families who are more likely to benefit and increase workforce participation from such an initiative’.[141]

Palmer United Senator Zhenya Wang reportedly stated: ‘The childcare package is very reasonable, but the problem is that it is linked to the FTB cuts which I cannot support’.[142] Australian Motoring Enthusiasts Party Senator Ricky Muir was also reportedly opposed to the changes to the Family Tax Benefit program but has not stated a position on the Bill.[143]

Position of major interest groups

Early Childhood Australia

Peak body Early Childhood Australia (ECA) stated in its submission to the Senate inquiry into the Bill that it welcomes the additional investment in ECEC offered by the Jobs for Families Package and that it believes that the package will improve access to early childhood services for many families.[144] However, ECA raised a range of concerns with the Bill:

• the activity test, income test and rate structure for the CCS increases the complexity of the fee assistance system for both families and providers[145]
• the complexity of the activity and income tests will create difficulties for families in insecure work or those unable to accurately predict their income such as casual workers[146]
• the activity test will limit some children’s participation in ECEC, particularly those in low-income families[147]
• key operational and policy features of the package are to be contained within subordinate legislation and the full impact of the package is therefore unclear[148]
• eligibility criteria for ACCS is too narrow and will exclude some children in need of early intervention support[149]
• CPI indexation of the hourly and annual caps will not keep up with predicted price growth and only indexing the lower income threshold in the income test will see the level of assistance for families decline in real terms over time[150]
• removing some of the requirements in relation to opening hours may create administrative issues for services and have workforce impacts.[151]

ECA made a number of recommendations to the Committee, including:

• ensuring all children are able to access at least two days of subsidised ECEC per week regardless of their parent’s activity
• that families under the low income threshold who do not meet the activity test are able to access 48 hours of CCS per fortnight rather than 24 hours
• that families earning over the low income threshold who do not meet the activity test are able to access 30 hours of CCS per fortnight rather than zero hours
• that there be greater flexibility in relation to the timeframe for making determinations that a child is at risk of serious abuse or neglect
• that the Government provide cameo modelling of the impacts of the new payments compared to the current system—that is, modelling of the impacts on example families
• that the first tier of the activity test be increased to 44 hours per fortnight (up from 36 hours)
• families who are initially eligible for the low income result (not meeting the activity test) should maintain the same hours of entitlement for the rest of the financial year regardless of changes in their circumstances (although the subsidy rate would reduce commensurate with increased income)
• families have up to six weeks before changes in circumstances affect their CCS entitlement to provide a continuity of support during sudden and unexpected changes in their income or activity levels.[152]

Goodstart Early Learning

Goodstart Early Learning, the largest ECEC provider in Australia with 643 centres, submitted that, while supporting the Jobs for Families Package, it remained concerned that many vulnerable children would have less access to early learning than under the current system. Goodstart has made a number of recommended changes to the Bill with the key recommendation aligning with that of ECA: ensuring vulnerable children are able to access subsidised care of at least two days per week.[153] Goodstart also made recommendations similar to those of ECA in regards to low income families maintaining their entitlement hours where their circumstances change or for allowing for a six weeks transition period following a sudden change in circumstance.[154] Its submission also recommended increasing the first tier of the activity test to 40 hours a fortnight.

Goodstart also made a number of detailed recommendations in regards to ACCS for children at risk of serious abuse or neglect including:

• that the definitions used for determining whether a child is at risk are at least as broad as the existing Special CCB definitions and not limited to current state and territory definitions
• that the current 13-week provider approval process remain in place (or a two-step six and seven week process) in order to allow for adequate assessments and time to gather evidence and
• that the absence of a decision by the Secretary within 28 days should not automatically result in a deemed refusal.[155]

Social Policy Research Centre, University of New South Wales

Deborah Brennan and Elizabeth Adamson from the Social Policy Research Centre at UNSW also issued a submission to the Senate Committee inquiry, stating that while the Bill makes some improvements on the current childcare system, it will ‘reduce access, introduce unprecedented complexity, and reduce flexibility and affordability for the most vulnerable families’.[156] Brennan and Adamson hold that the three-tiered activity test is a poor fit with the contemporary labour force which requires flexibility, rotating shifts and irregular and unpredictable hours. They also argue that using the activity test to exclude children with a parent or parents not in the labour force is ‘out of touch with international best practice, which has seen many countries expand universal provision for preschool aged children’.[157]

United Voice

United Voice is the main union for the ECEC workforce. Its submission to the inquiry stated that it was opposed to linking additional ECEC funding to cuts for Family Tax Benefit payments or Paid Parental Leave.[158] United Voice argued that the Government has not considered the workforce implications of the legislation (particularly in relation to the new activity test and allowance for more flexible opening hours). Its submission also held that indexing the hourly caps to CPI ‘threatens the future affordability and quality of ECEC for Australian families’ and proposed that the caps be adjusted regularly in order to keep up with increased market costs.[159] United Voice also criticised the proposal to provide 12 hours per week of CCS entitlement for those on low incomes who do not meet the activity test (as opposed to the current minimum 24 hours per week entitlement for CCB).[160]

Australian Childcare Alliance

The Australian Childcare Alliance (ACA) is a peak body representing privately owned LDC services. While broadly supportive of increased investment in and reform of the child care funding system, ACA has stated that it is concerned at the number of families that will be worse off under the Jobs for Families package compared to current arrangements.[161] In its submission to the Senate inquiry on the Bill, ACA recommended raising the lower income threshold to $100,000 and allowing those families who do not meet the activity test and have income under this threshold access to 30 hours per fortnight of subsidised ECEC.[162]

Family Day Care Australia

Family Day Care Australia is the peak body for FDC services and educators. Its submission to the Senate inquiry into the Bill included a statement recognising that the child care subsidy system needs to be reformed and appreciating the ‘complexity of the multiple policy problems this Bill attempts to solve’.[163] The submission raised a number of issues with the Bill and made a number of recommendations, including:

• the proposed hourly caps do not take into consideration the costs of non-standard/part-time hours of care and will reduce the affordability of FDC services for families requiring flexible care
• the Government should consider indexing each of the income thresholds (not just the lower threshold) in order to ensure an equitable subsidy entitlement over time
• the proposed activity test is not supported and there should be a minimum hours of access not subject to any activity test
• the Government should provide clear guidance around at risk determinations, particularly in regards to timeframes and deemed refusals
• some of the proposed regulatory provisions relating to approvals and compliance are too onerous or need to be clarified.[164]

Financial implications

The Explanatory Memorandum to the Bill states that the total Jobs for Families Package of measures will require $3.2 billion in additional expenditure over the forward estimates.[165] The measures proposed in the Bill are the main, but not the only, component of this package. The measures will absorb existing Australian Government funding programs for ECEC. The Explanatory Memorandum states that the new CCS payment is expected to cost $21 billion over two years from 2017–18, while the ACCS payment will cost $178.3 million over two years from 2017–18.[166]

However, as noted above, in the Portfolio Additional Estimates released in February 2016 the estimated expenditure on the CCS in its first two years is expected to be $19.87 billion, a reduction of around $1.15 billion from the Budget estimates.[167]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[168]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights stated in its 33rd report of the 44th Parliament that the Bill reintroduced measures previously considered by the Committee, stating that the Bill ‘continues arrangements in relation to the Social Services Legislation Amendment (No Jab, No Pay) Bill 2015 which the committee previously considered’.[169] While the immunisation requirements introduced under the No Jab, No Pay Bill are continued under the new child care payments proposed in the Bill, this is a relatively minor part of the proposed provisions. The Committee appears to have not considered the other human rights implications of the Bill.

Key issues and provisions

This section examines the key issues and provisions relating to eligibility for the CCS and ACCS, how payment rates are determined and the activity test. Other provisions of note are briefly discussed in the next section.

Schedule 1 of the Bill provides for the main amendments to A New Tax System (Family Assistance) Act 1999 (FAAct) to remove provisions relevant to CCB and CCR and insert new provisions for the CCS and ACCS.[170]

Item 39 repeals Divisions 4 and 4A of Part 4 of the FA Act, which currently contain the provisions for determining the rate of CCB and CCR paid to eligible recipients. Item 40 inserts new Part 4A—Child Care Subsidy which sets out eligibility for, and how to calculate rates of CCS and ACCS.

Eligibility for CCS

Division 2 of new Part 4A sets out the eligibility conditions for the CCS. New section 85BA provides that for an individual to be eligible to receive CCS for a session of care provided by an approved child care service to a child:

• the child must be an FTB child (defined at section 22 of the FA Act and sets out conditions relating to residency, legal responsibility, and care responsibilities), or a regular care child (see item 17), of the individual or their partner
• the child is aged 13 or under and does not attend secondary school
• the child meets immunisation requirements (see ‘Other provisions’ section below)
• the individual, or their partner meet Australian residency requirements
• the individual, or their partner must have incurred a liability to pay for the session of care.

The residency requirements as set out in new section 85BB are the same that currently apply to CCB.

Comment

Other than the age requirement, the basic eligibility conditions for CCS are very similar to the current CCB eligibility conditions. The age requirement is non-controversial though it will present an issue for some children with disability who access services provided by ECEC providers such as outside-school hours care and/or vacation care and are currently receiving CCB. ECA has stated its concern that CCB will be withdrawn and there will be no program that can support the needs of these children (with separate, non-CCB programs such as the Outside School Hours Care for Teenagers with Disability Programme only offering services in a limited number of areas).[171]

Eligibility for ACCS

There are four categories of eligibility for ACCS, set out in Division 3 of new Part 4A: at risk, temporary financial hardship, grandparent and transition to work.

ACCS (at risk)

New section 85CA provides that ACCS (at risk) can be paid in respect of:

• an individual who is eligible for CCS where a certificate of risk of serious abuse or neglect has been issued by the approved provider of the session of care, or, where the Secretary of the Department of Education has issued a determination of risk of serious abuse or neglect under new section 85CE in relation to the child or
• an approved provider where they have issued a certificate of risk of serious abuse or neglect, or where the Secretary has made a determination of such a risk, in relation to a child and where the provider is unable to identify an individual who would be eligible for ACCS (at risk) for the session of care. For approved providers to be eligible, the child must be aged under 13 and not attend secondary school and must meet immunisation requirements.

This category bears similarities with current provisions for SCCB. For SCCB, services may also issue certificates that a child is or has been at risk of serious abuse or neglect and a time period for which SCCB is required.[172] Services cannot approve SCCB for any one event for more than 13 weeks in any financial year. Approval must be sought from Centrelink for any additional period. There is also a limit on the total amount a service can receive in SCCB payments as a proportion of all fee reduction amounts they receive (CCB and SCCB)—the cost of SCCB periods a service has already approved in one week cannot exceed 18 per cent of the total amount of fee reductions claimed in the week prior.[173]

For the ACCS (at risk), the limitations on services issuing certificates are more prescriptive:

• certificates must specify the day they take effect, which cannot be more than 28 days before the certificate is issued (new subsection 85CB(2))
• certificates issued by an approved provider in respect to a particular child cannot be in effect for a period of more than six weeks in any period of 12 months (new subsection 85CB(3))—although the Secretary can issue their own determination that a child is at risk of abuse or neglect (following an application from a provider) for a period of up to 13 weeks (with no limit on how many such determinations the Secretary can make in respect of a particular child)
• certificates issued by providers do not take effect if, on any particular day, the number of certificates issued by the provider and the Secretary would be in effect for more than 50 per cent of the children to whom the service is providing care that day (new section 85CB(4)). The Secretary’s rules can prescribe a higher percentage and, in exceptional circumstances, the Secretary can issue a determination applying a higher percentage for that day
• within six weeks after a certificate taking effect, and before making an application to the Secretary for a determination, providers must notify the appropriate state/territory child protection agency that the provider considers the child is or was at risk of serious abuse or neglect, unless the provider was notified of the risk by the state/territory agency (new section 204K of the FA Admin Act inserted by item 202)
• where an application is made to the Secretary to issue a determination that a child is at risk of abuse or neglect, the Secretary must, within 28 days, make a determination or refuse the application (new subsection 85CE(3)). If the Secretary neither makes a determination nor refuses the application after 28 days, the Secretary is taken to have refused the application (the Secretary is not required to give notice of this deemed refusal) (new subsection 85CE(4)).

The circumstances in which a child is or is not taken to be at risk of serious abuse or neglect are to be prescribed in the Minister’s rules (new subsection 85CA(3)).

ACCS (temporary financial hardship)

ACCS (temporary financial hardship) resembles the provisions for Special CCB where an individual is experiencing short term hardship, with hardship defined in a legislative instrument.[174] Currently, approved providers can issue certificates that an individual is experiencing short term hardship or the individual can apply to the Secretary to make a determination that they are experiencing short term hardship. For the ACCS, providers will not be able to certify that an individual is experiencing hardship, individuals will need to apply or the Secretary can make a determination based on their own initiative (where the Secretary is satisfied that one of the circumstances to be prescribed in the Minister’s rules exists in relation to the individual).

It is unclear exactly what kind of circumstances will be included in the Minister’s rules for the purposes of determining temporary financial hardship. The current instrument for establishing hardship for Special CCB includes events such as loss of employment or the failure of a business, destruction or severe damage to a home, significant expenditure or loss of income associated with a death or serious illness, and, moving off an income support payment and facing significant expenditure associated with new employment or a significant reduction in income.[175] This last circumstance will be covered by the ACCS (transition to work) category.

ACCS (grandparent)

The ACCS (grandparent) category as set out in new section 85CJ will partly replace Grandparent CCB. To be eligible, an individual needs to be eligible for CCS, be the grandparent or great-grandparent of the child (or partner of the grandparent/great-grandparent), be the principal carer of the child, and be in receipt of a social security or veterans’ pension or benefit (such as the Age Pension or Service Pension). Principal carer is defined as an individual who provides at least 65 per cent of ongoing daily care for the child and, has ‘substantial autonomy for day-to-day decisions about the child’s care, welfare and development (new subsection 85CJ(2)). Step-parent and adoptive parent relationships are to be treated as biological child-parent relationships for the purposes of determining whether an individual is a grandparent or great-grandparent of a child.

ACCS (transition to work)

The ACCS (transition to work) category will partly replace the existing support available from the JETCCFA program as well as the component of the SCCB for those in short-term hardship as a result of moving off income support. To be eligible for the ACCS (transition to work) category, new section 85CK provides that an individual must be eligible for CCS and:

• be in receipt of Newstart Allowance, Parenting Payment, Disability Support Pension or Youth Allowance and have an Employment Pathway Plan in place or
• be in receipt of another payment prescribed by the Minister’s rules or
• have stopped receiving one of the above payments less than 12 weeks prior to the relevant payment fortnight.

The Minister’s rules may specify additional requirements for eligibility and limitations on eligibility set out in new Division 5 of Part 4A may apply.

Concerns over ACCS (at risk) eligibility criteria

As noted in the ‘Position of major interest groups’ section, many in the sector were concerned about the more restrictive criteria for ACCS (at risk) compared to SCCB. Providers are anxious that the shorter timeframe for provider approvals, shorter timeframe for notifying state and territory governments and, possibly, additional requirements around collecting evidence will have the effect that some children at risk will ‘fall through the cracks’, drop out of ECEC, or result in parents incurring large debts (where at risk determination applications are not approved).[176]

The Regulation Impact Statement suggests that the more restrictive arrangements have been introduced in response to misuse of the current SCCB program:

There have been a range of issues with the current programmes in terms of payment integrity and program sustainability, particularly in relation to assistance to support children at risk of serious abuse or neglect and families experiencing temporary financial hardship. There are instances of services using this assistance as a mechanism for retrospectively recovering unpaid fees, or charging rates that far exceed the average fees charged in each care type. While the current assistance is intended to facilitate access to or maintain engagement with mainstream child care, there are also instances where it is being utilised to fund non-mainstream services including those that are more health-related or respite care in nature.[177]

No data or evidence in relation to how widespread these issues are was included in the Statement which makes it difficult to assess these payment integrity risks against the need to ensure children at risk of abuse or neglect are not excluded from ECEC services. If payment integrity is of significant concern, there may be other avenues for the department to ensure compliance that do not create barriers or restrictions to providers seeking to offer additional assistance to children at risk.

The Department of Education and Training’s submission to the Senate inquiry into the Bill states that the department is still developing the list of circumstances in which a child may be considered at risk, and is also still consulting with states and territories regarding evidentiary requirements, the referral process and tools to assist services to make a certification.[178] Lacking this detail, it is difficult to assess ECA’s claim that the ACCS will only ‘pick up a narrow range of children at risk of serious abuse and neglect’.[179]

As noted above, the deemed refusal of applications to the Secretary for a determination (if the Secretary neither approves nor refuses the application within 28 days) has been criticised by the Scrutiny of Bills Committee (for not requiring a notification of the refusal and review rights) and also criticised by the ECEC sector as possibly placing providers in a position of having to refuse access to at-risk children.[180] While the Explanatory Memorandum suggests that situations where the Secretary does not make a decision within 28 days will be ‘unlikely’—the operation of this provision ensures that the negative impact of processing or administrative delays will fall upon children considered by providers to be at risk of serious abuse or neglect, rather than the impact being on those who have failed to make a decision.[181] The recommendation from ECA and others for greater flexibility around the timeframes for making determinations is justified.[182]

Lack of detail on eligibility criteria prevents analysis

With the exception of ACCS (grandparent), each of the ACCS categories leaves important eligibility criteria or restrictions for inclusion in the Minister’s rules or programme guidelines. Without detail on these additional criteria, a full analysis of the payment and comparison with existing programs is impossible.

Limitations on eligibility for CCS and ACCS

New Division 5 of Part 4A sets out limitations on eligibility for the CCS and ACCS. Limitations include:

• allowing only one individual to receive the payments for the same sessions of care for the same child
• only being eligible for one category of ACCS with a hierarchy of categories applying for those with eligibility for multiple categories. Where an individual is entitled under more than one category of ACCS, they will receive the highest category they are eligible for:

1.  ACCS (at risk)
2.  ACCS (grandparent)
3.  ACCS (temporary financial hardship)
4.  ACCS (transition to work)

• precluding children in the care of a person (other than a foster parent) under a state/territory child welfare law or a member of class prescribed by the Minister’s rules. The Explanatory Memorandum states that the rules ‘will allow the Minister to ensure that care arrangements considered to be designed to exploit the child care payment system (such as where a family day carer places their own child in the care of another family day carer) cannot entitle an individual to payments of CCS’.[183] This suggests that the Minister’s rules will replicate recent changes to the rules around an FDC educator’s eligibility for CCB when they place their children in the care of another FDC educator.[184]

Another limitation is on payment while a person is absent from Australia—an individual can be eligible for CCS or ACCS during a temporary absence from Australia of up to 56 weeks. This replicates the existing rules for Family Tax Benefit and CCB in regards to temporary absences. The Secretary may extend the 56 week period where an individual is unable to return to Australia due to certain specific events such as serious accidents, death, legal requirements, natural disasters, war and unrest.

Payment rates

New Division 6 of Part 4A sets out which provisions in new Schedule 2 of the FA Act are to be used for calculating the appropriate rate of CCS and ACCS—the different categories of ACCS have their rates calculated under different parts of Schedule 2. Item 41 repeals existing Schedule 2 of the FA Act, the CCB rate calculator, and substitutes new Schedule 2 which provides for the amounts of CCS and ACCS.

Calculation of the CCS rate is worked out through a six-step process:

1. Activity test result: the activity test determines how many hours per fortnight, if any, of CCS an individual is entitled to.

2.  Annual cap: if the $10,000 per child CCS annual cap applies to the individual (where the family’s adjusted taxable income is higher than $185,710), and the individual has already received this amount for the child for the income year then their rate will be nil.[185]

3.  Sessions of care: determine how many sessions of care are provided to the child for which the individual is eligible to receive CCS (under the eligibility conditions set out above).

4.  Hourly rate: determine the hourly rate that applies to each of those sessions of care by applying the percentage rate that applies for that individual based on their family income to the hourly fee charge for the session of care or the CCS hourly rate cap, whichever is lower.

5.  Activity tested amount: this is the number of eligible hours worked out using the activity test result multiplied by the applicable hourly rate (under new subclause 4(3), where a child attends more than one service, the Secretary can approve an individual’s election to have a certain proportion of their CCS rate paid to each service).

6.  Result: the CCS rate is either the activity-tested amount or, if the annual cap applies and the activity tested amount would mean total CCS paid in the income year would exceed the cap, the result is the difference between the annual cap and total previous amounts of CCS paid.

The activity test result provisions are discussed in the ‘Activity test’ section below.

Annual cap

The annual cap applies to those families with an adjusted taxable income higher than the lower income threshold plus $120,000 (subclause 1(2) of new Schedule 2 of the FA Act). Upon commencement, the lower income threshold is $65,710 (subclause 3(4) of new Schedule 2 of the FA Act). Both the $10,000 annual cap amount and the lower income threshold will be indexed to movements in the CPI on an annual basis (on 1 July) (item 44 of Schedule 1 to the Bill).

CCS rates

The hourly rate of CCS is the applicable percentage (a percentage rate determined under the income test) of the lower of the hourly session fee for the individual or the CCS hourly rate cap for the session. The hourly session fee is the amount the individual (or their partner) is liable to pay for a session, divided by the number of hours in the session, minus any subsidy (other than CCS or ACCS) received in respect of the session or any reimbursement fringe benefit received in respect of the session. The CCS hourly rate caps will, on commencement be:

• for a centre-based service: $11.55
• for a family day care service: $10.70
• for an outside school hours care service: $10.10
• for a type of service prescribed by the Minister’s rules: an amount also to be prescribed by the Minister’s rules (clause 2 of new Schedule 2 of the FA Act).

These amounts are also to be indexed to CPI annually (item 44 of Schedule 1 to the Bill).

Applicable percentage (income test)

The applicable percentage is determined by new clause 3 of new Schedule 2 to the FA Act and is based on where a family’s adjusted taxable income falls in relation to four different thresholds. The lower income threshold is a set amount, indexed each year to CPI, and the other thresholds are set as whole dollar amounts in addition to the lower income threshold. Table 6 sets out the relevant thresholds upon commencement and the applicable percentage:

Table 6: Income test for determining CCS applicable percentage

Adjusted taxable income	Applicable percentage
Equal to or below the lower threshold ($65,710)	85 per cent
Above the lower income threshold and below the second income threshold (lower threshold plus $105,000 = $170,710)	85 per cent minus one percentage point for each $3,000 in income over the lower income threshold
Equal to or above the second income threshold and below the third income threshold (lower threshold plus $184,290 = $250,000)	50 per cent
Equal to or above the third income threshold and below the upper income threshold (lower threshold plus $274,290 = $340,000)	50 per cent minus one percentage point for each $3,000 in income over the third income threshold
Equal to or above the upper income threshold	20 per cent

Income test design needs to align with other parts of the tax and transfer system

The PC determined that a lower income threshold of around $60,000 was sensible as it is above the withdrawal rate of all income support payments (such as Newstart Allowance and Parenting Payment) and relatively close to the lower income test threshold for Family Tax Benefit Part A (the minimum threshold is currently ($51,027).[186] Placing the lower income threshold above the income support withdrawal rate ensures that the CCS taper does not operate in addition to those withdrawal rates and income tax, creating significant disincentives to work or earn more income. The taper rate does still interact with Family Tax Benefit Part A withdrawal rates and income tax but the Family Tax Benefit withdrawal rates are not as steep, creating a lower work disincentive.

Setting the higher income thresholds and the taper rate is a complicated process of balancing the interaction with withdrawal rates for Family Tax Benefit and marginal tax rates (ensuring the income test does not create work disincentives), targeting assistance at those who need it and ensuring the fiscal sustainability of the subsidies over time. It is unclear why the Government chose a stepped taper rate with a 50 per cent applicable percentage for those with incomes between $170,710 and $250,000 rather than a linear taper that declines gradually from 85 to 20 per cent. The Government may have been concerned at the number of families in this income bracket who would have been worse off under a linear taper when compared to the assistance offered by CCR.

The Department of Education and Training stated in its submission to the Committee inquiry that the revised Jobs for Families Package introduced the new higher thresholds and lower applicable percentage in response to ‘feedback from stakeholders that the announced subsidy rate was too generous for high income families’ and because the Government had failed to secure all of its intended savings from the Family Tax Benefit program.[187]

ACCS payment rates

Payments rates for the ACCS (at risk) for individuals, ACCS (temporary financial hardship) and ACCS (grandparent) are worked out under new Part 2 of Schedule 2 of the FA Act. The rate is worked out using the steps for determining the rate of CCS (outlined above) with the following exceptions:

• no annual cap applies
• the hourly rate of ACCS is used instead of the hourly rate of CCS worked out at step 4
• as no cap applies, the result at step 6 is the activity tested amount of ACCS.

The hourly rate of ACCS is set out at new clause 6 of Schedule 2 and is 100 per cent of the lower of:

• the hourly session fee or
• 120 per cent of the CCS hourly rate cap for the particular service (or a higher percentage worked out under the Secretary’s rules or, in exceptional circumstances, as set out in a written determination by the Secretary).

In practice, this means that the rate of ACCS for those eligible is either the full liability of the session of care or 120 per cent of the relevant hourly fee cap, whichever is lower. The payment entitlement will depend on the activity test result.

The payment rate for the ACCS (transition to work) category is also not limited by the annual cap and an applicable percentage of 95 per cent applies for those eligible under this category rather than an income tested percentage. Otherwise the rate is worked out following the same steps as the general CCS method.

The payment rate for ACCS (at risk) paid to providers (where the provider has been unable to identify an individual who would be eligible for ACCS) is worked out according to the method statement at new clause 8 of Schedule 2. Providers have a ‘deemed activity test result’ which is generally 100 hours per fortnight unless a circumstance specified in the Minister’s rules applies or the Secretary makes a specific determination. Providers receive a rate of ACCS equivalent to 100 per cent of the lower of their hourly session fee or 120 per cent of the CCS hourly rate cap for the particular service (or a higher percentage worked out under the Minister’s rules or, in exceptional circumstances, as set out in a written determination by the Secretary) (new clause 9 of Schedule 2 of the FA Act). Eligible providers can receive this rate for all eligible hours of care provided to the child up to the limit applicable under the deemed activity test result.

Setting a benchmark fee

The Government has decided to set its fee benchmark (hourly fee cap) for ECEC services based on the projected average prices in 2017–18 plus 17.5 per cent for LDC and OSHC, and plus 5.75 per cent for FDC.[188] This runs against the PC’s recommendation that the benchmark use a median of market prices and Brennan’s and Adamson’s recommendation that the benchmark be based on ‘reasonable costs of care’.

The PC recommended a subsidy based on a benchmark rate for a number of reasons:

• it reduces cost-shifting from parents to taxpayers (where CCR subsidises fees that can include costs that would otherwise be borne by parents, such as meals, and services not necessary to satisfy the Nation Quality Standard)
• it improves equity by making the assistance regime more progressive (the current arrangements provide the highest benefits to those who pay the most for services which tends to be families with higher incomes) and
• it reduces upward pressure on prices by forcing parents to bear the full cost of any mark-up on prices or weak control of costs that cause fees to rise above the benchmark rate—services will compete to minimise costs, will adopt more cost-reflective pricing strategies and only make improvements in quality or additional services families are willing to pay for.[189]

However, the PC warned that a benchmark rate may not improve affordability where higher fees are a reflection of systemic and unavoidable differences in the cost of delivering basic services to a particular group of users or in particular locations.[190] The PC report also warned that over time, a benchmark rate could become the floor price for fees, particularly where market competition was low.[191]

The PC did not recommend setting the benchmark rate based on a ‘reasonable costs of care’ model (or ‘efficient price’ model) as it would involve onerous administrative and compliance costs and such an approach is more suited where a competitive market is yet to be established.[192] Benchmarking based on observed fees was considered superior as competitive pressures already exist in the ECEC sector, meaning that existing prices are not ‘grossly inefficient’; it is simple; and, the process is transparent.[193]

The PC favoured using a rate set at median market fees given that the distribution of fees across the ECEC sector is highly skewed and the rate would not be affected if services responded to the introduction of a benchmark by raising fees to that level (a floor-price response). If the benchmark rate was set to average fees however, a floor‑price response would see the subsidy rate increase.[194]

The PC also recommended setting different benchmarks for different service types (to reflect cost differences) and for children at different ages (to discourage cross-subsidisation where higher fees are charged for older children to meet the higher costs of care for infants).

The Department of Education and Training describes its model (projected average fee plus loading) as ‘designed to help constrain price growth and address the inflationary problems experienced in the current system’, and that ‘the objective is to improve the overall affordability for parents and ensure a sustainable level of expenditure for government’.[195] The department stated that ‘the use of an hourly fee cap also sends a strong message about what a ‘high fee’ service is and places downward pressure on fee increases’.[196] How services will respond to this ‘strong message’ is difficult to predict. The PC acknowledged that subsidies have ‘contributed to some degree’ to growth in child care fees (at a rate faster than inflation and the price rises in similar industries).[197] However, the PC also noted that other drivers of supply and demand influence the growth in fees—including income levels, employment rates, rents and population. Regulatory changes, such as the introduction of the NQF, are also a significant factor in fee growth.[198]

By choosing a higher than average benchmark, the CCS rate will, at least initially, provide a high level of assistance even to families using high cost-providers. According to the department, it estimates the hourly fee cap for LDC services will be equivalent to around the 85th percentile of fees charged for this service type in 2017–18.[199] The department argued in its submission to the Senate inquiry that a median fee would not have taken into account regional differences in fees (particularly differences between major cities and regional areas).[200]

Subsidy rates as percentage of actual fees or the benchmark

The CCS also differs from the PC’s proposed model by paying a percentage of the actual fees or the benchmark rate, whichever is lower. The PC’s model recommended paying the appropriate percentage of the benchmark rate, as determined by an income test, regardless of the fee charged—where the subsidy would exceed the fee the subsidy only covers the fee charged. While costing more, the PC’s model would reward families using low‑fee services (those with fees below the median), providing a market incentive for services to keep their fees low or close to the median in order to attract customers. The PC also found that this ‘would enable services, particularly not-for-profit providers, to offer very low (or no) out-of-pocket costs for low income families in order to meet their social objectives’.[201] It found that the CCS model of paying a percentage of the lower of the benchmark/actual fee charged would better control costs where a high benchmark rate is adopted. The PC noted that this is a lower cost option and would ensure families always have a co-payment.[202]

The PC actually modelled a version of the CCS: a high benchmark rate (based on the 75th percentile of fees by service type), a maximum subsidy rate of 85 per cent tapering to minimum rate of 20 per cent with subsidy rates based on the minimum of the benchmark or actual fees charged. It found that while cheaper than its preferred option (by around $130 million a year) most of the savings occurred due to substantially lower subsidies for families with lower incomes (as lower income families tend to use lower cost providers). It found that the approach ‘substantially worsens the situation for most low income families relative to current policies and relative to the PC’s recommended ECLS’.[203]

Rate indexation

The Government has chosen to adjust its benchmark rate annually in line with CPI movements (in the same way that CCB rates are currently adjusted). However, the Government’s own estimates of fee growth over the forward estimates are much greater than inflation estimates. The 2015–16 Mid-Year Fiscal and Economic Outlook estimates CPI growth of two per cent in 2015–16 and 2.25 per cent in 2016–17.[204] The Government’s projections for fee growth are set out in Table 7.

Table 7: Estimated fee growth rates by service type

Financial year	Long Day Care	Family Day Care	Outside School Hours Care
2014–15	8.1	9.8	7.5
2015–16	6.5	7.1	5.6
2016–17	7.3	6.2	5.8
2017–18	6.9	4.9	5.9
2018–19	6.1	5.2	6.1

Senate Community Affairs Committee, Answers to Questions on Notice, Social Services Portfolio, Budget Estimates 2015–16, June 2015, Question SQ15-000467, accessed 9 March 2016.

By indexing the benchmark rate to CPI only, the Government is able to restrain the growth in spending on child care fee assistance, unlike the current funding model where CCR expenditure is linked to actual growth in fees. Fee increases above CPI growth will see higher costs fall on families.

While the department has stated that the benchmark rate is designed to address inflationary problems experienced in the current system, the Government still anticipates above inflationary fee growth over the first two years of the new system. This means that, in the longer term, only part of the objective for the benchmark rate is likely to be achieved: ensuring a sustainable level of expenditure for the Government. In terms of the other objective, improving affordability for parents, this will be dependent on services responding to the ‘strong message’ of the hourly cap and the competitiveness of the ECEC market in allowing families to move to low-cost providers. If the hourly fee caps begin to fall behind growth in fees, families may begin to put pressure on government to raise the benchmark or adjust the indexation measure.

Income test threshold indexation

As noted above, only the lower income threshold is to be indexed to CPI with the other income thresholds set as fixed dollar amounts above the lower income threshold. A number of submitters to the Senate Committee inquiry into the Bill, including ECA and Family Day Care Australia, were concerned that this would mean the thresholds would decrease in real value over time. For example, a two per cent adjustment to the lower income threshold (from $65,710 to $67,024) would increase the next income threshold by only 0.77 per cent (from $170,710 to $172,024). The higher income threshold would only increase by 0.39 per cent. This design ensures that the taper rate continues to be one percentage point for every $3,000 over the relevant threshold, but leads to a form of bracket creep: as wages gradually rise, family incomes will be pushed above the almost static higher threshold values.

Activity test

The activity test result used in the calculation of payment rates is based on an assessment of whether an individual and, for couples, their partner, have participated in a ‘recognised activity’ during the relevant fortnight and for how many hours they participated in this activity OR whether the individual and/or their partner fits into a special category for determining their activity test result.

According to the Regulation Impact Statement, families will self-declare the number of hours they participate in recognised activities.[205] However, a new compliance framework will involve random spot checks for a ‘proportion of families’ to ensure they are complying with the requirements of the activity test.[206] The Department of Education and Training states in its submission to the Senate Committee inquiry that a new Information Technology system will allow families to report changes in activity hours or other circumstances using ‘smart technology (including apps)’.[207] The submission also states that individuals working casual or irregular hours will be able to estimate their hours of activity over a three month period.[208] This particular provision for three month-averaging is not set out in the legislation or referred to in the Explanatory Memorandum and may possibly be set out in the Minister’s rules.

The activity test is set out in new Part 5 of Schedule 2 of the FA Act. The activity test result uses the highest result achieved from assessing recognised activities (the ‘recognised activity result’) and the exception categories. For couples, the activity test result is the lower result between the two partners.

Recognised activities

Recognised activity is defined at new subclause 12(2) of Schedule 2 as:

• paid work
• a training course for the purpose of improving the individual’s work skills or employment prospects or both
• an approved course of education or study
• an activity prescribed by the Minister’s rules.

The Explanatory Memorandum does not provide any indication as to what kinds of activities will be included in the Minister’s rules. However, the Regulation Impact Statement does set out the Government’s preferred treatment of recognised activities. It lists the following activities (and limits) on top of those listed above:

• annual, long service, sick or other paid leave (linked to hours of activity of job prior to leave)
• jury duty or volunteering for the state emergency services (linked to hours of activity)
• on paid or unpaid parental leave (linked to hours of activity before leave)
• unpaid work in a family business (broadly defined and linked to hours of activity)
• setting up a business (linked to hours of activity)
• looking for work and not in receipt of income support (eligible for up to 18 hours per week)
• voluntary work (broadly defined, eligible for up to 18 hours per week)
• receipt of Newstart Allowance with participation requirements (linked to hours of activity)
• receipt of Newstart Allowance with an assessed partial capacity to work (linked to hours of activity)
• receipt of Youth Allowance with a participation requirement (linked to hours of activity)
• receipt of Parenting Payment with a participation requirement (linked to hours of activity)
• receipt of Abstudy or Austudy (linked to hours of activity but also likely to be covered by the training course/approved course of education definition above)
• receipt of Disability Support Pension, under 35 years of age, with an assessed work capacity of at least eight hours per week and youngest dependent child is six years of age or older (linked to hours of activity)
• caring for an adult or another child with disability and in receipt of Carer Payment or Carer Allowance (linked to activity)
• where child is attending a preschool program in a child care service (for the period of the preschool program)
• other recognised activities determined on a case by case basis.[209]

The significant change here is linking specific hours of activity with the payment rate entitlement rather than the current CCB activity test provisions which grant all eligible individuals at least 24 hours of CCB per fortnight and, for those undertaking recognised activities for a minimum of 15 hours a week, up to 50 hours of CCB.[210]

Also of note are the specific rules for certain Disability Support Pension recipients—currently, where one parent (or the single parent) has disability and is unable to care for their child(ren), the individual is exempt from the activity test.[211] The Department’s submission to the Senate Committee inquiry into the Bill suggests that this exemption will be retained.[212] However, the Regulation Impact Statement suggests that Disability Support Pension recipients under 35 years of age with some assessed capacity to work will no longer be exempt from the activity test.[213] Linking CCS for Disability Support Pension recipients to hours of activity will significantly restrict this group’s access to ECEC—although recipients will likely qualify for up to 24 hours of CCS per fortnight under the provision for low-income earners (see below).

The arrangements for carers outlined in the Regulation Impact Statement are also more limited than current arrangements, requiring those receiving Carer Payment or Carer Allowance in respect of one child to also have care of another child. Currently, Carer Payment recipients and Carer Allowance recipients are taken as satisfying the activity test for 50 hours of CCB per fortnight.[214]

The Department’s submission to the Senate Committee inquiry into the Bill suggests that existing exemptions from the activity test will be retained for circumstances where the individual or their partner is living overseas or where the individual or their partner is in prison or otherwise lawfully detained.

Activity test result

The number of hours engaged in a recognised activity per fortnight determines the number of hours included as the ‘recognised activity result’:

Table 8: Recognised activity result

Hours engaged in recognised activity in fortnight	Recognised activity result
Fewer than eight	0
At least eight and no more than 16	36
More than 16 and no more than 48	72
More than 48	100

Source: New clause 12 of Schedule 2 of the FA Act.

Activity testing for ACCS

The activity test result for ACCS (at risk), ACCS (temporary financial hardship) or ACCS (grandparent) is 100 unless a higher result under one of the special categories applies in relation to the individual. The activity test result for ACCS (transition to work) is their recognised activity result unless a higher result under one of the special categories applies in relation to the individual.

Activity test result for those in special categories

As noted above, the activity test result will use the recognised activity result unless the individual is eligible for a higher result under one of four special categories:

• low income result (new clause 13 of Schedule 2)—the low income result is 24 and applies to families with an adjusted taxable income equal to or lower than the lower income threshold ($65,710)
• Minister’s rules result (new clause 14 of Schedule 2)—both the result and the circumstances in which it applies are to be covered in the Minister’s rules (no indication is given in the Explanatory Memorandum as to what kinds of circumstances this provision will cover)
• at risk child result (new clause 15 of Schedule 2)—the at risk child result is 100 and applies to individuals eligible for CCS in respect of a child where less than 18 months have elapsed since an extended at risk period for the child ended (an extended at risk period is a period of at least six months in which either (or both) a certificate of risk or serious abuse issued by an approved provider or a determination of risk of serious abuse or neglect made by the Secretary was in effect in relation to the child). Where a certificate or determination of risk was in effect, the individual would normally be eligible for ACCS
• exceptional circumstances result—both the result and the circumstances for which it applies are to be set out in a determination by the Secretary.

As noted above, providers have a deemed activity test result worked out for the purposes of determining the payment rate of ACCS—this is generally 100 unless circumstances set out in the Minister’s rules or a determination by the Secretary apply.

Reporting and verifying activities

Families will self-declare the number of hours they participate in recognised activities (as happens under the current activity test). The Department of Education and Training states the ‘families are best placed to know what activities they are undertaking and the Government has a high level of trust in them reporting this accurately’.[215] However, the Department’s compliance program (working together with the Department of Human Services’ compliance program) will undertake ‘random sampling’ to confirm reported data including ‘spot checks’ on evidence of reported activities.[216]

Balancing participation incentives with early learning objectives

The proposed activity test has been one of the most controversial elements of the Jobs for Families Package because it removes a key aspect of the current fee assistance model—providing up to 24 hours of CCB subsidised care per week for those who do not satisfy the activity test (subject to the income test). CCR also has a minimal activity test requiring some form of work or work related commitment at some point during the week (with no minimum number of hours required).

A carefully designed activity test provides a work incentive—encouraging parents (particularly second-earners) to work more in order to qualify for subsidies that partly offset the costs of childcare used to work, and the loss of income through taxes and benefit withdrawal rates. However, an activity test can restrict access to ECEC for families who are unemployed or unable to work—children from low-income families are at greater risk of developmental vulnerabilities and derive greater developmental outcomes from attending ECEC services.[217] The activity test also needs to allow for a broad range of activities in order to encourage transitions to work and activities that improve employment prospects. It also needs to provide exemptions for those unable to work.

As noted above, most peak bodies and providers in the ECEC sector have called for all families to be eligible for at least 24 hours of subsidised care per week, regardless of their activity level. This is equivalent to two whole days’ attendance at an ECEC service. This recommendation is premised on the importance of ECEC accessibility and child development outcomes over workforce participation concerns.[218]

While the Government has also identified accessibility as a priority, its stated overarching goal for the Jobs for Families Package is to ‘create a more sustainable system’ that:

• encourages greater workforce participation and productivity, and better meets families’ needs
• addresses children’s learning and development needs, particularly those who are vulnerable or at risk of poor long‑term development outcomes
• improves budget sustainability in the longer term.[219]

The proposed CCS activity test indicates that while the Government acknowledges the importance of ECEC for children’s learning and development needs, it wishes to target assistance to those who need it most (to work or because of disadvantage) in order to minimise expenditure on fee assistance. The PC modelled blanket activity test exemptions for a fixed number of hours of ECEC services but found the cost to be well beyond current funding levels for fee assistance—primarily because the proposed subsidy rate is much higher than the current CCB rates paid to families who do not meet the activity test.[220]

Although the activity test entitles families below the low income threshold who do not meet the activity requirement to 12 hours of CCS per week (24 hours per fortnight), this has been criticised as not enough time for children to settle into a service and develop bonds with educators and other children (where 12 hours is equivalent to a full-day’s session of care).[221]

It is only families with income over this threshold with one parent (or the single parent) who does not have a sufficient activity test result, and who does not fit into any of the exemption or ACCS categories, that will be ineligible for any hours of CCS. The Minister has explained that withdrawing support for this group is designed to encourage work activity:

Question: But isn't the point also that you want people to be worse off to the extent that it encourages people to go back to work? Like isn't that the reality?

Simon Birmingham: Well, Sam, we want indeed the encouragement to be there to volunteer, to study, to look for work and to work. And that is absolutely why the model has been developed in the way it has, with the activity test that's there ­but also, to reward people who are working more and therefore who rely on child care more with more hours of subsidy for their child care. It's the core part of the fairness proposition. The more you work, the more hours you get; the less you earn, the greater the subsidy you get.[222]

The key issue for the activity test is around fairness—is it fair for public money to subsidise ECEC not linked to participation in work (including voluntary work in the community), training or study? Or is it fairer to provide a minimum amount of subsidised ECEC to all children, regardless of their parents’ participation in work or other activities?

Impact of labour market is expected to be small

As noted above in the ‘Background’ section, the Government used an online survey of around 2,000 people to estimate that around 240,000 Australian families would increase their workforce participation as result of the changes (primarily driven by the activity test).[223] Modelling by the PC (of their own model) and by PwC (of the proposed package) suggests a modest labour market return from the significant increase in expenditure on ECEC.

The PC estimated increased labour supply equivalent to 16,000 full-time equivalent workers from its proposed model. PwC’s modelling found that, by 2050, an additional 29,000 full-time equivalent workers will have joined the workforce as a result of the new CCS payment model (with around half of this impact derived from existing workers increasing their hours).[224] Both of these models are based on a more rigorous methodology than that used by the Government and both would suggest a relatively small increase in labour market activity in response to an additional $2 billion in expenditure on ECEC in the first two years of the new scheme.

The design of the activity test may have more of an economic impact in terms of limiting government expenditure on ECEC, by limiting access to subsidised child care, than it will have in terms of encouraging increased workforce participation.

Subordinate legislation and transitional provisions

The operation of many of the Bill’s key provisions relies on subordinate instruments: the Minister’s Rules and Secretary’s Rules. There are more than 40 provisions in the Bill providing for the Minister Rule’s to set out additional eligibility criteria, circumstances, payment rates, definitions and exceptions including: additional eligibility criteria for CCS and ACCS (at risk), definitions of when ‘a session of care is provided’, hourly rates of CCS and ACCS, activity tested amounts of CCS as well as approval conditions for providers and services.[225] A further 15 provisions in the Bill allow for the Secretary’s Rules to set out additional criteria or exemptions (particularly relating to certificates of serious abuse or neglect, hourly rates, claim and application procedures and other administrative requirements).[226]

While the Regulation Impact Statement provides an indication of what is likely to be included in the subordinate legislation for some of these provisions, it remains difficult to provide a full assessment of the impact of the Bill without further information (either in the Explanatory Memorandum or through the release of drafts of the Rules).

Henry VIII clauses

Another issue of concern is the broad powers given to the Minister under new section 199G of the FA Admin Act (inserted by item 202 of Schedule 1) and item 12 of Schedule 4 of the Bill. Both these provisions are considered ‘Henry VIII clauses’ as they allow the Minister to make rules which modify the effect of primary legislation.

The Explanatory Memorandum states that the power provided for in new section 199G is ‘intended to operate in a purely beneficial way to deal with any anomalies that may arise where an approval is taken to be backdated in time’.[227] Similarly, in regards to the transitional rules, the Explanatory Memorandum states that ‘the power is intended to be relied on to ensure beneficial outcomes for providers, services and individuals who may otherwise be affected by unanticipated scenarios that arise at transition’.[228] However, in both cases proposed provisions do not limit the Minister’s power to only making Rules with ‘beneficial outcomes’. As noted above, the Scrutiny of Bills Committee has sought advice from the Minister as to whether these clauses in the Bill could be drafted to ensure the provisions are only used beneficially.

While there are likely to be issues that arise during the implementation of the new subsidy, the Explanatory Memorandum has not identified any particular areas where such issues are likely to arise or which would not be covered by the extensive provisions for subordinate legislation to specify special circumstances and exceptions. It is also unclear why the transitional rule provisions should operate for two years when any significant transitional issues requiring legislative amendments could be addressed in a much shorter period.

Other provisions

A New Tax System (Family Assistance) Act 1999

Items 1–25 of Schedule 1 amend the list of definitions at subsection 3(1) of the FA Act to remove definitions relevant to CCB and CCR and insert new definitions relevant to the CCS and ACCS.[229]

Item 30 substitutes paragraph 6(1)(a) with new paragraphs 6(1)(a) and 6(1)(aa) which provide for immunisation requirements to the CCS and ACCS. For an individual to be eligible for CCS in respect of a child, or for an approved provider to be eligible to claim ACCS for an ‘at risk’ child, the child must meet the immunisation requirements set out in section 6 of the FA Act. Children must be immunised according to vaccination schedules set out in determinations, or meet one of the exemption categories set out in section 6. ^[230]

Item 33 repeals sections 10 to 18, which contain interpretative provisions relating to:

• whether a service is taken to have provided a session of care to a child even if the child has not physically attended the service
• the work/training/study test for CCB and JETCCFA
• the meaning of ‘school child’ (school children are paid at a lower rate of CCB than non-school children).

The item substitutes a new section 10 which reflects much of the current rules around whether an absence should be treated as a session of care and also adds a basic rule about when a session of care is taken to be provided: that the child is either enrolled for care in the service and attends a session of care or part of it, or, the child does not physically attend the session of care but the service is taken to have provided the session of care under one of the absence rules outlined in subsection 10(2) or 10(3). The absence rules determine whether CCB can be paid for sessions of care in which the child is absent but the service still charges the family a fee. There are limits on how many absences of this kind CCB can be paid for.

The work/training/study test for CCS is to be set out in Part 5 of Schedule 2 of the FA Act, and the school child meaning is to be removed as there is no rate reduction to be applied for school children accessing CCS.

Item 35 repeals Divisions 4 and 5 of Part 3 which set out the eligibility requirements for CCB and CCR.

Items 36 and 37 replace references to CCB and CCR with references to CCS and ACCS at subsection 57GI(1) (Note 2) and section 57GQ so that CCS and ACCS are still payable to eligible recipients even if they lose family assistance payments on security grounds.[231]

Items 44 and 45 repeal items relating to CCB and CCR in Schedule 4 and insert new items to provide for annual indexation of the lower income threshold for CCS, the CCS hourly rate caps and the annual cap for CCS. The other income thresholds for CCS are set as fixed dollar amounts above the lower income thresholds so will be adjusted with the indexation of the lower income threshold. Indexation is linked to movements in the CPI in the year to the December preceding the indexation date (1 July each year). So the indexation occurring on 1 July 2019 will be based on CPI movements between December 2017 and December 2018.

A New Tax System (Family Assistance) (Administration) Act 1999

Items 47–80 make amendments to section 3 of the FA Admin Act to remove or replace definitions relevant to CCB and CCR and insert definitions relevant to the payment of CCS and ACCS.[232]

Item 88 inserts a new Part 3A, which contains the administrative provisions for payment of CCS and ACCS. The provisions offer a simplified arrangement for payment administration when compared to the existing provisions for CCB.

Under new Division 5 of Part 3A, entitlements to CCS and ACCS to eligible individuals are to be paid to providers who then pass on the amount as a fee reduction (or some other form) within 14 days. If the individual does not receive the full entitlement this way, then provision exists for CCS and ACCS to be paid directly to individuals—but this would not normally occur until after CCS reconciliation conditions are met (so as a lump sum at the end of the financial year).

Noteworthy provisions in new Part 3A include the requirement at new subsection 67CB(4) that an individual ceases to be entitled to CCS if they have not met the reconciliation conditions by the end of the first financial year after the relevant year; and cannot again become entitled to that CCS (by meeting the reconciliation conditions after this first deadline) if they do not meet the reconciliation conditions by the end of the second financial year after the relevant year. In effect, this means that debts can be raised for non-entitlement to a payment where an individual fails to meet the reconciliation conditions within a year after the financial year that payment was made. This non-entitlement determination can be reversed if they at least meet the reconciliation conditions within the second financial year after the year the payment was made but, failing to do so, the determination for non-entitlement will stand and a debt raised (unless special circumstances exist for failing to meet the requirements). The reconciliation requirements are set out in new section 103A and essentially require the individual to submit a tax return or, where the person is not required to lodge a tax return, they have notified the Secretary of their adjusted taxable income for the year or the Secretary is satisfied the claimant’s adjusted taxable income for the relevant income year can be worked out without such notification.

Under new section 67EB the CCS fee reduction amount is less than the amount the individual is determined to be entitled to due to the application of a withholding amount. The withholding amount is intended to act as a buffer against overpayments to prevent families incurring significant debts when their actual entitlement is reconciled at the end of the year. The withholding amount is set in new paragraph 67EB(3)(a) at 10 per cent of the individual’s entitlement but new paragraphs 67EB(3)(b) and (c) and new subsection 67EB(4) allow a different percentage to be set in the Minister’s rules or in a determination. The withholding amount reflects existing arrangements for 15 per cent of CCR paid to those in receipt of an above-zero rate of CCB to be withheld from an individual’s fortnightly payment in order to minimise debts arising in the reconciliation process.[233] The withholding amount provisions do not apply to payment of ACCS.

Provider approvals

Item 202 repeals and substitutes Part 8 of the FA Admin Act which provides for the approval of providers of ECEC services for the purposes of CCS and ACCS. The amendments are intended to better align the terminology used in family assistance law and the National Law and to ‘streamline’ the approval process for providers.[234] Currently, most of the specific requirements applying to approval applicants and for continued approval are set out in legislative instruments, particularly the Child Care Benefit (Eligibility of Child Care Services for Approval and Continued Approval) Determination 2000. New Part 8 sets out some minimum requirements within the FA Admin Act rather than legislative instruments, particularly requirements around operating periods and opening hours.

Currently, specific requirements for operating hours for different service types are set out in the Determination. For example, LDC, FDC and IHC services are required to operate for at least eight continuous hours on all normal working days in at least 48 weeks of the year.[235] For OSHC services, the requirements are for each school day where the service provides before or after school care, or for eight continuous hours on at least seven weeks of school holidays for vacation care services.[236] New section 195C of the FA Admin Act will include a minimum operating period for all services of 48 weeks per year or seven weeks per year for OSHC services with no minimum day or hour requirements. The Minister’s rules may prescribe alternative operating periods for certain services and the Secretary may make a determination in special circumstances for a service to operate for periods shorter than the minimum.

Concluding comments

The Bill proposes the most significant changes to child care fee assistance arrangements in more than 15 years, aimed at making the system simpler and more sustainable, while improving affordability for families and increasing work participation incentives. Arguably, the system remains complicated, but the income test and method for calculating payment rates is simpler than under the current system. Most families are expected to see increased levels of assistance. However, due to the components in the design aimed at ensuring fiscal sustainability and boosting work participation incentives, there will be around 200,000–300,000 families worse off under the proposed arrangements.

Overall, the proposed system is an improvement on the existing system and comes with a sizeable amount of additional investment in ECEC. However, the design of the activity test will continue to be controversial, and issues with indexation and administrative arrangements for providing assistance to children at risk of abuse or neglect persist. Some issues may arise or be resolved in yet to be seen subordinate legislation and key components of the Jobs for Families Package (the Child Care Safety Net) are yet to be detailed. With more than a million children attending formal ECEC services, the impact of this package, both the known and unknown components, will be massive. Success will depend upon explaining the choices that have been made, addressing controversial issues and careful implementation.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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