Bills Digest No.8, 2021–22
PDF version [676 KB]
Michael Klapdor
Social Policy Section
3 August 2021
Contents
The Bills Digest at a glance
Purpose of the Bill
Structure of the Bill
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
Date introduced: 24
June 2021
House: House of
Representatives
Portfolio: Education,
Skills and Employment
Commencement: Schedule
1 on the earlier of a day fixed by Proclamation or 1 July 2022; Part 1 of
Schedule 2 on the earlier of a day fixed by Proclamation or 11 July 2022;
Part 2 of Schedule 2 on the earlier of a day fixed by Proclamation (but not
before Part 1 of Schedule 2 commences) or 1 July 2023.
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.
All hyperlinks in this Bills Digest are correct as
at August 2021.
The Bills Digest at a glance
The Family Assistance Legislation
Amendment (Child Care Subsidy) Bill 2021 proposes changes to the A New Tax
System (Family Assistance) Act 1999 and the A New Tax System (Family
Assistance) (Administration) Act 1999 to:
- remove
the maximum annual limit (the annual cap) of Child Care Subsidy (CCS) amounts
that can be paid to families with annual adjusted taxable income of over $190,015
and
- increase
the rate of CCS paid to families with multiple children under six years of age
who are eligible for CCS.
The amendments will commence in July 2022 or on an earlier
date fixed by Proclamation.
The measures were announced on 2 May 2021 and are expected
to cost $1.7 billion over the forward estimates.
In 2021–22, the annual cap limits the total amount of CCS
that can be paid to a family with income over $190,015 per annum to $10,655 per
child. Around 18,000 families reach the cap each year. However, the cap can act
as a disincentive to work with some parents or carers choosing to work less in
order to avoid reaching the cap. Removing the cap will remove this disincentive
but the benefit of the change will flow only to families on relatively high
incomes.
An income test determines the rate of CCS paid. The rate
is calculated as a percentage of child care fees charged by providers or an
hourly rate cap set by the government—whichever is lower. Families with a
combined income under $70,015 can receive a CCS rate paid at 85 per cent of the
fee charged or the hourly rate cap. Families with income over this threshold
receive a lower percentage.
Under the proposed changes, an increased rate of subsidy will
be paid to families with more than one child aged under six years of age also
attending child care. The CCS rate for eligible second and subsequent children
will be the percentage amount worked out under the income test plus 30 percentage
points up to a maximum of 95 per cent.
Around 250,000 families with two or more children in child
care are expected to benefit from the enhanced CCS. As at December 2020, there
were 946,190 families with children attending CCS approved child care services.
Families with multiple children in child care can have very
high out-of-pocket costs. In couple‑families, the high costs are a
significant disincentive for the second earner to undertake work, or to work
more than a few days per week. The proposed changes will reduce this
disincentive for some families.
Some issues may arise with regard to the interaction of
the proposed changes and children in early childhood education
(preschool)—children in standalone preschools may make their younger siblings
ineligible for the higher rates of CCS for second and subsequent children.
Purpose of
the Bill
The purpose of the Family Assistance Legislation Amendment
(Child Care Subsidy) Bill 2021 (the Bill) is to amend the A New Tax System
(Family Assistance) Act 1999 (the FA Act) and the A New Tax System
(Family Assistance) (Administration) Act 1999 (the FA Admin Act)
to:
- remove
the maximum annual limit (the annual cap) of Child Care Subsidy (CCS) amounts
that can be paid to families with annual adjusted taxable income of over
$190,015 and
- increase
the rate of CCS paid to families with multiple children under six years of age
who are eligible for CCS.
The amendments will commence in
July 2022 or on an earlier date fixed by Proclamation.
The measures were announced on 2 May 2021, just prior to
the 2021–22 Budget, and are expected to cost $1.7 billion over the forward
estimates.[1]
Structure of
the Bill
The Bill contains two Schedules. Schedule 1 provides for
the removal of the annual cap. Schedule 2 provides for the changes to CCS rates
for families with multiple children under six years of age and is divided into
two Parts. The two Parts provide for the changes to be implemented in two
phases, one commencing from July 2022 and the second from July 2023 (or earlier
dates fixed by Proclamation).
Background
Australian Government funding for child care
The Australian Government provides child care fee
assistance to families and direct assistance to services. Funding support aims
to ‘enable parents and carers to participate in the workforce by making early
childhood education and care affordable and accessible’.[2]
The main program is the Child Care Subsidy (CCS). Estimated expenditure on the
CCS in 2021–22 is $9.5 billion.[3]
Child Care Subsidy
Assistance with the cost of child care fees is delivered
via the CCS.[4]
The CCS system commenced on 2 July 2018 and replaced two previous payments:
Child Care Benefit and Child Care Rebate.[5]
The CCS is means tested with rates of payment based on
family income, hours of care used, type of care used, and parents’ or carers’
level of work, training or study. An activity test determines the number of
hours per fortnight a family is eligible to receive CCS.[6]
A maximum hourly amount payable via the subsidy is set by the Government (the
hourly rate cap) with families receiving a percentage of this rate or the
actual fees charged based on their income.[7]
The payment is paid directly to providers to be delivered to families in the
form of a fee reduction.
The CCS can be paid for Centre Based Care (long day care
and occasional care in a child care centre), Outside School Hours Care, Family
Day Care and In-Home Care.[8]
Different hourly rate caps apply depending on the kind(s) of care used.[9]
Child care services must meet certain conditions to be
approved to pass on the CCS. This includes any regulatory requirements set by
state and territory authorities under the National Quality Framework (NQF).[10]
Additional Child Care Subsidy
Additional Child Care Subsidy (ACCS) provides targeted
assistance to families/children facing barriers to accessing child care
including children at risk of abuse or neglect, grandparent carers, families
facing temporary financial hardship and those on activity-test income support
payments.[11]
Direct support to providers
The Australian Government also provides direct support to
child care services to assist with the establishment and running costs of
services in areas where they may otherwise be unviable, for delivering services
to children with disability or other special needs, and to assist with
professional development.
These supports are primarily provided under the Department
of Education, Skills and Employment’s (DESE’s) Community Child Care Fund
program.[12]
The fund consists of different grant categories:
- open
competitive grants, restricted non-competitive grants (for specified services,
primarily those previously funded under the Budget Based Funded program which
provided assistance to Indigenous, regional and remote services)
- the
Connected Beginnings Program and
- the
Special Circumstances grants (for services that have experienced a natural
disaster or other unexpected event).[13]
In addition, the Inclusion Support Program assists
services to improve their services for children with additional needs,
particularly children with disability.[14]
Committee
consideration
Senate
Selection of Bills Committee
In its report on 24 June 2021, the Senate Selection of
Bills Committee stated that it had deferred consideration of the Bill until its
next meeting.[15]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
raised issues with a number of amendments in the Bill which it considered to be
insufficiently justified Henry VIII clauses. Henry VIII
clauses authorise delegated legislation (such as a legislative instrument) to
make substantive amendments to primary legislation. In this instance, items
10, 11 and 13 of Schedule 2 to the Bill allow the Child Care Subsidy
Minister’s Rules 2017 to prescribe different durations from those set out
in the FA Act and the FA Admin Act which affect an individual’s
eligibility for, or rate of, CCS.
Regarding Henry VIII clauses, the Committee’s report
states:
The committee has significant scrutiny concerns with Henry
VIII-type clauses, as such clauses impact on the level of parliamentary scrutiny
and may subvert the appropriate relationship between the Parliament and the
executive, impacting upon Parliament's constitutional role as
lawmaker-in-chief. Consequently, the committee expects a sound justification to
be included in the explanatory memorandum for the use of any clauses that allow
delegated legislation to modify the operation of primary legislation.[16]
The Committee did not consider the Explanatory Memorandum
as offering sufficient justification for allowing the Minister’s Rules to alter
the primary legislation in these instances. The Committee requested more
detailed advice from the Minister as to why these clauses were considered
necessary and appropriate.[17]
At the time of writing, the Minister’s response had been
received but not yet published by the Committee.[18]
Policy
position of non-government parties/independents
Shadow Minister for Early Childhood Education and
Development Amanda Rishworth has described the proposed changes as a
‘half-hearted child care policy’ which ‘falls abysmally short of what is
required to provide genuine relief for families’.[19]
The Shadow Minister stated that the vast majority of families would not receive
any additional CCS under the proposed changes.[20]
At the time of writing, the other non-government parties
and independents had not commented on the proposed changes.
Position of
major interest groups
Early Childhood Australia, a peak body, welcomes the
additional funding for child care that the proposed changes offer. However, CEO
Samantha Page noted that the changes ‘add complexity to an already complex
system’. Ms Page also stated: ‘we are disappointed that changes are planned to
come in to effect in 2022, meaning many families currently using child care
won’t have any relief’.[21]
The Australian Childcare Alliance, which represents
privately owned child care providers, commended the Government’s proposed
changes. President Paul Mondo stated: ‘The removal of the annual CCS cap for
many families and the increased support for multiple-child families are the
sensible next step in providing greater work options for parents.’[22]
Financial
implications
According to the Explanatory Memorandum, the changes in
the Bill will cost $635.5 million in 2022–23 and $655.9 million in 2023–24.[23]
According to the 2021–22 Budget, the proposed changes will cost $1.7 billion
over five years.[24]
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.[25]
Parliamentary
Joint Committee on Human Rights
At the time of writing, the Parliamentary Joint Committee
on Human Rights was yet to consider the Bill.
Key issues
and provisions
Current Child Care Subsidy
design
CCS eligibility
For a person to be eligible for the CCS, their child must:
- be a
‘Family Tax
Benefit child’[26]
or ‘regular
care child’[27]—this
essentially means that the child must an Australian resident and in the adult’s
care for at least 14 per cent of the time
- be
13 or under and not attending secondary school and
- meet
immunisation requirements.[28]
The claimant, and/or their partner, must:
- meet
residency requirements and
- be
liable to pay for the child care provided by an approved provider.[29]
Some exemptions from these requirements can apply in
special circumstances. For example, Services Australia can waive the residency
requirements in certain circumstances.[30]
Activity test
The activity test determines how many hours of child care
a claimant can receive CCS for. This depends on how much time a single parent
or both partners in a couple/two-parent family undertake recognised activities:
these include paid work, study, training or volunteering.[31]
For couple/two-parent families, the maximum number of hours of subsidised care
a person can receive is calculated using the person with the lowest level of
activity. See Table 1 for a breakdown.
Table 1: Child Care Subsidy
Activity test
|
Hours of recognised activity (per fortnight)
|
Maximum number of hours of CCS (per fortnight)
|
|
8 hours to 16 hours
|
36 hours
|
|
More than 16 hours to 48 hours
|
72 hours
|
|
More than 48 hours
|
100 hours
|
Source: Department of Social Services (DSS), ‘3.5.2.10 CCS
– activity test – general’, Family assistance guide, DSS website, last
reviewed 1 July 2020.
Families that earn $69,390 or less in 2021–22 and do fewer
than eight hours of recognised activities in a fortnight are able to access 24
hours of subsidised care per fortnight.[32]
Families that do not meet the activity test and have a child/children attending
a preschool program provided by a centre-based Long Day Care centre are able to
access 36 hours of subsidised care (however, this only applies to the child
attending the preschool program).[33]
A range of other exemptions are available for families in
certain circumstances (such as disability or care requirements).[34]
Income test
The income test determines the rate of CCS a person will
receive for the hours they are eligible under the activity test. The CCS will
pay a percentage of the child care fee or a percentage of the hourly ‘rate
cap’, whichever is lower. The income test determines the percentage paid. The current
hourly rate caps are set out in Table 2.
Table 2: Child Care Subsidy
hourly rate caps
|
Type of child care
|
Hourly rate cap
|
|
Centre Based Day Care—long
day care and occasional care
|
$12.31 (for below school-aged
children)
|
|
Family Day Care
|
$11.40
|
|
Outside School Hours Care—before
and after school, and vacation care
|
$10.77 (for school-aged
children)
|
|
In Home Care - per family
|
$33.47
|
Source: Services Australia (SA), ‘Child
Care Subsidy: How much you can get: The type of child care you use affects it’,
SA website, last updated 1 July 2021.
The income test assesses the combined adjusted taxable
income of the family. Adjusted taxable income is the sum of taxable income,
adjusted fringe benefits, target foreign income, net investment losses, tax
free pensions or benefits and reportable superannuation contributions less any
child maintenance expenditure.[35]
Table 3 shows the applicable percentage by income range for 2019–20. These
amounts are adjusted based on movements in the Consumer Price Index on
1 July of each year.[36]
Table 3: Child Care Subsidy
income test
|
Combined annual adjusted taxable income
|
Applicable CCS percentage of the actual fee charged or
the relevant hourly rate cap (whichever is lower)
|
|
Equal to or below $70,015
|
85%
|
|
Above $70,015 and below $175,015
|
Decreasing from 85% to 50%
Subsidy decreases by 1% for each $3,000 of family income
|
|
Equal to or above $175,015 and below $254,305
|
50%
|
|
Equal to or above $254,305 and below $344,305
|
Decreasing from 50% to 20%
Subsidy decreases by 1% for each $3,000 of family income
|
|
Equal to or above $344,305 and below $354,305
|
20%
|
|
Equal to or above $354,305
|
0%
|
Source: SA, ‘Child
Care Subsidy: How much you can get: Your income can affect it’, op. cit.
Annual cap
If a family earns more than $190,015 per year (and less
than $354,305) then the total amount of CCS they can receive in 2021–22 is $10,655
per child.[37]
Families earning less than $190,015 per year do not face a cap. Families
earning over $354,305 cannot receive any CCS under the income test.
Additional Child Care Subsidy
Additional Child Care Subsidy (ACCS) provides targeted
assistance to families/children facing barriers to accessing child care.[38]
There are four categories of the ACCS:
- child
wellbeing—aimed primarily at children at risk of abuse or neglect
- grandparent—for
grandparent carers who receive income support (such as a pension) and who are
the principal carer of children
- temporary
financial hardship—for those experiencing significant financial stress due to exceptional
circumstances and
- transition
to work—for those receiving certain income support payments such as Parenting
Payment, Newstart Allowance or Disability Support Pension and who have a Job
Plan (employment pathway plan) in effect.[39]
The child wellbeing, grandparent and temporary financial
hardship categories of ACCS allow eligible families to receive a subsidy equal
to the actual fee charged by their child care service (up to 120 per cent of
the hourly rate cap—see Table 2 above) for up to 100 hours per fortnight and be
exempt from the activity test. The transition to work category provides a
subsidy equal to 95 per cent of the actual fee charged (up to 95 per cent
of the hourly rate cap) with subsidised hours determined by the activity test.[40]
Abolishing
the annual cap
Schedule 1 of the Bill proposes to remove the annual CCS
cap. As set out above, the annual cap limits the total amount of CCS that can
be paid to a family with income over $190,015 per annum. The limit for 2021–22
is $10,655 per child.
Minister for Education and Youth Alan Tudge stated in his
second reading speech for the Bill:
Removing the annual cap also means we will remove a
structural disincentive to take on additional days of work for many families.
This will encourage parents, especially second income earners who are more
often women, to get back to work or to work more.[41]
Cap was not
recommended by Productivity Commission
An annual cap was a feature of the Child Care Rebate, one
of the payments CCS replaced in July 2018. The Productivity Commission’s
2015 report on child care—which recommended replacing the existing payments
with a single payment—considered the use of such caps:
The most direct way to manage the cost to taxpayers is by
capping the hours to which subsidies apply and/or the total subsidy a family
can receive for a child’s use of ECEC [early childhood education and care]
services.
…
Caps, to the extent that they are binding, distort behaviour.
Anecdotal evidence suggests that many families vary their working hours or make
other arrangements to stay under the $7500 CCR [Child Care Rebate] cap, to
avoid paying full fees for ECEC services. As a result, the CCR cap acts to
restrain the hours that the second income earner, or even both parents, are
willing to work.
…
While a cap on the amount of subsidy per child is a simple
way to manage cost to government, it has had unintended consequences,
distorting work and care choices.[42]
The Productivity Commission did not include an annual cap
on the amount of subsidy that could be paid in the payment model it recommended
to Government. The Government’s CCS model was based partly on the Productivity
Commission’s model but included an annual cap. It is unclear why the cap was
included but, as the Productivity Commission found, it is a simple way to
manage expenditure on the CCS.
How many
families are affected by the cap?
The annual cap affects only higher income families. Administrative
data quoted in one media report stated that around 200,000 families
receiving CCS had income above the $189,390 threshold at which the annual cap
applied in 2020–21.[43]
However, only around 18,000 of these families reached the cap each year. Some
families may have chosen to work fewer hours and use less child care in order
to not reach the cap.
Key
provisions – Schedule 1
A New Tax
System (Family Assistance) Act 1999
Item 1 repeals the definition of annual cap
at subsection 3(1) of the FA Act.
Item 4 repeals ‘Step 2’ of the method statement for
working out an amount of CCS at subclause 1(1) of Schedule 2 of the FA
Act. Step 2 refers to working out whether the annual cap applies and the
effect on a person’s rate of CCS if the cap does apply.
Items 3, 5 and 6 amend other steps in the method
statement at subclause 1(1) to remove references to the annual cap.
Item 7 repeals subclauses 1(2) and (3) of Schedule
2 of the FA Act. These subclauses set out the annual cap and how it
applies for members of a couple (where CCS amounts received by each member of a
couple for the same child are added together to determine if the annual cap is
reached).
Items 8–13 amend provisions for the calculation of
ACCS rates (at paragraphs 5(b)–(e) and 7(b)–(e) of Schedule 2 of the FA Act)
to remove references to the annual cap and the steps in the method statement
relating to the annual cap.
Items 14 and 15 repeal the relevant provisions in
Schedule 4 of the FA Act that provide for the annual indexation of the
CCS annual cap amount.
A New Tax
System (Family Assistance) (Administration) Act 1999
Items 17 and 18 remove a reference to the annual
cap at paragraph 67CE(1)(b) of the FA Admin Act, which
sets out when the Secretary of the Department of Education, Skills and
Employment must notify a CCS recipient about a change in their entitlement.
Item 19 amends subsection 105E(6) which sets
out the process for reconciling CCS amounts at the end of the financial year
for individuals who were members of a couple for part of that year. The
amendments remove a reference to paragraph 1(3)(b) of Schedule 2 of the FA
Act which will be repealed by item 7.
Increased
CCS rate for two or more children in child care
The ‘enhanced’ CCS measure announced in May 2021 will
provide an increased rate of subsidy for families with more than one child aged
under six years of age who are also attending child care. The CCS rate for
eligible second and subsequent children will be the percentage amount worked
out under the income test (Table 3) plus 30 percentage points up to a maximum
of 95 per cent. For example, where the second child would be eligible for a CCS
rate of 50 per cent of the fee paid or hourly cap under the current system,
they will receive a CCS rate of 80 per cent of the fee paid or hourly cap under
the proposed changes.
The rate for the first child aged under six in child care
will stay the same. Where two or more children are not aged under six years—for
example, one child aged three and one child aged six—the family will not be
eligible for the higher rate of CCS. Families with income over the higher
income limit (currently $354,305) will remain ineligible for any CCS for any
children.
Additional
complexity
The proposed changes will add complexity to the child care
fee assistance system with different payment rates depending on the age and
number of children in a family, on top of the existing income and activity
tests. One of the key reasons for the introduction of the CCS was that it was
simpler than the previous fee assistance system. Then Social Services
Minister, Scott Morrison, stated in 2015 that the child care sector and
families had ‘screamed’ at the Government: ‘for goodness sake make this
simpler, it is far too complicated’.[44]
Contrast
with Labor child care policy
The changes in the Bill contrast with the Australian Labor
Party’s proposed changes to the CCS’s design.[45]
The two parties’ policies offer different approaches to improving child care
affordability. Labor’s policy, announced in Opposition Leader Anthony
Albanese’s 2020 Budget in reply speech, proposed to increase the maximum CCS
rate to 90 per cent of the fee charged or the hourly rate cap (whichever was
lower).[46]
The rate would gradually reduce by one percentage point for every $5,000 of
family income above $80,000.[47]
Labor’s CCS design does not have an upper income limit or an annual cap, but
the CCS rate would reach zero for families with an annual income of around
$530,000.[48]
Labor’s proposal would cost an estimated $6.2 billion over
four years (compared to the $1.7 billion cost over the forward estimates for
the changes proposed by the Government).[49]
Figure 1 compares the current CCS income test design with
the Government’s enhanced CCS proposal and Labor’s proposal.
Figure 1:
current and enhanced Child Care Subsidy compared with Labor’s design
Sources: Parliamentary Library estimates based on SA, ‘Child
Care Subsidy: How much you can get: Your income can affect it’, op. cit.;
DESE, ‘Enhanced
Child Care Subsidy’, op. cit.; Australian Labor Party (ALP), ‘Labor's
cheaper child care plan’, op. cit.
Australian
Greens proposal
The Australian Greens have called for free child care,[50]
similar to the arrangements in place from 6 April to 12 July 2020 under
the COVID-19 Early Childhood Education and Care Relief Package.[51]
Who will
benefit?
According to the Department of Education, Skills and
Employment (DESE), around 250,000 families with two or more children in child
care are expected to benefit from the enhanced CCS. Of these, around 41,700
have three or more children under the age of six.[52]
As at December 2020, there were 946,190 families with children attending CCS
approved child care services. Of those attending child care services, 904,710
families with 1,266,880 children had their eligibility for CCS assessed.[53]
Families with multiple children in child care can have
very high out-of-pocket costs. In couple‑families, the high costs are a
significant disincentive for the second earner to undertake work, or to work
more than a few days per week. The combined effect of higher child care fees,
lower CCS benefits, lower Family Tax Benefit payments and income tax can mean
that there is little or no increase in family income when a second earner
undertakes more work. Research by the Grattan Institute suggests some
second-earners in families with two children in child care lose more than
80%—and sometimes 100%—of their additional earnings moving from three days of
work a week to four or five days.[54]
The Grattan Institute found the budget measures will reduce these disincentives
for many families but some will still gain only a small benefit from additional
work (Figure 2).[55]
Figure 2:
Grattan Institute comparison of workforce disincentives for second earners
Notes:
Primary earner works full time, 2 children requiring care. Each day of work for
second earner results in 2 days of approved care, costing $110 each.
Source: D Wood, K Griffiths and O Emslie, ‘The
Coalition’s child-care subsidy plan: how it works, and what it means for
families and the economy’, The Conversation, 3 May 2021.
Figure 3 and Table 4 compare the current, enhanced and
Labor CCS models for a family with two children aged under six years in child
care for four days a week. The enhanced and Labor CCS model provide the same
increase in assistance for such a family where their income is under $70,000. A
two-child family with income between $70,000 and $205,000 would be slightly
better off under the Labor model, while those with income between $205,000 and
$329,000 would be better off under the enhanced CCS. The Labor model does not
have an income limit so the small number of families with very high incomes
(around two per cent of families according to officials from the DESE) are
better off under this design compared to the current and enhanced CCS models.[56]
For families with three or more children aged under six
years in care, the enhanced CCS model offers a higher level of assistance to
eligible families than the Labor CCS.
Figure 3: Child
Care Subsidy rates per week under different models, family with two children
aged <6 years in care
Sources: Parliamentary Library estimates based on SA, ‘Child
Care Subsidy: How much you can get: Your income can affect it’, op. cit.;
DESE, ‘Enhanced
Child Care Subsidy’, op. cit.; ALP, ‘Labor’s
Cheaper Child Care Plan’, op. cit.
Table 4: weekly
out-of-pocket costs of child care under different CCS models, family with two
children aged <6 years in care
|
Annual family income ($)
|
Current CCS ($)
|
Enhanced CCS ($)
|
Labor CCS ($)
|
|
50,000
|
$126.00
|
$84.00
|
$84.00
|
|
100,000
|
$209.96
|
$125.98
|
$117.60
|
|
150,000
|
$349.96
|
$223.96
|
$201.60
|
|
200,000
|
$430.19
|
$294.00
|
$285.60
|
|
250,000
|
$430.19
|
$294.00
|
$369.60
|
Notes: Based on
a fee of $10.50 per hour per child, ten hours of care per day, for four days a
week.
Sources: Parliamentary Library estimates based on SA, ‘Child
Care Subsidy: How much you can get: Your income can affect it’, op. cit.;
DESE, ‘Enhanced
Child Care Subsidy’, op. cit.; ALP, ‘Labor’s
Cheaper Child Care Plan’, op. cit.
Interaction
with early childhood education
A key issue for the proposed changes will be how it
interacts with early childhood education (preschool). Currently, children in
standalone preschools are not eligible for CCS as these preschools are not
considered ‘approved’ providers.[57] Preschool
programs delivered through centre-based day care services are eligible. In
2019, around 87.7 per cent of children attended preschool in the relevant
state-specific year before primary school (generally, at age four) and 40.7 per
cent of children attended a program within centre-based day care.[58]
Those children in preschool who are ineligible for CCS may
make their siblings ineligible for the higher rate of CCS as the enhanced CCS
is only available where multiple children under the age of six attend child
care services. This will create an incentive for families to move children from
standalone preschools to preschool programs within centre-based child care
services.
Key
provisions – Schedule 2
Schedule 2 is divided into two phases. Phase 1 is to
commence on a date fixed by proclamation or on 11 July 2022, whichever
occurs first. Phase 2 must commence after Phase 1, either on a date to be fixed
by proclamation or 1 July 2023, whichever occurs first.
Phase 1 is a ‘transitional phase’ where families with two
children under the age of six can receive the higher rate of CCS, with CCS
eligibility for the older child ceasing after 26 consecutive weeks of no
sessions of care being provided in an approved child care service (or
immediately if the Secretary considers the CCS recipient does not intend for
the child to enrol or attend a service).[59]
Phase 2 will be the ongoing arrangement with CCS eligibility for the older
child ceasing after 14 consecutive weeks of no sessions of care being
provided in an approved child care service.[60]
In his second reading speech, Minister Tudge stated: ‘A two-phased approach
will ensure Services Australia has time to complete the necessary system build
to give effect to the government's commitment without jeopardising
implementation at the earliest possible date’.[61]
The proposed amendments in Phase 2 offer only a minor change to the criteria so
it is unclear how they would affect the development of the ICT systems or
implementation dates.
Phase 1: A
New Tax System (Family Assistance) Act 1999
Item 2 inserts the new term higher rate child
into the list of definitions at subsection 3(1). The definition refers to the
meaning of the term given in proposed subclause 3B(1) of Schedule 2
(inserted by item 7).
Item 3 amends subclause 2(1) of Schedule 2—which
sets out how to use the applicable percentage worked out under the income test
to determine an individual’s hourly rate of CCS—to refer to the applicable
percentage being worked out at clause 3 and proposed clause 3A of
Schedule 2. Proposed clause 3A is inserted by item 7.
Item 6 amends subclause 3(1) of Schedule 2 to state
that an individual’s applicable percentage for a session of care is the amount
worked out in the table at subclause 3(1)—that is, according to the income test
set out at Table 3—‘unless that percentage is determined in accordance with
clause 3A’.
Item 7 inserts proposed clauses 3A and 3B into
Schedule 2 of the FA Act. Proposed clause 3A is used to determine
the applicable percentage for sessions of care provided to a child considered a
higher rate child (this clause does not apply in working out CCS
rates for in-home care). For higher rate children, the applicable percentages
at clause 3 are increased by 30 percentage points except for item 1 of the
table (the highest rate) which is increased from 85 per cent to 95 per cent.
Table 5 shows the applicable percentage as currently applied and the proposed higher
rate child applicable percentages—the income thresholds shown are for
the 2021–22 income year.
Table 5:
Applicable CCS percentages by income for standard rate and ‘higher rate’
children
|
Combined annual adjusted taxable income
|
Standard rate—applicable CCS percentage of the actual
fee charged or the relevant hourly rate cap (whichever is lower)
|
Higher rate child—applicable
CCS percentage of the actual fee charged or the relevant hourly rate cap
(whichever is lower)
|
|
Equal to or below the lower income threshold (currently $70,015)
|
85%
|
95%
|
|
Above the lower income threshold ($70,015) and below
second income threshold (currently $175,015)
|
Decreasing from 85% to 50%
Subsidy decreases by 1% for each $3,000 of family income
|
Decreasing from 95% to 80%
Subsidy decreases by 1% for each $3,000 of family income
|
|
Equal to or above the second income threshold ($175,015)
and below the third income threshold (currently $254,305)
|
50%
|
80%
|
|
Equal to or above the third income threshold ($254,305)
and below the fourth income threshold (currently $344,305)
|
Decreasing from 50% to 20%
Subsidy decreases by 1% for each $3,000 of family income
|
Decreasing from 80% to 50%
Subsidy decreases by 1% for each $3,000 of family income
|
|
Equal to or above the fourth income threshold ($344,305)
and below the upper income threshold (currently $354,305)
|
20%
|
50%
|
|
Equal to or above the upper income threshold ($354,305).
|
0%
|
0%
|
Source: Current income test thresholds from Source: SA, ‘Child
Care Subsidy: How much you can get: Your income can affect it’, op. cit.
Proposed clause 3B sets out the criteria for who is
considered a higher rate child:
- the
child is aged under six years of age on the first Monday of the fortnight CCS
is being claimed for
- the
parent/carer or their partner is eligible to claim CCS for the child
- there
is another child under six years of age whom the parent/carer or their partner
is eligible to claim CCS for, and
- the
other child is older, or was born on the same day (for example, twins) and is
ranked higher under a determination made by the Secretary.
Where an individual is claiming CCS for two or more children
aged under six years who were born on the same day, the Secretary of the
Department of Education, Skills and Employment (or a delegate such as Services
Australia) must rank them to determine the higher rate child(ren). The Child Care Subsidy
Minister’s Rules 2017 may provide a process for determining the ranking.
Phase 1: A
New Tax System (Family Assistance) (Administration) Act 1999
Paragraph 67CC(2)(b) of the FA Admin Act currently
provides that an individual is no longer eligible for CCS (via a fee reduction
provided by the child care provider) if the Secretary has made determinations
under subsection 67CD(8), for at least 52 weeks. Subsection 67CD(8) provides
that the DESE Secretary (or a delegate such as Services Australia) must make a
determination that an individual is not entitled to be paid CCS or ACCS if the
Secretary is satisfied that they have not met the conditions of entitlement set
out at subsections 67CD(2), (3), (4) and (6). Such conditions include being
eligible for CCS or ACCS under the FA Act, meeting information
reporting requirements and being eligible for a CCS rate more than nil. This
essentially means that an individual’s eligibility for CCS expires if they have
not met certain conditions for 52 consecutive weeks.
Item 10 repeals and substitutes paragraph
67CC(2)(b) of the FA Admin Act so that the relevant period is 52 weeks,
or a different number of weeks prescribed by the Minister’s rules.
Item 11 adds proposed paragraphs 67CC(2)(d) and
(e) which provide that an individual is no longer eligible for CCS via a
fee reduction where
- there
has been no report from a provider indicating that a session of care has been
provided to a child for a period of at least 26 weeks or another period
prescribed by the Minister’s rules or
- the
DESE Secretary (or their delegate) is satisfied that the individual does not
intend that the child be enrolled for care by a child care service or attend
any sessions of care provided by the child care service.
It is unclear why paragraph
67CC(2)(b) is being amended to allow the Minister’s Rules to prescribe a period
other than 52 weeks. The Explanatory Memorandum does not provide a reason other
than the period of time in paragraph 67CC(2)(b) can ‘be aligned with any future
changes to other cessation of CCS eligibility periods’.[62]
In relation to the 26-week period where no sessions of
care have been reported (proposed paragraph 67CC(2)(d)), the Explanatory
Memorandum states: ‘The ability to change the period of weeks under new
paragraph 67CC(2)(d) is required to ensure any emerging issues following
commencement of Schedule 2, Part 1 [the Phase 1 amendments], can be addressed.
The appropriateness of the 26-week period will be considered as part of ongoing
monitoring and compliance work for the measure’.[63]
It is unclear on what basis the Secretary will determine
that an individual does not intend for a child to be enrolled or attend a
service.
These amendments may be aimed at ensuring families cannot
claim the higher rate CCS by claiming CCS for an older child but not actually
intending for the older child to attend child care (or where the older child
has not attended child care for a long time). However, this rationale is not
explicitly set out in the explanatory materials.
As discussed above, the Senate Scrutiny of Bills Committee
raised concerns with these Henry VIII clauses and did not consider the
Explanatory Memorandum provided sufficient justification for allowing delegated
legislation to alter the operation of primary legislation.[64]
Phase 2: A
New Tax System (Family Assistance) Act 1999
Item 13 is a Phase 2 amendment (commencing after
the other amendments) and adds an additional higher rate child
criterion. The criterion, at proposed paragraph 3B(1)(d) of Schedule 2
requires a session of care report to have been made by a child care provider in
relation to the older child for at least one week in the period of 14 weeks
ending at the end of the relevant CCS fortnight, or one week in a period to be
prescribed by the Minister’s Rules.
The proposed criterion relates to the amendments to the FA
Admin Act discussed in the previous section and appears to be aimed
at stopping some families from claiming the higher CCS rate when an eligible
older child is not or will not be attending child care. The Scrutiny of Bills
Committee also raised concerns in relation to this amendment as it constitutes
a Henry VIII clause.[65]
[1]. J
Frydenberg (Treasurer), M Payne (Minister for Women), A Tudge (Minister for
Education and Youth), J Hume (Minister for Superannuation, Financial Services
and the Digital Economy and Minister for Women’s Economic Security), Making
child care more affordable and boosting workforce participation, media
release, 2 May 2021.
[2]. Department
of Education, Skills and Employment (DESE), ‘Early
Childhood: Providing child care’, DESE website, last modified 30 April
2021.
[3]. Australian
Government, Portfolio
budget statements 2021–22: budget related paper no. 1.4: Education, Skills and
Employment Portfolio, p. 30.
[4]. DESE,
‘Child Care Subsidy’,
DESE website, last modified 4 May 2021.
[5]. For
background information on the previous payments and to the introduction of the
Child Care Subsidy, see M Klapdor, Family
Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill
2016, Bills digest, 39, 2016–17, Parliamentary Library, Canberra, 2016.
[6]. Department
of Social Services (DSS), ‘3.5.2.10 CCS
– activity test – general’, Family assistance guide, DSS website,
last reviewed 1 July 2020.
[7]. DSS,
‘3.5.3 CCS –
hourly rate caps’, Family assistance guide, DSS website, last
reviewed 1 July 2020; DSS, ‘3.5.1 CCS –
combined annual ATI’, Family assistance guide, DSS website, last
reviewed 1 July 2020.
[8]. DESE,
‘Child
care service types’, DESE website, last modified on 13 July 2021.
[9]. Ibid.
[10]. Australian
Children’s Education & Care Quality Authority (ACECQA), ‘National Quality
Framework’, ACECQA website, n.d.
[11]. DESE,
‘Additional
Child Care Subsidy’, Child care provider handbook: Appendix B, DESE,
13 November2020.
[12]. DESE,
‘Community
Child Care Fund’, DESE website, last modified on 10 December 2020.
[13]. Ibid.
[14]. DESE,
‘Inclusion
Support Program’, DESE website, last modified 1 December 2020.
[15]. Senate
Selection of Bills Committee, Report,
7, 2021, The Senate, Canberra, 24 June 2021.
[16]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 10, 2021, The Senate, 13 July 2021, p. 5.
[17]. Ibid.
[18]. Senate
Standing Committee for the Scrutiny of Bills, ‘Ministerial
responses’, The Senate, Canberra.
[19]. A Rishworth
(Shadow Minister for Early Childhood Education and Development), Expensive
child care stopping Australians from working, media release, 7 July
2021.
[20]. Ibid.
[21]. Early
Childhood Australia, Early
Childhood Australia welcomes further investment in early education,
media release, 2 May 2021.
[22]. Australian
Childcare Alliance, Australia's
peak body for early learning (child care) services welcomes the reforms to the
Child Care Subsidy improving affordability for many families, media
release, 2 May 2021.
[23]. Explanatory
Memorandum, Family Assistance Legislation Amendment (Child Care Subsidy)
Bill 2021, p. 3.
[24]. Australian
Government, Budget
measures: budget paper no. 2: 2021–22, p. 81.
[25]. Explanatory
Memorandum, op. cit., p. 4.
[26]. DSS,
‘2.1.1 FTB
child and regular care child’, Family assistance guide, DSS website,
last reviewed 1 July 2021.
[27]. DSS,
‘2.1.1.13
Regular care child’, Family assistance guide, DSS website, last
reviewed 20 March 2020.
[28]. DSS,
‘2.6.1 CCS
eligibility’, Family assistance guide, DSS website, last reviewed 2
July 2018.
[29]. Ibid.
[30]. DSS,
‘2.6.2.20
CCS – Australian residency exceptions’, Family assistance guide, DSS
website, last reviewed 2 July 2018.
[31]. DSS,
‘3.5.2.10
CCS – activity test – general’, Family assistance guide, DSS
website, last reviewed 1 July 2020.
[32]. SA,
‘Activity
level and subsidised care’, SA website, last updated 5 April 2021.
[33]. DSS,
‘3.5.2.20
CCS – activity test exemptions’, Family assistance guide, DSS
website, last reviewed 20 March 2020.
[34]. Ibid.
[35]. DSS,
‘1.1.A.20
Adjusted taxable income’, Family assistance guide, DSS website, last
reviewed 10 August 2020.
[36]. DSS,
‘3.5 CCS
entitlement’, Family assistance guide, DSS website, last reviewed 2
July 2018.
[37]. SA,
‘Child
Care Subsidy: How much you can get: Your income can affect it’, SA website,
last reviewed 1 July 2021.
[38]. DESE,
‘Additional
Child Care Subsidy’, Child care provider handbook: Appendix B, op.
cit.
[39]. Ibid.
[40]. Ibid.
[41]. A
Tudge, ‘Second
reading speech: Family Assistance Legislation Amendment (Child Care Subsidy)
Bill 2021’, House of Representatives, Debates, [proof], 24 June
2021, p. 3.
[42]. Productivity
Commission (PC), Childcare
and early childhood learning, report, 73, vol. 2, PC, Canberra, 2014,
p. 582.
[43]. K
Curtis, ‘Parents
could work more after care cap axed’, Sydney Morning Herald, 6 May
2021 p. 7.
[44]. S
Morrison (Minister for Social Services), Address
to the Australian Childcare Alliance QLD National Conference, Brisbane,
media release, 18 July 2015.
[45]. Australian
Labor Party (ALP), ‘Labor’s
cheaper child care plan’, ALP website, n.d.
[46]. A
Albanese, ‘Second
reading speech: Appropriation Bill (No. 1) 2020–2021’, House of
Representatives, Debates, 8 October 2020, p. 7148.
[47]. Derived
from information in ALP, ‘Labor’s
cheaper child care plan’, op. cit.
[48]. Ibid.
[49]. D
Crowe, ‘Childcare
at heart of Labor budget’, Sydney Morning Herald, 9 October 2020;
Frydenberg et al, Making
child care more affordable and boosting workforce participation, op.
cit.
[50]. M
Faruqi, Free
and universal early learning, media release, 9 October 2020.
[51]. M
Klapdor, Family
Assistance Legislation Amendment (Early Childhood Education and Care
Coronavirus Response and Other Measures) Bill 2021, Bills digest, 61,
2020–21, Parliamentary Library, Canberra, 5 May 2021, pp. 7–9.
[52]. Senate
Education and Employment Legislation Committee, Answers to Questions on Notice,
Education, Skills and Employment Portfolio, Budget Estimates 2021–22, Question
no. SQ21-000446.
[53]. DESE, ‘Child
Care in Australia report December quarter 2020’, DESE website, last
modified 10 May 2021.
[54]. D
Wood, K Griffiths and O Emslie, ‘The
Coalition’s child-care subsidy plan: how it works, and what it means for
families and the economy’, The Conversation, 3 May 2021.
[55]. Ibid.
[56]. Senate
Education and Employment Legislation Committee, Official
committee Hansard, 28 October 2020, p. 33.
[57]. DSS,
‘1.1.A.90
Approved provider, approved child care service, approved child care (CCS)’,
Family Assistance Guide, DSS website, last reviewed 2 July 2018.
[58]. Steering
Committee for the Review of Government Service Provision, Report
on Government Services 2021: Part B: child care, education and training: 3
Early childhood education and care, Table 3A.17, Productivity
Commission, Canberra, 2021.
[59]. Explanatory
Memorandum, op. cit., p. 2.
[60]. Ibid.,
p. 3.
[61]. A
Tudge, ‘Second
reading speech: Family Assistance Legislation Amendment (Child Care Subsidy)
Bill 2021’, House of Representatives, Debates, [proof], 24 June
2021, p. 3.
[62]. Explanatory
Memorandum, op. cit., p. 14.
[63]. Ibid.
[64]. Senate
Scrutiny of Bills Committee, op. cit., p. 5.
[65]. Ibid.,
p. 4.
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