New modelling by the Federal Department of Education and Training has confirmed almost one million families will benefit from the Turnbull Government’s landmark reforms to early childhood education and care.

Minister for Education and Training Simon Birmingham said the Turnbull Government was delivering the biggest reforms to early childhood education and care in almost 40 years.

“We’re overhauling the system to deliver more support for more families,” Minister Birmingham said.

“We’re investing an additional $2.5 billion into the new system for the 1.15 million families using child care, with simplified rebates and better targeted subsidies to families who work the most hours and to families who earn the least.

“These reforms are the result of a Productivity Commission report, input from child care experts and families and three Senate inquiries. We heard loud and clear that families and children are being let down by the current system.”

Minister Birmingham encouraged families to visit the online estimator to see how the changes would impact them when the system came into effect on 2 July 2018.

“By making child care more affordable we’re not only giving children access to more opportunities but we’re also putting work within reach for more families,” Minister Birmingham said.

“Hard working families are going to see immediate relief with the changes we’re making to increase subsidies and abolish the $7,613 rebate cap for the 85 per cent of families using child care on incomes below $185,000. That means many families will no longer have to worry about hitting the rebate cap before the end of the financial year.

“One of our focuses in these reforms is to ensure that child care support, heavily subsidised by the taxpayer, gives preference to those who are working or want to work more.

“A key element of our reforms is a three-step activity test which better aligns hours of subsidised child care with the combined amount of work, study, volunteering or other activity families are undertaking. While there are exemptions for families who legitimately cannot meet the activity test, with as little as eight hours of activity per fortnight that could include volunteering to help children read at a local school, families will be able to access up to 36 hours of subsidised child care each fortnight.

“While this modelling cannot account for behavioural changes, it’s estimated the reforms will encourage more than 230,000 families to return to the workforce or increase their workforce participation.

“Our reforms also feature a $1.2 billion Child Care Safety Net so the most vulnerable children get a strong start, while supporting parents into work. It will do this by providing targeted assistance to vulnerable and at-risk children and their families, as well as supporting early learning and care services in disadvantaged communities to address barriers in accessing child care.

“In addition to our increased investment into child care, the Turnbull Government is also delivering an extra $428 million in 2018 to ensure children in the year before school have access to quality preschool education.

“Our comprehensive approach contrasts to Labor whose increase in the Child Care Rebate from 30 to 50 per cent, without a check on what centres could charge, accelerated fee increases which spiked up to 14 per cent.

“Families should visit to keep up to date with what they need to do to transition to the new child care system.”

Impact of new early childhood education and care system

The Department of Education and Training has updated its projections of the impact of the Turnbull Government’s reforms by factoring in the latest data, indicating almost one million families will benefit, even before behavioural change occurs.

Lower income families

From July next year, families earning $65,710 or less will attract a subsidy rate of 85 per cent, up from around 72 per cent under the current system. The majority of these families will be better off – around 285,000 families will benefit from an average subsidy increase of $1000 per year.

Around 88,000 families will receive reduced hours of supported child care compared to current arrangements, generally because they are not working, studying, volunteering or undertaking recognised activity. These families will still be able to access 12 hours of subsidised child care per week under the $1.2 billion Child Care Safety Net, and can access more hours of subsidised care by doing as little as four hours of activity per week.

Low to middle income families

The subsidy rate tapers from 85 per cent for families earning more than $65,710, down to 50 per cent when income reaches around $170,710. Around 485,000 of these families are expected to be better off, many of whom currently hit the $7,613 Child Care Rebate cap. The Turnbull Government’s reforms abolish the cap for families earning less than $185,710 and increase it to $10,000 for families earning more than that amount.

About 88,000 families in this income bracket are expected to see a net reduction in the amount of fee assistance they receive. For some families, this will be the result of needing to work more to meet the activity test while for others it may be because they pay abnormally high child care fees. These families may look to move their children to services with more competitive fees and the Turnbull Government’s hourly rate cap will help put downward pressure on child care fee growth.

Upper income families

The subsidy rate tapers to 50 per cent for families on incomes of $170,710 to $250,000. It’s expected that 40,000 families in this income bracket will be better off. About 58,000 families will receive a reduced level of support due to , mainly because they are paying very high child care fees and they’re hitting the increased $10,000 cap.

High income families

For families earning $250,000 or more, the subsidy tapers down to 20 per cent at $340,000 and remains at this rate until $350,000. Around 4,000 families in this income bracket will be better off. About 29,000 families will receive reduced support as a combined result of the lower subsidy level, the activity test and because families are paying very high child care fees. The 1,500 families earning between $340,000 and $350,000 will also receive reduced support.

Families with incomes at or above $350,000 will have no Child Care Subsidy entitlement so around 14,000 families will be worse off.

Across all income brackets, around 57,800 families will experience no change in the support they receive.

All income amounts noted above, and the CCS $10,000 cap will be increased by CPI before 2 July 2018.