An extra $1.7 billion for child care will help some. It won't improve affordability for most
- Written by Kate Noble, Education Policy Fellow, Mitchell Institute, Victoria University
The Australian government has announced big changes to its child-care subsidy ahead of the May 11 federal budget.
The changes involve adding A$1.7 billion to the A$10.3 billion a year already budgeted for child care. This spending will particularly benefit families with two or more children under five. It will also help couples with a combined income of more than A$189,390, by removing the subsidy cap that restricts them to a maximum of A$10,560 per child a year.
The government says the changes “deliberately target low and middle income earners, with around half the families set to benefit having a household income under $130,000”.
How will these changes affect you? In the short term, not at all. They won’t affect anyone until July 2022. After that some families will see great benefit.
But our analysis suggests the policy package won’t do much to improve the affordability of child care for many families on low to middle incomes. Nor will it do anything to address systemic problems.
Read more: The child-care sector needs an overhaul, not more tinkering with subsidies and tax deductions
Defining affordability
A lot of the discussion on child-care affordability focuses on per-hour costs and anecdotal evidence based on individual families’ circumstances.
Families’ lived experiences are important, as are average out-of-pocket fees. But without understanding what affordability means, it’s very difficult to pin down how much of an issue child-care affordability actually is.
Australia has tackled the question of affordability in relation to housing and energy costs. Housing stress for lower-income households, for example, is defined as a lower-income household spending a more than 30% of gross income on accommodation.
In Australia, we don’t have a comparable threshold for child-care affordability.
The US Department of Health and Human Services has set an “affordability threshold” for low to middle income families of 7% of take-home income. If they’re spending more than 7%, child care is considered “unaffordable”.
How these measures affect affordability
Increasing subsidies for families with two children under five in child care will make a big difference to families in that situation. But child care will remain unaffordable for many.
The government has stated this package will help 250,000 families. However, there are almost 1 million families using child care, so the majority are unlikely to benefit from these changes.
Our analysis suggests 41% of families with one child aged under five years will continue to spend more than 7% of their disposable income on child care.
Authors: Kate Noble, Education Policy Fellow, Mitchell Institute, Victoria University