(Cth) Increase the Child Care Subsidy Rate to 100% for Low‑Income Families

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Author: Akash Merai | Publish date: 3/2/2026

• P: Low-income families eligible for the maximum Child Care Subsidy (CCS) rate must still pay a co‑payment. 

• S: The Minister for Early Childhood Education should amend Section 3(1), Schedule 2 of the A New Tax System (Family Assistance) Act 1999 (Cth) to omit ‘90%’ and substitute it with ‘100%’ in Item 1 of the applicable percentage table to set the maximum Child Care Subsidy rate at 100%.

  
  

Problem Identification: 

Section 3(1) of Schedule 2 of the A New Tax System (Family Assistance) Act 1999 (Cth) states that families with adjusted taxable income at or below the lower income threshold receive a maximum Child Care Subsidy (CCS) rate of 90% of the hourly rate cap.

It is known that this means low-income families must pay a 10% co-payment on childcare fees. The Productivity Commission has found that this creates ‘higher out-of-pocket expenses than families with larger incomes’, reduces workforce participation incentives and acts as a barrier to accessing early childhood education and care (ECEC).

Context: 

The CCS refers to a government payment that helps families with the cost of child care by covering a percentage of approved fees calculated based on an hourly rate cap. The CCS is based on a family's income, participation levels and type of care used. Further, the CCS is known to generally apply from birth to age 13, with limited options up to age 18. According to Services Australia, CCS settings provide a baseline entitlement of 72 subsidised hours per fortnight, regardless of parents' participation levels; however, co‑payments continue to apply.

A co-payment refers to the gap between a child care provider's fee and the amount covered by a family's CCS. According to the Department of Education (DOE), families pay the gap directly to approved providers, including Family Day Care and In Home Care services.

Services Australia has stated that a family receiving a 90% CCS rate is required to pay the remaining 10% of the capped hourly rate each week as their co-payment. For example, according to Aspire, an early education and kindergarten provider in VIC, a child attending care one day per week at a daily fee of $170 would still need to pay $24.53 per week out-of-pocket.

Low-income families refer to families earning under $85,279 per year under the CCS. The Productivity Commission’s 2024 final report into ECEC has also found that childcare remained least affordable for low-income families.

Arguments:

The Productivity Commission has highlighted that ‘affordability is a substantial barrier to ECEC access.’ The Australian Competition and Consumer Commission (ACCC) has emphasised that ‘cost and availability (rather than quality) are driving factors of parents' and guardians' decisions around centre based day care, particularly where households have low incomes’. The ACCC has further reported that parents from ‘areas of lowest socio-economic advantage were the most likely to switch services because of fee increases’. 

The Productivity Commission has emphasised that high out-of-pocket childcare costs create effective marginal tax rates that make additional work economically unviable for low-income families. The Productivity Commission has found that 328,000 parents ‘nominated ECEC-related barriers, including cost’ as ‘a barrier to work’. According to the Grattan Institute, childcare costs can contribute towards parents working additional shifts for ‘no or virtually no take-home pay’.

Thrive by Five has emphasised that ‘the Child Care Subsidy is driving inequality in access to early childhood education and care’. The Mitchell Institute, a leading education and health policy think tank, has found that ‘while low and medium income families receive the greatest subsidies, these families can afford the costs the least because of their lower household disposable incomes.’ The Australian Childcare Alliance has highlighted that ‘50% of low income households spend between 5% to 21% of their disposable income on childcare, compared to 2% to 9% for households with the highest income.’

The Grattan Institute has argued that 'the budget impact would be partially offset by additional tax takings from increased workforce participation.’ Dr Deborah Brennan has highlighted that increasing the subsidy rate for lower income families adds an ‘additional $4.7 billion’ budget cost to the subsidy per year. However, the Grattan Institute has estimated that a subsidy boost option 'would deliver potential economic benefits of about $11 billion a year’.

Advice/Solution Identification:

The Early Learning and Care Council of Australia, Goodstart Early Learning and The Parenthood have all called for increasing the maximum CCS rate to 100% of the hourly rate cap for low-income families. The Parenthood has emphasised that this would help to remove ‘costs as a barrier’ for low-income households ‘to access ECEC’. Goodstart Early Learning has further highlighted that this would address childcare costs as a major barrier to workforce participation for many parents.

Precedent:

There is international precedent for providing 100% childcare subsidies to low income families. In South Korea, the government provides 100% subsidised childcare for children from low-income families aged 0-2 and 5.

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Public Support: 

1. Early Learning and Care Council of Australia (ELACCA)

2. The Parenthood

3. Goodstart Early Learning

4. Australian Childcare Alliance

This list reflects publicly stated positions and should not necessarily be taken as endorsement of this specific brief.

News Coverage:

• ABC News - "Productivity Commission recommends free child care for low-income families, but rejects Labor’s universal care model". The commission's draft report recommended raising the Child Care Subsidy to 100% for the lowest-income families to address workforce participation barriers and cost-of-living pressures. By: Jake Evans | 18 Sep 2024 - Read the article here.

• The Conversation - "The Productivity Commission wants all Australian kids to get 3 days a week of childcare - but it won’t be until 2026". The Productivity Commission's final report recommended raising the Child Care Subsidy from 90% to 100% for families earning under $80,000, addressing the gap fee burden that kept low-income families reliant on parental co-payments despite maximum subsidies.​ By: Melissa Tham | 18 Sep 2024 - Read the article here.

• ACCC - "Changes proposed to make childcare affordable and accessible for all families". After a year-long inquiry into childcare markets, the ACCC found that despite the Cheaper Child Care reforms of July 2023 improving affordability immediately, these gains risk being eroded by provider fee increases over time, with low-income households continuing to spend the largest proportion of their disposable income on childcare. By: ACCC | 29 Jan 2024 - Read the article here.

• Thrive by Five (Minderoo Foundation) - "Childcare Costs Continue Rising, New Data Reveals, as Campaigners Call for End to Activity Test". Productivity Commission data has illustrated that out-of-pocket childcare costs continued rising despite government subsidies, with evidence showing a downward trend in participation among low income families and the proportion of disposable income spent on early learning increasing even for median-income households. By: Thrive by Five | 08 Feb 2024 - Read the article here.

Where to go to learn more: 

1. (2024) Productivity Commission Final Report: A path to universal early childhood education and care - This inquiry report served as the foundational policy document for the proposal, outlining detailed recommendations to raise the Child Care Subsidy to 100% for families earning under $80,000, including comprehensive cost modelling and implementation pathways for building a universal early childhood education system. Read the full report here.

2. (March quarter 2025) Department of Education | Child Care Subsidy data report - Official government quarterly reporting on CCS uptake, participation rates, and subsidy distribution across income bands and service types, providing administrative data on how the maximum rate is utilised by low-income families. Access the report here.

3. (2023) Senate Inquiry into Work and Care - This inquiry examined how childcare costs and availability function as barriers to workforce participation, with evidence showing particular impact on low-income and disadvantaged families. Access the inquiry materials here.

4. (2024) ACCC Childcare Inquiry Final Report - The ACCC's market investigation provided evidence for the rationale of establishing subsidy reform, finding that childcare markets are not delivering on affordability objectives and that low income households spend the largest share of disposable income on childcare despite existing subsidies. Read the full report here.

5. A New Tax System (Family Assistance) Act 1999 (Cth) - Read the full Act here.

Human Perspective: 

Trigger Warning: This section contains themes of financial stress and anxiety.

Monica is a single mother working to support herself and her 3-year-old daughter, Isla. For months, she has relied on childcare so she can keep her shifts at the clinic, but even with the maximum Child Care Subsidy at 90%, the remaining co-payment has kept her constantly on edge. Each week, the direct debit for childcare has forced her to choose which bill to delay, stretching already tight finances and making her question whether working has really left her any better off. Over time, the stress has made it harder for her to sleep, concentrate at work, and be present with Isla in the evenings. If Monica could no longer afford childcare and had to take time off work to care for Isla, her reduced hours and declining work performance would put her job at risk. She worries that these issues will mean Isla misses out on stable early learning, routines, and socialisation that other children her age receive.

To protect the anonymity of those involved, this is a fictionalised account drawn from an amalgamation of real-life stories, experiences and testimonials gathered during the research process for this brief. Any resemblance to actual individuals is purely coincidental.

Conflict of interest/acknowledgment statement: 

The Australian Childcare Alliance (ACA) provided endorsement via email communication with FORE on 2/02/26.

Support 

If your organisation would like to add your support to this paper or suggest amendments, please email Info@foreaustralia.com. 

Disclaimers

Please review all FORE disclaimers here.

Reference list: 

Australian Childcare Alliance. (2023, Oct). Submission to ACCC Childcare Inquiry: Response to September 2023 ACCC 2nd Interim Report. https://www.accc.gov.au/system/files/Submission%2030,%20Australian%20Childcare%20Alliance_Redacted.pdf

Australian Competition and Consumer Commission (ACCC). (2023, Dec). Childcare inquiry: Final report. https://www.agec.org.au/wp-content/uploads/2024/02/2023-12-31-ACCC-Enquiry-into-Childcare-Final-Report.pdf 

Brennan, D. (2024, December 9). Why there’s more to universal childcare than affordability. Productivity Commission. https://www.pc.gov.au/media-speeches/articles/universal-childcare/

Department of Education. (2026, January 7). Child Care Subsidy. Australian Government. https://www.education.gov.au/early-childhood/providers/child-care-subsidy

Department of Social Services. (2026). 3.5.3 CCS - hourly rate caps. In Family Assistance Guide. https://guides.dss.gov.au/family-assistance-guide/3/5/3

Department of Education. (2025, July 30). Collecting gap fees. Australian Government. https://www.education.gov.au/early-childhood/providers/howto/manage-payments-fees/gap-fees

Department of Education. (2025, June 17). Additional Child Care Subsidy. Australian Government. https://www.education.gov.au/early-childhood/providers/additional-child-care-subsidy

Early Learning and Care Council of Australia. (2024, Feb). ELACCA submission in response to Productivity Commission draft report. https://assets.pc.gov.au/__data/assets/pdf_file/0008/379106/sub299-childhood.pdf

Early Learning Management. (2024). Early Childhood Education and Care – Balancing Family and Work. https://elm.net.au/early-childhood-education-and-care-impact-australia/

Jeong-yoon, C. (2025, July 29). South Korea aims to make preschool free for all children by 2027. The Korea Herald. https://www.koreaherald.com/article/10542359

Noble, K. & Hurley, P. (2021). Counting the cost to families: Assessing childcare affordability in Australia. Mitchell Institute, Victoria University.  https://www.vu.edu.au/sites/default/files/mitchell-institute-assessing-childcare-affordability-in-Australia.pdf

Productivity Commission. (2024). A path to universal early childhood education and care. Inquiry report no. 106, volume 1. https://assets.pc.gov.au/inquiries/completed/childhood/report/childhood-volume1-report.pdf

Sincovich, A., Harman-Smith, Y., Gregory, T. & Brinkman, S. (2020). The relationship between early childhood education and care and children’s development (AEDC Research Snapshot). Australian Early Development Census. https://www.aedc.gov.au/docs/default-source/resources/relationship-between-ecec-and-childrens-development.pdf?sfvrsn=bd9937f6_1#page=2

Thrive by Five. (2024, October 23). New Research: Current Childcare Funding Model Drives Inequality, Exacerbates Childcare Deserts. https://www.thrivebyfive.org.au/news/new-research-current-childcare-funding-model-drives-inequality-exacerbates-childcare-desert 

The Parenthood. (2024, Feb). Submission in response to the Draft Report of the Productivity Commission Inquiry into Early Childhood Education and Care. https://assets.pc.gov.au/__data/assets/pdf_file/0009/377604/sub276-childhood.pdf 

Wood, D., Griffiths, K. & Emslie, O. (2020, August). Cheaper childcare: A practical plan to boost female workforce participation. Grattan Institute. https://grattan.edu.au/wp-content/uploads/2020/08/Cheaper-Childcare-Grattan-Institute-Report.pdf