Childcare will be cheaper in Australia from July. Could it ever be free?

A review into Australia's early childhood education and care is underway as parents await incoming changes to subsidies that will see many paying less for childcare.

The cost of child care is often a big factor in decisions about work in Australian families who have young children. Source: Getty / FatCamera

Key Points

• Increased child care subsidies could cover up to 90 per cent of a family's fees.
• A federal inquiry is looking at how Australia's early childhood education and care sector could be more accessible.
• Having more women in the workforce can increase our GDP.

Most Australian parents with children in child care will pay less for the services from July but further changes may be coming to the child care sector beyond expanded subsidies.

Under the new subsidy rates more families will be eligible for reduced child care fees and many of those already having their child care subsidised will pay even less.

With some people having 90 per cent of their childcare fees paid under the new system and an inquiry into making the nation's child care even more affordable and accessible, some may wonder if the next step could be universal free child care in Australia.

Is there such thing as free childcare?

According to OECD data, there are huge variances in the amount of household income parents in different countries pay for childcare.

Italy, Latvia and Malta are among a handful of countries that provide childcare for free, while Czech Republic (19 to 38 per cent) and Switzerland (11 to 27 per cent) are among the countries where the greatest portion of household income is required for children to attend childcare.

American parents who have their children in childcare fork out between 23 and 50 per cent of their income.

How much do Australian parents spend on childcare costs?

Australian parents may be able to access government support to cover part of the cost of care but according to OECD figures, families are still spending between 10 and 16 per cent of their household income on childcare.

That is higher than the OECD average of between 8 and 10 per cent.

Currently families earning less than about $72,000 may be able to have up to 85 per cent of their fees paid by the government while higher earners can have up to 20 per cent of the cost covered.

Changes coming in as of 1 July will see the income thresholds altered so families earning less than $80,000 a year could be eligible to have 90 per cent of their childcare fees covered by the government.

The maximum household income for those eligible for a subsidy will also rise from about $346,000 to $530,000.

More Australians will be eligible for increased child care subsidies from 1 July. Source: Getty / kevajefimija

Could universal free childcare be in Australia's future?

A Productivity Commission review which opened for submissions in March is looking at how Australia's early childhood education and care sector could be more accessible and better support children's learning and development.

As part of the inquiry, the Productivity Commission will consider a universal child care subsidy rate of 90 per cent.

Options that would improve or support economic growth and productivity by enabling increased workforce participation also fall within the scope of the inquiry, so there's nothing stopping those behind the review from considering how universal free childcare could work in Australia.

Economist Conrad Liveris said the way free child care had traditionally worked around the world was that it was delivered by the state.

"So there are no or minimal, private providers, and that's kind of the difference in Australia, which is that we almost entirely have private providers, there are some small local governments that operators but the states don't deliver childcare," he said.

Mr Liveris said it was because of this that he could not see Australia introducing universal free childcare anytime soon.

"Private providers are very attuned to subsidies that are available to parents and their pricing can consider that and so that's a real issue. So even though we get adjustments to the subsidy each year, the benefits can be short-lived for some parents when even before they come in, prices start to change," he said.

"It is a subsidy system that provides a subsidy for something, but it can't can't do it all and so the only way to get free childcare in Australia in a cost-effective way would be to have government agencies step in and be a bigger provider."

Mr Liveris welcomed the inquiry looking into the efficiency and effectiveness of government investment in the sector and the appropriate role of the government.

"What you could do would be to reform the subsidy system so that funding could be delivered to the states in order to establish free or low-cost childcare centres."

NSW and Victoria recently expanded their education systems to allow for an additional year of free play-based schooling for those in their states, providing parents with a no-cost form of child care from an earlier age.

NSW Premier Dominic Perrottet and Victorian Premier Dan Andrews said the revamped system was a "gamechanger" that would give children skills for school and life but would also "benefit hundreds of thousands of working families".

Educational and economic benefits

It was not that long ago that the federal government effectively made child care free, for a short window of time anyway.

During the height of the COVID-19 pandemic in Australia those who kept their children in care did not have to pay fees as the government fully subsidised them.

A report by the Australian National University at the time recommended keeping the free child care in place.

"Free child care not only benefits children from socially disadvantaged households with access to vital cognitive and emotional development opportunities, but is a huge benefit to the economy," Professor Sharon Friel said in the report.

"Free child care enables more women to return to employment, which makes a major contribution to our GDP."

Better affordability and access to child care is expected to boost workplace participation of women. Source: Getty / Westend61

Accessible childcare and women in the workforce

Some women find the initial return to work after taking time off to have children provides only a small financial boost to their family income due to the cost of child care.

Mr Liveris said he expected the increase in the rate of the child care subsidy coming into effect in July would be a factor in the decision for more women returning to the workforce after having children.

"Greater accessibility to child care increases the participation of women in the workforce," he said.

Among the four main recommendations in a report release by not-for-profit organisation The Parenthood in 2021, was a call for free and high-quality early childhood education and care for all families in Australia.

It argued that better access to child care would enhance childhood development and increase female workforce participation and productivity, reducing the gender gap in earnings.

"If Australia could lift female participation to that of males, it would lift GDP by 8.7 per cent or $353 billion by 2050," the report said.