By Nicola Field
Nicola Field is a personal finance writer with 20 years of industry experience. A former chartered accountant, who holds a Master of Education degree, Nicola delivers expert, commonsense commentary as a regular contributor to Money Magazine and Canstar.
The 2021/22 Federal Budget has seen an extra $1.7 billion invested in the Child Care Subsidy. But will it cut the cost of care for your family?
In his 2021/22 Budget speech, Treasurer Josh Frydenberg claimed the federal government is increasing the affordability of child care for low and middle income families, noting that “250,000 families will be better off by an average of $2,200 each year”.
The question is, will your family be among those set to save on the cost of care? Let’s take a look at who benefits – and who doesn’t – from the latest round of changes to the Child Care Subsidy.
At a glance:
- The changes to the Child Care Subsidy are chiefly pitched at families with two or more children in care.
- Low and middle income earners are particularly targeted, with around half the families set to benefit having a household income below $130,000.
- High income families earning over $189,390 annually will benefit from the removal of the $10,560 (per child, per year) limit on fee rebates.
- Parents with only one child won’t pocket fee relief as the new arrangements are geared at taking pressure off parents with more than one child in care.
- The changes won’t kick in until mid-2022, so any savings won’t start to flow for at least another year.
How it works
The 2021/22 Federal Budget has earmarked a $1.7 billion cash splash for the Child Care Subsidy. The idea is to encourage more parents to head back to the workforce, or extend their working hours, both of which benefit the economy (and put tax revenue back into government coffers to help pay for it all).
However, as with any Budget there are those who benefit, and those who miss out. The big winners from the 2021/22 Budget are families with several children in child care.
Under current arrangements, the maximum Child Care Subsidy works out to 85% of care fees. The subsidy is tapered so that families who earn the least receive the most. Nevertheless, subsidies apply at the same rate per child – no matter how many children a family may have in care.
As a result, families with more than one child in care can see their child care costs double when they have a second child attending child care.
This is set to change from 1 July 2022, when an increase in the Child Care Subsidy will be available to families with more than one child aged five and under attending child care.
If that sounds like you, the subsidy you receive is set to increase by up to 30% to a maximum subsidy of 95% of the child care fee paid for second and subsequent children.
Savings of up to $125 weekly
As a guide to how you could benefit, this table shows that a family earning $110,000 annually will see the Child Care Subsidy for their second child increase from 72% to 95%, potentially generating savings of $95 per week for four days of care.
According to Federal Treasury figures, a family with three children, and an annual household income of $80,000, would have their subsidy increased from 82% to 95% for their second and third child, and be $108 better off each week for four days of care.
A single parent on $65,500 with two children in four days of long day care, who chooses to work a fifth day, will be $71 a week better off compared to the current system.
Not everyone wins – but the news isn’t all bad
The changes to the Child Care Subsidy won’t please everyone. It’s essentially business as usual for families with only one child in care. And the increased subsidies only apply to children under the age of five. This means families with kids in pre-school, vacation care, and before and after school care will miss out this time.
In addition, the enlarged subsidies only kick in from 1 July 2022. So families who have a child starting school next year may not benefit from the savings.
However, the news is not all bad. The Budget also announced that the low and middle-income tax offset (LMITO) will be extended for another year. It sees individuals with taxable incomes between $48,000 and $90,000 pocket a maximum tax offset of $1,080.
If you earn below $37,000, the LMITO is worth up to $255. It’s not the same as savings on child care fees, but it can still mean more money in the pockets of Australian families. And if you’re looking on how you can maximise your Child Care Subsidy this year, before the changes roll around in 2022, you can find six tips on how to do so here.