A close look at Labor’s child care policy.
Labor’s Cheaper Child Care Policy pays up to beat the Coalition
Labor’s child care policy centres on an easy to follow level of child care help that declines in a straight line as family income increases.
The current Coalition policy is more targeted with some extra support for families with more than 2 children under 6.
Comparing the policies has been difficult - with best case outcomes depending on family composition and income.
A tweak to the policy recently announced in the Labor election campaign provides a new set of numbers for families to consider.
It’s a win for working families with children in care - and Labor has matched the extra help the current government policy offers families with more than 1 child in care.
According to the Grattan Institute analysis, the Labor Policy will pay up twice as much as the prevailing Coalition Policy - which is already running at an estimated cost of $11 bn - it’s a big deal.
Some families win more than others. Find out more below.
A complex set of rules that are beyond the capability of the kitchen table
This is policy means more support for child care costs under Labor. There is no doubt about that.
It also means more convoluted calculations to get to the bottom of what the real cost of childcare could actually be for the 1.4 million Australian Children in childcare.
The reason it is complex is that Labor has promised to match Coalition outcomes for families with more than 1 child under 6. This means that 2 calculations need to be undertaken - one to determine Labor policy, and the second to address situations where Coalition policy would have made for a better outcome - so Labor policy can match it. That is a lot of variables, thresholds, percentages and tapers to take into account. Not the stuff of kitchen table calculations.
We have crunched the numbers for different situations below.
Labor’s policy is more generous across the board.
Maximum Child Care Subsidy Payable for Children under 6 Labor vs Coalition
This chart shows the maximum subsidy available for long day care per child, per year for a range of family income levels. The amount derived by applying the applicable child care subsidy percentage outlined by each party by the Hourly Rate Cap for the maximum 100 hours per fortnight, over 52 weeks. Labor calculation includes the calculation of the applicable Coalition percentage for subsequent children under 6 to compare if this this rate is better than the Labor base percentage - Labor has proposed to match Coalition Policy if the outcome is greater than under the initial Labor Policy proposal (in line with the policy changes outline March 30 2022).
Source: Labor Cheaper Child Care Plan, Services Australia, Media Release, Grattan Institute
Example: A family with $200k of income
At this income level the maximum subsidy under Labor for a family with 1 child in long day care is nearly $21k - which is more than under the Coalition of $16k.
Consider that just last year, this amount of subsidy would have been capped at $10,655 - a cap that was removed this year by the Coalition. Now the scope for child care subsidy is nearly double the previous limit.
A family with the same income and a second child under 6, get an overall subsidy for the 2 children in care of up to $46.7k. That is more than $23k for each child, more than double the maximum from last year. If someone has 3 children in care under 6, the average amount of subsidy per child goes to $24k.
Example : A family with income more than $354,305
The Coalition policy has been criticised for the steep drop in support (from 20% to ZERO) once income breaches the level of $354,305. The Labor policy addresses this by having the subsidy taper down to zero by $530k. This means that a family with income of $400k and 3 kids under 6 in care will be eligible for a subsidy of nearly $25k pa under the Labor policy - when under current policy there is no help at all.
Bigger family benefit - uneven and cut off at $355k
Labor Policy offers extra help to families with more than 1 child under 6.
Maximum annual subsidy for families with children under 6 measured as an average per child, using centre based day care at or above the subsidy cap rate for 100 hours per fortnight over 52 weeks.
The Labor Policy includes a measure to increase the level of support for families with more than 1 child under 6 - however this is only for families with income less than the level where the Coalition policy cuts out.
Confusing right? If you want to get into the reason of why this is the case, read on.
If you just want the summary - see the chart.
For families with an income of up to approx $355k, there is a kicker to the subsidy if you have more than one child under 6 years in in care.
The big winners here are families with income between $200k-$350k with more than 1 child in care under 6.
Behind the numbers: Labor’s plan for cheaper child care
Entitlemate seeks to analyse and interpret the rules for the benefit of Australians who want to know where they stand. Finding the rules for the Labor Policy has not been straightforward - perhaps the details will be more clearly laid out later in the campaign?
It’s not that straightforward.
For starters, the policy outlined on the Labor website, at the time of writing this, has incorrect information. This is really important information - as it outlines a new childcare subsidy for a cohort of voters that has not been getting any support by the coalition government - those earning between $355k-$530k.
Next up, detail of the policy update was not apparent in the Budget Reply Speech, there was mention in media release that there would be a bump for families with more than one child under 6. It was a closer look at modelling by the Grattan Institute that made sense of how the changes work.
So the statement in Labor plan for Cheaper Childcare that “Families with two or more children will continue to receive a higher subsidy rate for second and subsequent children, or the rates above, whichever is higher” means that Labor proposes to keep the comparatively more complex Coalition policy intact to guarantee that the rate for subsequent children under 6 will be at least equal under Labor.
That’s a lot of work to get to the bottom of something very important.
Call the IT department
If Labor get into power, calculating the exact amount of Child Care Subsidy is going to be even more complex. It is a new system that references an old system to make sure it is better in certain situations. Help!
While pages and pages of reportage and analysis are devoted to retirement incomes, this important number crunching and analysis gets overlooked.
Families need resources to help them plan and estimate costs so they can make the decisions that are right for them.
If this policy goes through there is going to be a lot of code rewritten and a lot of head scratching in explaining it.