Childcare Subsidy is coming, 2nd July. Is this a day for celebration?

There is no turning back; the Childcare Subsidy is only 5 weeks away. I have heard there is a lot of confusion on how the assessment works, and therefore relates to how much you pay for childcare.

What does it all mean? Do I have to pay more or will my family be better off?

The government has sold it as benefitting more families, making it easier for those who want to study or work part-time. What about those families where mothers have sacrificed years to study? Or delayed having children to climb up the career ladder?

I thought I would do a little research myself to see if the new childcare subsidy is as good as we have been led to believe.

Firstly, a brief overview on how the assessment works. The assessment takes into account your hours of “activity” – working, studying, volunteering, etc. – your salary, type of care used and the age of your children. If you have a partner, the assessment looks at your combined salary and calculates your hours of activity based on the person with the least hours. (Note, your assessment must be completed before 2nd July 2018, for you to be able get any subsidy).

When looking at this, I feel the government is trying to prevent those people who are at home the majority of the time using valuable childcare places, whilst making the rich pay more because they seem to be able to afford it.

Sounds reasonable, but let’s take a closer look.

There is one aspect of the subsidy scheme I have found, that no one else seems to have spoken about; the government will withhold a percentage of your subsidy (how much, I cannot seem to find at present), to limit the amount of overpayments.

On the surface this sounds fair enough – a safety net in case you have under or over-estimated your salary in your assessment. At the end of the financial year, the money withheld will either be paid to you or used to cover the difference not paid throughout the year.

This brings up a number of questions for me; what happens to those who miscalculated their salary and don’t do a tax return for years? They will then be benefitting for a number of years, and we know it takes some time for government agencies to catch up with these people. What about those who do cash in hand jobs? We know it happens, they can be earning a lot more than the average and yet still get 85% childcare subsidy.

It seems, once again by doing the right thing you get penalised. In this case, families, have to wait a year to receive monies owed to them. Money, that they could have potentially used to pay for kids parties, put towards a holiday, sports and extracurricular activities.

Secondly, you can include the number of hours it takes to travel from childcare to your workplace/university in your activity hours. Particularly beneficial if you live regionally and travel to bigger cities as it could easily boost you up to the next level of hours of care to be subsidised.

Who benefits and who doesn’t?

I have done a few calculations (well to tell the truth more than a few), to try to work out if we are actually better off with the new Childcare Subsidy*. Unfortunately, there are so many variables I cannot say exactly if it is beneficial for you. I can only give a general idea and feel for how the subsidy works.

I have to say, this worries me; there seem to be so many variables that I feel errors can easily be made. I highly recommend you work out your own calculations, and make sure you keep an eye on your childcare payment statements and tax return refunds.

 

Here is what I have worked out:

If you are in first 3 bands, you potentially benefit the most. For those in band 1, benefits are significant and band 2 benefits more than band 3. For band 3, benefits are over the year, not weekly.

If you only use childcare part time, and do not reach the rebate cap, then the difference is not dramatic, in fact you potentially could pay a little more per day. This all rides on whether your childcare fee is more than $117/day. If so, you will possibly pay a little more.

On the contrary, if you do reach the cap early in the second part of the year (ie: Feb-Mar), then over the year you could get some money back in your pocket.

Where you could see an increase in fees compared to the current childcare rebate scheme is if your childcare service fees are significantly higher than what the government hourly rate is (ie 11.70/hr or $117.00/day). I know in high demand areas, some childcare centres charge as much as $140-$160/day. If this is the case, your subsidy will only be calculated against $117.00, so you will pay $23-$43 on top of the subsidised amount; your financial benefit may be lost and you could end up paying more.

Families in bands 4, 5 and 6 unfortunately don’t seem to benefit much, if at all. Potentially over the year if you reach the cap earlier in the new year (ie: before March) you will have some money in your pocket. If you don’t reach the cap, you will pay more per week. Once again the amount per week increase will vary, depending on cost of childcare, salary etc. Those in band 6 will be most out of pocket.

 

Keep in mind, people all live to their own means and different areas have different living costs – each family’s financial circumstances are different.

I have pros and cons for the new childcare subsidy scheme. I think it is great the lower income earners can afford childcare, especially if you are doing study to increase your chances of higher income in the future. The new scheme will allow you to have the time to do your studies, whilst paying less for childcare.

I find that limiting the days/hours is a bit of a complex one. I understand it is to increase the availability of places for children needing the care whilst parents are working or studying – and not being used when parents are “available” to care for them. I write “available” in quotes as some parents might really need time at home alone to regroup and have some down time.

Others may be using childcare as a way for their children to mix and socialise with other children, get used to being away from primary caregivers, learn to trust other adults; all those great things childcare services can provide children, and as a means to prepare children for future education. I have an only child, childcare was where she learnt how to share, to be patient, wait her turn, and not be the centre of attention – absolutely vital for her development into being a person of society.

Care is not just about looking after a child it is more holistic than this.

I hear some people say it’s about time the rich start paying their fair share. I hear you, especially the billionaires who seem not to pay taxes. The majority of people who are on very high salaries may not even use childcare services; they have au pairs, nannies, home help of sorts, and many will have one parent at home.

Those in the higher bands most likely will have dual full time working parents – mothers who have worked hard to get where they are – maybe even delaying starting a family until later in life to build a career. Now, by paying increased childcare fees, she may need to reduce work hours, as the cost is significantly higher than previously budgeted for. Everyone lives to their means. I feel that the new subsidy is not supporting career mothers in higher paid employment. The media is all about more women in managerial roles or on company boards, the new subsidy may hinder this.

All in all, lower income families seem to benefit significantly more than the higher income bracket families. It is going to be a bit of ‘watch this space’ and see if the government hourly rate subsidies keep up with the childcare fees which increase annually. We also need to hope that childcare centres do not hike up their fees, especially in lower income areas, to try increase profits, reducing the benefits for lower income families.

Let’s all ride the wave. There are always ups and downs, but know there is support and alternatives out there.

More detail of the scheme go to https://www.education.gov.au

*Note this does not take into account any other benefits one may have, it is solely looking at the subsidy against the current childcare rebates scheme.