If ridiculous house prices and huge mortgages weren’t enough child care costs have also sky rocketed in recent years.
With many day care centres now charging upwards of $100/day it is no surprise that young parents get particularly twitchy when the government starts tinkering with the Child Care Subsidies.
Over the past couple of weeks, I have had no fewer than a dozen discussions with coaching clients regarding what impact (if any) the proposed new Child Care Subsidies will have on their cash flow.
With close to a million families receiving Child Care subsidies this is a big topic, so in this blog I thought I would provide an overview of the key components of the new subsidy system.
But before we look at the new system let’s quickly review the Childcare subsidies that are currently in place – these will end as June 30, 2018.
Current government childcare subsidies
There are currently there are two Childcare Subsidies in place.
1. The Child Care Benefit (CCB)
The Childcare Benefit is an income tested payment that can be made either as a lump sum to you or paid directly to your child care provider to offset the cost of child care.
How much Child Care Benefit you receive depends on
- your household income,
- the type of child care you use,
- the hours you use,
- the reason you use the care, and
- the number of children you a have in child care.
The maximum Child Care Benefit you could potential receive is $4.30 per child per hour or $215/week for non-school aged children and 85% of this for school aged children.
2. The Child Care Rebate (CCR)
The Child Care Rebate is a lot simpler to understand because it is not means tested. The Childcare Rebate covers 50% of the out of pocket cost of Childcare up to $7,613 pa per child.
If you want to double check what you should be entitled to right now This Family Childcare Subsidy Calculator is one of the easiest to use government tools / calculators I have come across.
Okay so that’s how it is right now.
So, what’s changing on 2nd July 2018?
On July 2nd the Government is completely scrapping both the Child Care Benefit and the Child Care Rebate and replacing them with a single means tested and activity tested subsidy called the ‘Child Care Subsidy’.
The payments will be paid directly to the Child Care providers, to then be passed onto families.
The Activity Test
The ‘Activity Test’ looks at how many hours both parents, work, study or volunteer to determine how many hours of subsidised care you are entitled to receive.
To qualify for the subsidy both parents need to work, study or volunteer for at least 8 hours per fortnight.
- Families working 8-16 hours per fortnight will be eligible to receive 36 hours per fortnight of subsidised care.
- Families working 16-48 hours per fortnight will be eligible to receive 72 hours per fortnight of subsidised care
- Families working more than 48 hours per fortnight are eligible to receive 100 hours per fortnight of subsidised care.
Once you have figured out how many hours of subsidised child care you are entitled to the next step is to work out how much subsidy you will actually receive.
How much Subsidy?
This is where the means testing comes in. How much subsidy you are eligible to receive will be based on your annual income.
- Families earning $65,710 or less will receive a payment equivalent to 85% of their fees
- Families earning $65,710 to $170,710 will received tapered down payments from 85% to 50%. For every $3,000 extra you earn over $65,710 your subsidy will reduce by 1%.
- Families earning $170,710 to $250,000 will receive payments equivalent to 50% of their fees.
- Families earning $250,000 to $340,000 will received tapered down payments from 50% to 20%. For every $3,000 extra you earn over $250,000 your subsidy will reduce by 1%.
- Families earning $340,000 to $350,000 will receive payments equivalent to 20% of their fees.
- Families earning more than $350,000 will receive no subsidy.
Hopefully you are still following, now here comes the fine print…
Hourly cap on subsidised fees
In order to prevent Child Care fees getting too outrageous there is also a cap on the hourly fee that the Government will subsidise you for. The maximum hourly rates you will be subsidised for are as follows:
- $11.55 for centre based care
- $10.70 for family day care
- $10.10 for after school hours care.
Anything paid over and above these rates will not be subsidised.
Total Yearly Subsidy Cap
There is no total annual cap on the yearly subsidy amount for families earning $185,710 or less. However, for families earning in excess of $185,710 there will be a cap of $10,000 per year.
Additional Child Care Subsidy
The will also be an ‘Additional Child Care Subsidy’ available to disadvantaged families. This will include families who are experiencing financial hardship, Grand parents who have taken on the carers role and families where children are at the risk of abuse or neglect.
The Additional Child Care Subsidy will allow eligible families to claim up to 100% of the fee charged by their Day Care provider (up to a max of 120% of the hourly fee cap) with up to 100 hours per fortnight.
So how will these changes affect me?
The government believes that the new system will be a simpler and much farer system that gives more assistance to low and middle-income families who really need the support.
Money is tight, so it is important that you factor these new changes into your budget. While it is anticipated that most families will be better off you should take time to have a look at the new online estimator to figure our what your Child Care Subsidies will be when the changes are introduced on 2nd July 2018.
If you are struggling to balance the many demands on your finances putting together a realistic budget is a powerful way to understand and manage your cashflow. You can download our budget worksheets here to help you get started.