Assessing childcare affordability in Australia

Childcare is currently unaffordable for 386,000 Australian families or 39% of families who use childcare, a new report from Victoria University’s Mitchell Institute shows.

The Federal Government’s $1.7 billion changes to the childcare subsidy, which are due to take effect in July next year, will still leave childcare unaffordable for 336,000 (34%) of Australian families who use the childcare system.

The Counting the cost to families: Assessing childcare affordability in Australia report (PDF, 1.05 MB) models the impact of the Federal Government’s recent childcare subsidy announcement.

It found that one in three families are spending more on childcare than groceries to feed their family and 85% of families are spending more on childcare than on their utility bills.

The report uses an international benchmark of no more than 7% of disposable income spent on childcare to determine childcare affordability for families.

"This research shows what everyday families already know – that childcare is a massive cost to the household budget," Dr Peter Hurley, co-author of the report, said. "The debate on childcare affordability has been bogged down in anecdotal evidence and statistics about the amount of subsidies, rather than actual affordability for families.

The government’s childcare subsidy changes will come into effect in July 2022 and will make childcare more affordable for some. But the changes only impact one in four families who use childcare, leaving about 700,000 families no better off. High-income families are currently most likely to afford childcare, and will benefit most from the removal of the subsidy cap.

“Despite attracting the greatest subsidies, childcare remains unaffordable for more than two in five low and middle income families,” Dr Hurley said. “With COVID-19 increasing levels of housing and employment stress for many families, childcare is likely to be a clear big ticket item to cut to make ends meet.”

The evidence is overwhelming that good quality childcare delivers huge benefits for children’s development, families, to society and to the economy. However, unaffordable childcare is resulting in Australian children not experiencing the benefits that good quality childcare brings, while the economy is missing out on $11 billion a year in economic gains.

“Our research (PDF, 2.24 MB) has shown that sending children to childcare is more expensive for families than sending their children to a private primary school,” Dr Hurley said. “Most families will save money when their child starts school.”

Unaffordable childcare often results in parents – usually women – deciding not to work, or working fewer hours than they would like to (Grattan Institute, 2021). Around 100,000 families have cited childcare costs as the main reason for not being in employment.

“Many families are not using early childhood education and care services, meaning children don’t receive the developmental benefits of early learning,” Dr Hurley said.

Data

Household, Income and Labour Dynamics in Australia (HILDA) annual survey of about 17,000 individuals across 7,600 households. It contains detailed data on household income and expenses. Approximately 1,000 households recorded childcare expenses.

Government subsidy changes

The federal government announced in May changes to the childcare subsidy that would start in July 2022:

• increase the child care subsidies for two or more children in childcare, and
• remove the subsidy cap for families with an annual income above $190,000.

Funding:  This research has been funded by the Minderoo Foundation.