The Budget has set out measures that change to the way childcare funding will be distributed. The changes are based on a number of factors that include how much you earn, much much you work, the cost of your child care and how many days your kids are in care. The childcare rebate (not means-tested) and the childcare benefit (means-tested) will be replaced from 1 July 2017 with a tapered payment based on a benchmark price for day care facilities. The proposals make a lot of sense and they are clearly aimed at making it more affordable for parents to return to work and provide an incentive with increased payments for increased time at work – a clear productivity link for the economy.
There is an element of means testing, with families earning less than $65,000 receiving 85% of the childcare costs or the benchmark price per child up to age 13 (whichever is lower) with the subsidy tapering down to 50% of the benchmark price once families earn over $170,000. Families with a combined income of less than $170,000 will be the best off under the government’s new single, means-tested payment. This is provided you meet the activity test, which requires both parents to work in order to qualify. What this means is that stay at home parents that are not in paid work or studying at least 8 hours per fortnight, will no longer be eligible for child care subsidies. Furthermore, parents who don’t vaccinate their children will not be eligible to receive childcare payments or the Family Tax Benefit Part A end of year supplement from 1 January 2016.
The new measures have also been extended to nannies for families with a combined income of less than $250,000 and find it difficult to access child care facilities. This would include shift workers, families in remote areas or for children with special needs. Those on higher incomes above $185,000, with no upper limit, will benefit from an increased cap per child, from the current $7,500 a year to $10,000.
However, the measures will not come into force until 2017 and the extra spending of $3.5 billion over four years is contingent on the Senate passing cuts in last year’s budget to Family Tax Benefits, including stopping payments entirely to single-income families when children turn six. Therefore, while the measures have the support of opposition political parties, the cuts being requested to fund them do not. So at the end of the day it is questionable whether fundamentally good policy will end up passing through parliament.
Rob Gilmour is the Managing Principal of Wealth Simplicity. The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.