The Productivity Commission wants all Australian kids to get 3 days a week of childcare – but it won’t be until 2036

The federal government has released a highly anticipated report into Australia’s childcare system. The report, by the Productivity Commission, says addressing affordability should be a priority. It recommends fully subsidised childcare for families earning under A$80,000 from 2026.

The report, which was commissioned by the government, was completed at the end of June.

It sets out crucial steps to achieve a “universal” childcare system in Australia. This is where all families with children under five can get three days a week of high-quality early education and care. The Productivity Commission says this should be up and running by 2036.

Read more: Productivity Commission charts the costly path to universal early childhood education

What’s in the report?

The final report has 56 recommendations to “remove barriers” to access early childhood education and care. This includes centre-based care (such as long daycare), preschools, family day care and outside school hours care (often called before and after school care).

Key recommendations include:

• raising the maximum rate of the childcare subsidy from 90% to 100% of the hourly rate cap for families on incomes up to $80,000. The Productivity Commission recommends this is implemented in 2026 to make childcare more affordable for about 30% of all families with children aged 0–12 years.

• for families with multiple children under five earning under $140,000, it recommends raising subsidies to 100%, up from the current 95%.

• the proposed changes to the subsidy would not only mean more affordable childcare for low-income families. All families earning under $580,000 per year would receive a higher subsidy rate, “making nearly all [early childhood education and care] users better off”. This follows a boost to childcare subsidies in 2023.

The activity test should go

Significantly, the report recommends removing the much-criticised activity test from next year. This requires parents to be working or studying at least eight hours a fortnight to receive child care subsidies.

The Productivity Commission says removing it would see more children from low income families in early education and care.

What else is in the report?

Recognising care needs do not stop when children start school, the Productivity Commission wants to see state governments make sure there is outside school hours care for children aged five to 12 in all public schools.

It also recognises remote and very remote areas face extra challenges. Some sparsely populated areas are “thin markets” – they do not have enough demand to support the provision of services. The Productivity Commission recommends targeted funding to help.

The report also highlights how supporting early childhood educators is key to quality care and good outcomes for all children. It calls for accelerated qualifications and consistent registration requirements. This follows a recent 15% pay rise for chronically low paid early childhood educators.

Equity is key to proposed reforms

The report focuses on how to achieve greater equity in early childhood education and care – a key part of the federal government’s Early Years Strategy.

Australia currently has as market-driven model for childcare provision. Our research shows this approach tends to see providers located in more affluent areas, where they can charge families more per hour.

Importantly, the Productivity Commission recognises the need for increased funding for remote and very remote areas. Our research shows although the supply of childcare places in Australia has increased over the past two years, the distribution of these places is not equitable. Families in remote areas are more likely to miss out.

Another proposed change is to enable access to child care subsidy for “wrap-around care” in dedicated preschools by 2025. This could see services provide more flexibility, such as more hours and different types of care (such as preschool or kinder learning for some of the day and then daycare around that). If implemented, it should mean greater support for working families.

Will it be enough?

As some commentators – such as independent federal MP Zoe Daniel – have been quick to point out, some changes are still a long way off. Daniel says the “timeline isn’t nearly ambitious enough”.

However, it will not necessarily be quick to provide universal access to childcare. While families need more places and cheaper costs right now, the report explains it will require “long-term commitment and investment”. It also says:

Sequencing reforms will be critical to avoid crowding out children and families experiencing disadvantage.

The Productivity Commission says overall, these measures would increase childcare subsidy costs by 37%, to $17.4 billion a year. While this is a significant amount, it is in line with other governments around the world, such as England and France, who are also increasing the amount they spend on the early years.

What next?

The government says it will consider this report alongside a separate report by the Australian Competition and Consumer Commission (ACCC), finalised last year. This report looked at pricing across the sector.

As federal Education Minister Jason Clare told an early childhood conference on Wednesday,

We are closely looking at this report, along with the ACCC’s recent report and I want your feedback.

With another federal election on the horizon, we can reasonably expect the government’s response to form part of its re-election plans.