Australia Markets close in 4 hrs 14 mins

Warning on childcare fee reform impacts

Childcare fees might actually rise under proposed changes to federal government subsidies, a researcher warns.

The government wants to replace the existing child care rebate and means-tested child care benefit with one single means and activity tested subsidy.

But the future of the reforms remains in limbo, with Labor, the Greens and the Nick Xenophon Team and Jacqui Lambie all signalling they will reject legislation for the change in the Senate, leaving only One Nation in favour.

Under the proposed childcare changes, the government would cover between 20 and 85 per cent of childcare fees, depending on a family's income and provided they met an activity test.

Ben Phillips, an associate professor at ANU's Centre for Social Research and Methods, says most families set to benefit under the changes would get around $1500 in extra government childcare payments each year.

But he warns higher subsidies might push childcare prices north.

"I would argue with a bigger subsidy we'd probably be more likely to see price inflation as a result," Assoc. Prof Phillips said.

"If you throw more money and more subsidies at an industry they are more likely to put their prices up because they can get away with it.

""But you are still better off overall, even if prices do go up a bit more than what they otherwise would."

Goodstart Early Learning is Australia's largest not-for-profit childcare provider, and advocacy manager John Cherry says lower subsidies for higher income families would discourage fee hikes in more affluent areas, while lower income families are much more sensitive to price increases.

"There is a lot less capacity for childcare providers in the marketplace to put up their fees for low income families," he said.

Mr Cherry said there is fierce competition in the sector, with some 1600 childcare centres in the development and approvals process.

"Childcare centres across Australia are currently opening faster than children are being born," he said.

"All of that adds up to a much tighter marketplace than we've ever seen before, which means that providers are really constrained by their competitors on whether they can put up their prices or not."

Assoc. Prof Phillips said fees vary wildly depending on location, reaching up to around $180 a day in some areas of Sydney compared with $70 in north Queensland.

He said costs have been growing at a steady rate of around seven per cent for the last seven or eight years.

It still makes sense for parents to return to work and put their children in childcare rather than drop out of employment until they their youngsters go to school.

"Five years out of the labour force these days is a long time, " he said.

"Even though it (childcare) is expensive, my suggestion is that (it) still works out for the best in the long term even though it might be some short term pain."

Australian Institute of Family Studies senior research fellow Jennifer Baxter said variable work hours, along with cost, mean parents are often looking beyond long daycare centres for solutions.

She said family daycare can be a more economical option if parents only need a few hours of care for their children.