Child Care Subsidy Reform

Significant changes came into place in July 2023 for the childcare sector. The minimum wage for educators increased by 5.75% and there has been drastic reform to the Child Care Subsidy (CCS) which was aimed at making childcare more affordable for Australian families.

The CCS changed significantly for families whereby the family income limit to receive a subsidy has increased to $530,000 from $356,756, making subsidised childcare available to more families throughout the country. Furthermore, families with two or more children in care also now receive a higher subsidy for the second child.

Subsidies for the first child in care have increased to a maximum of 90% for families with a combined income of less than $80,000 and decreases thereafter by 1% for every $5,000 of income earnt. The CCS has increased to 95% for the second or subsequent child in care for those earning below $80,000 and reduces to 50% for those earning less than $362,408.

Since the changes came into effect, there has been an overall general increase in enquiry for most centres. Discussions with several operators are reporting more families are looking to increase the number of days children are in care, and families that previously would not have relied upon childcare are taking up places due to care being more affordable.

Location 2019 2020 2021 2022 2023
Mid North Coast (Medium Size Centre/Owner Operator) 4% 6% 5% 5% 8%
Lake Macquarie (Small Size Centre/Owner Operator) 2% 3% 3% 2% 5%
North Coast (Small Size Centre/Owner Operator) 0% 6% 6% 10% 10%
Mid North Coast (Medium Size Centre/Owner Operator) 3% 5% 5% 4% 11%
Mid North Coast (Large Size Centre/Owner Operator) 3% 7% 8% 12% 13%

Subsequently, most centres have in turn increased childcare fees significantly post July 2023. We are aware of centres increasing fees approximately between 5% to 20% depending on location and supply levels.

Noting historical lower award wages for childcare educators, the recent increase by 5.75% in the modern award has increased the adult rate for Diploma qualified staff to over $29/hour. We are aware of several of the industry’s larger operators paying staff more than the award rates to attract and retain staff in an under resourced sector. The increase in wages, significant utilities cost increases along with the current interest rate environment has led to childcare fees being increased throughout the country.

Examining several centres throughout the east coast of NSW has shown historical tariff creep over the past five years, indicated in the order of 1% to 5% annually. However, from July 2023, the centres analysed indicated significantly higher increases from 5% to 13% with further reports from some areas indicating increases up to 20% over the previous 12 months.

‘Out of pocket’ costs to families have remained consistent, even with the recent CCS changes by the Federal Governments policy where the intention was to make ‘childcare more affordable’.

Operators have also voiced that any further wage increases will increase childcare fees further unless backed by a Government funded wages package. Historically, wages as a percentage of income from childcare fees has been in the order of 45% to 55%. The recent fee increases are considered appropriate to ensure similar performance metrics are met and the viability of a childcare centre is maintained, in turn creating a well sought after asset class for investors and operators.

Childcare assets have remained strong and attractive to investors with its reliance on government incentives and rebates, along with the increasing trend of female workforce participation and higher occupancy rates enhancing the asset class’s appeal.

Amy Frankel
Regional Director
— Port Macquarie Property Valuers
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