The suite of announced changes to the funding childcare as proposed by the Federal Government's Families Package is positive for both childcare operators and childcare center landlords. Although there is a possibility that some elements of the package will be refined as part of any negotiations with the Federal Opposition, we expect that the bulk of the package will be passed in its current form. The revised childcare package effective 1 July 2017 will have an enhanced and simplified childcard funding regime with the existing system to remain largely unaltered in the interim.
- The package in its current form sees an increased funding commitment of $3.5bn by the Government to the childcare industry over the next 4 years with majority of the increase to be available from July 2017.
- The simplified and new single means-tested Child Care subsidy to be paid directly to operators will replace the existing Child Care benefit Rebate and Jobs, Education and Training program and other Child Care assistance programs.
- The new funding package will see an increase in funding, particularly for lower income families earning up to $65,000 who will receive support for 85% of the childcare cost per child or a designated benchmark price whichever is the lowest. This will reduce to 50% for families with incomes of $170,000 and above. The use of a benchmark fee, set at $110 per day per child increasing to $127 per day per child by July 2017 constrains the degree to which government spending on childcare is eroded by fees. Importantly, the new funding package recognizes the need for childcare fee growth. The benchmark price in 2017 dollar terms of $127 per day is significantly higher than the Productivity Commission's suggested rate of $79.2-$81.50/day recognizing fee growth in the short-term is expected to be in the order of 7%-10% of 7.45% per annum on average as implied in the July 2017 benchmark. Fee growth is in part a reflection of the additional staffing costs drawn from higher staff ratios and higher qualified staff pay rates. Post 2017 indexation is to be reintroduced which depending inflation movements over time could strip indexation levels.
- The existing funding cap of $7500 per child per annum is to be removed for all families with an income below $185,000 thereby allowing for an increased quantum of financial assistance beyond the existing cap, determined by usage, For those who earn above $185,000 a cap will remain however it has been increased to $10,000 per child per annum thereby largely maintaining an exisintg entitlement. Whilst for higher income earners there may be an increase in day fees thid could be offset to some degree by the 33% increase in the fee cap to $10,000 per annum.
- The Government expects that the new package will encourage more than 240,000 families to increase participation in paid employment. The package looks to be designed to deliver reform with a focus on placing downward pressure on childcare costs, increasing accessibility and workforce participation.
- The reintroduction of indexation to the rebate and childcare benefit income thresholds between now and July 2017 will relieve pressure on families and deliver some of the benefits the families package well in advance of 2017.
Source: NAB REIT 13/05/15