Prime Minister Scott Morrison’s proposed $1.7 billion boost to childcare spending – announced ahead of tomorrow’s Federal Budget – includes an increase to childcare subsidies and the removal of the subsidy cap for high-income earners.
Mr Morrison said the changes, slated to kick in from July 2022, were designed to encourage more parents to return to work four or five days a week and help pull Australia’s economy out of the impacts of COVID-19.
Under the proposal, couples with combined incomes of more than $189,390 would no longer be impacted by the subsidy cap that restricts them to benefits of a maximum of $10,560 per child each year. It was anticipated that getting rid of the cap could mean more women could go back to work, irrespective of what their partners were earning.
The other proposal is to increase the childcare subsidy for families with two or more children aged five and under in childcare, by up to 30 percentage points to a maximum of 95%. The current maximum is 85%.
The proposed increased subsidy could potentially save a family, with a combined income of $140,000 or, say, $180,000, up to $124.80 a week in fees when they have two children in childcare four days per week, reports state. The reduction in fees for these incomes works out to be the same because of how the subsidy percentage tapers off for higher amounts.
Families on $110,000 could save up to around $95.39, families on $80,000 could save around $53.79 and families on $40,000 could save up to $41.60 a week.
Putting childcare subsidy savings to work: Bills, mortgage or investing?
For parents who could be set to pocket this weekly saving from mid-next year, you might be wondering what you’re going to do with it.
Perhaps you’d prefer it to go straight to food or nappies, you might start a kids fund for your child to access in the future, or it might make sense for your family to put the money straight into your mortgage or an investment.
We took a look at what each of these options could mean:
Using it for household bills:
As measured by the Australian Bureau of Statistics figures (with inflation applied), the good news is that the weekly average cost of $11.37 on infants’ clothing, including $7.69 on nappies, could be covered for families across all income brackets.
However, the maximum $124.80 in childcare savings would only cover a portion of the $306.53 families spend on food and beverages on average per week.
Putting it on your home loan:
Canstar’s research analysts crunched the numbers and found a family with two children in childcare four days per week for three years, and a total annual income of $140,000, could save $28,207 on average in interest costs if they put their childcare savings towards paying down their home loan.
A family with a combined income of $40,000 could save $9,717 on average in interest costs, the research shows.
Using it for an investment:
Canstar’s research analysts looked at the sort of returns someone may have made if they had been investing the weekly savings amount into the S&P/ASX 200 Net Total Return Index with a monthly investment since May 2018.
A family with two children in childcare four days per week and a total income of $140,000 could have potentially gained around $3,581 in earnings by the end of April 2021.
A family with a combined income of $40,000 could have potentially earned around $1,136 in the same time.
It’s interesting to note the returns made historically, but past performance is not necessarily an indicator of future performance, which is why it pays to do your research.
The childcare subsidy funding of $1.7 billion will be spread over three years, and needs to pass legislation before it comes into effect.