Parents are being crushed by childcare fees. Will Labor ever deliver a universal system?

Rachel Hill, a mother of two from Sydney, explains the maths of family planning.

The not-for-profit worker has bumped up her workload from two days a week to full-time to try to cover ever-rising costs. Instead, the additional money has been swallowed by childcare fees.

“I did not want to go back full-time, it was purely because of the cost of living,” she says.

“We went from paying around $175 a week for four days of care … to now paying $536 a week for five days, so any increase I got in my salary I’m basically now paying in day care.”

Hill says her husband always wanted a bigger family. If raising children were more affordable, they may have considered having a third. But with only a small village around them, she says “it’s just not working”.

“If our circumstances were different I might have had more reason to pursue more children, but financially it just wasn’t ever going to work for us.”

The prime minister, Anthony Albanese, wants universal childcare to be his political legacy, his entry to the Labor hall of fame alongside Medicare and the National Disability Insurance Scheme. It should, he says, be “as natural as public school”.

But the sector has been rocked by widespread allegations of child abuse and safety breaches, damaging public trust and forcing the government to tighten standards – all while trying to figure out what a universal system might look like and how to pay for it.

It is working against a ticking clock: the 2026 intergenerational report, released last month, showed deaths would outnumber births in Australia by the 2060s. Australia needs more babies, and Labor says universal childcare is key to making that happen.

What is universal childcare?

While many might presume universal childcare means free childcare – akin to public schools for older children – the government has defined it as care that is “available, quality and affordable”. Overseas examples point to provinces in Canada which offer $10 a day capped care, or Estonia, where fees are capped at low weekly or monthly rates tied to the minimum wage. Labor won’t yet say which model it would choose but has indicated it is likely to be means-tested.

It has commissioned two consulting firms to produce separate work outlining the scope of the challenge. The biggest report is by Deloitte and aims to set out the cost of delivering childcare services in any part of the country – metropolitan, outer-suburban, regional or remote.

The work requires the cooperation of about 1,000 childcare centres across that geographic spread but they have not been forthcoming. The low turnout of volunteers has led to the government compelling service providers to hand over the centres’ financial data. Deloitte is due to hand the report to government by the end of the year.

The cabinet is also mulling over a report by KPMG which outlined the business case for the government owning and leasing childcare centres. The work – which the government has refused to release, citing cabinet in confidence rules – centres around the $1bn building early education fund, which provides for state governments and not-for-profits to set up centres in childcare deserts.

The first grant round from that fund was announced this month, with $17.3m split between three not-for-profit providers to build four childcare centres in outer metropolitan and regional areas. Dozens more are yet to be announced.

It gives us a clear hint of where Labor believes it can make a mark. The government wants to see not-for-profits making up a bigger share of the childcare sector, with 70% of the sector currently privately run.

“Outer suburbs and regions where there are growing families, but not enough childcare places, we want to build more quality, not-for-profit early learning in those places that need it the most, and it is part of our journey towards universal early education,” the childcare minister, Jess Walsh, told Guardian Australia.

That shift is starting to happen. In August, the for-profit provider Edge Early Learning went into administration, while competitor G8 has closed dozens of under-enrolled and underperforming centres. This week, Goodstart Early Learning, a not-for-profit provider and one of the recipients of the building early education fund, signed an agreement to investigate the potential take over of up to 31 of Edge Early Learning’s 64 centres.

Goodstart’s head of advocacy, John Cherry, says there is “certainly an opportunity there for the not-for-profit sector to expand, but at the moment, not-for-profit providers around the country are running on very thin margins and very challenged by operational conditions”.

Not-for-profit childcare providers are not necessarily cheaper for parents – comparison website childcare estimator says fees are about 8% cheaper at some not-for-profits – but they consistently have higher quality and safety ratings.

Changing the subsidy

Any reform would also have to tackle the childcare subsidy.

A family with one child and a household income of up to $88,520 now receives a government subsidy covering 90% of childcare fees. That subsidy tapers off at a rate of 1% per additional $5,000 of income, running down to nothing when the household income reaches $538,520.

Labor has consistently raised these subsidies since it came to power in 2022 and says a family with a household income of $168,000, with one child in care for 30 hours a week, is $7,440 a year better off than they would be without the higher subsidies. But the fees themselves have been rising quickly, jumping 7.3% in the 12 months to August – more than twice the inflation rate.

The childcare subsidy was projected to cost the budget about $16.2bn last financial year and is slated to rise to $18.4bn by 2028-29.

The government already has a blueprint for universal childcare sitting on its desk. In June 2024, the productivity commission looked at three options: the recommended option was free childcare for families with a household income under $90,000, then progressively dropping the subsidy down from 100% towards zero with every $5,000 increase in household income, tapering off at $580,000. For a household income of $168,000, mentioned above, that would be an 85% subsidy.

The Productivity Commission also modelled a flat $10 a day or 90% subsidy option for all families but said the cost to the budget would be much higher and the benefit would disproportionately go to wealthier households.

Parents have to wait until their children turn three to get further relief, when additional subsidies offered by state governments for preschool kick in. But preschools run on school terms and typically offer 15 hours a week, leaving considerable gaps for parents working full-time.

The fees now faced by parents are comparable to private school fees, says Eshanee Collins, a Sydney-based mortgage broker. She says returning to work was part of her identity after having children but the cost of care made it a tough decision.

“I work full-time, and in all honesty, our household would probably be better off if I didn’t work and [did] not pay that [childcare] money,” she says.

Childcare is likely to become a key election battleground, with the Coalition looking at both the design of the childcare subsidy and paid parental leave settings, while One Nation has promoted income splitting and other policies that incentivise one parent staying home.

The Greens, meanwhile, have commissioned parliamentary budget office modelling on the cost of providing 50 hours a week of free childcare, which could cost $127bn over a decade.

Whichever way it’s sliced, childcare is expensive to run and public buy-in is essential. Labor is running out of time to decide what model of universal care it wants to pursue – and how to get voters on board.