Key points

Child care assistance should facilitate workforce participation of parents and support the development of children, particularly those from disadvantaged backgrounds.

Child care assistance should in most cases be provided as transfers to parents rather than subsidies to child care providers. The current child care payment structure could be simpler and more transparent.

Child Care Benefit and Child Care Rebate should be combined into a single payment to parents (or to child care centres in respect of each child) based on a percentage of out-of-pocket costs. This payment should be structured so that low-income families would be required to make a small co-payment. The payment should be means tested, but a base rate of assistance should be available to all families. The base rate of assistance should be linked to the marginal rate of tax faced by the majority of taxpayers.