$3.6 billion childcare pay deal staves off pay cuts, fee hikes and a strike

Tens of thousands of childcare workers will avoid pay cuts after the Albanese government agreed to double its $3.6 billion election pledge to prop up early educator salaries, due to expire this year.

Funding for the two-year deal to give early educators a 15 per cent pay rise, announced ahead of the 2025 election, was to expire in December. Sixty-thousand workers were facing pay cuts of 5 to 6 per cent, according to the United Workers Union, which was threatening to strike next month if the subsidy wasn’t extended.

A cap on how much providers could hike fees was also due to end in August, leading to calls from advocates for a new deal to prevent further price rises for families.

Childcare costs rose 9 per cent in the year to April, outstripping inflation, according to the latest data from the Australian Bureau of Statistics.

Childcare centres that had signed up for subsidy had faced the dilemma of either cutting wages or hiking fees beyond the cap of 4.2 per cent to 4.4 per cent to cover the gap once government funding ran out. Other centres did not take up the subsidy, arguing it would not cover their costs, instead increasing fees to pay staff.

Prime Minister Anthony Albanese had vowed in 2024 to fund the pay rise for childcare workers. The government had been banking on the Fair Work Commission fast-tracking pay increases for female-dominated industries to replace the subsidy by the time it expired, but the commission instead spread out the hikes until 2029 to help providers manage the costs.

The government will fill that gap by extending the taxpayer-funded subsidy, also known as the worker retention payment, until 2028, costing taxpayers another $3.6 billion.

Boosting and stabilising workforce numbers will be key to the prime minister’s goal of universal childcare, though any sweeping reforms to the sector were left out of this year’s budget as Treasurer Jim Chalmers warned the government could not afford it.

Albanese said early educators played a crucial role in society and deserved to be paid fairly while the government worked to keep costs down.

“Only childcare centres who agree to limit their fees for parents will be eligible to receive funding for this wage increase for workers,” Albanese said.

Family day care and in-home care sectors will be eligible for the first time from July.

The government will also tie the funding to providers meeting the National Quality Standard from mid-2027, in an attempt to increase compliance after a slew of child-abuse revelations rocked the sector.

Minister for Education Jason Clare said Labor had been working hard for the past year to improve safety and that linking the funding to standards was the next step.

“Nothing is more important than the safety of our kids. This will help to make sure safety and quality in early education is what parents expect and what our children deserve,” Clare said.

Combined with the minimum wage rise this month, the subsidy means a typical full-time educator gets $255 more a week and early childhood teachers an extra $410 compared to when the payment was introduced in December 2024.

The sector’s ranks have grown by about 8 per cent, or 20,000 workers, since then, and job vacancies had decreased almost 31 per cent.

Fees at centres that have opted into the payment grew at around half the rate of centres that haven’t and the number of services operating with a staffing waiver – meaning understaffed – fell from 8.9 per cent to 5.1 per cent.

The United Workers Union said last month the pay rise had recognised the longstanding undervaluation of early childhood education and care work and had improved worker retention rates.

“This pay rise has made a real difference for the families and children who depend on quality early childhood education, by retaining the passionate, dedicated staff who want to stay in the sector,” the union’s early education director, Carolyn Smith, said while lobbying for its extension.

The Parenthood chief executive Georgie Dent had written to the prime minister calling for certainty for the sector.

The parental lobby group pointed out the rising childcare costs, saying fees had soared in the past year at three times the rate of inflation, while two in five families were paying out-of-pocket costs beyond the hourly rate cap.

“Early childhood education is essential infrastructure for families, children, communities and the economy,” Dent said.

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