More parents are taking their children out of childcare despite the government spending a vast amount on childcare subsidies, as hourly costs in the sector continue to climb.
The number of children in care, and the number of families using the child care subsidy, fell in the December quarter in 2025 for the first time since it was introduced in 2018 – excluding the COVID-19 pandemic – according to the government’s latest report on the system.
The report showed rising childcare prices, up 4.6 per cent to an average hourly fee of $13.75, were a growing impost on Australian parents whose confidence in the sector was also rocked by a series of allegations against workers abusing children in their care last year.
Ben Phillips, associate professor at the Australian National University’s Centre for Social Policy Research, said the fall in the number of children in care at the same time as costs increased faster than inflation did not represent good value for money.
“We have invested a lot of money into childcare, and it doesn’t seem to be having the impact that government might like,” he said.
The report said the number of children in care had declined in every state except Victoria, where the rate remained virtually unchanged, with an overall dip in subsidy use of 0.7 per cent. The total number of children in care was just over 1.5 million but fell by 11,600 between December 2024 and 2025, while the number of children receiving the subsidy dropped by about 10,000 – from 1,447,460 to 1,437,520.
The report estimated the childcare subsidy had cost the government $3.98 billion, up 2.4 per cent from the previous year’s December quarter.
Phillips said the reversal of the long-term trend for growing demand for childcare was significant because of the amount of government investment.
Most of the money pumped into the childcare subsidy tended to benefit middle- to higher-income families who would probably use childcare regardless of the government payment, Phillips said, which could be limiting its effectiveness.
“We haven’t seen any particular dividend, really, in terms of the use of childcare … so the policy outcomes have been a little underwhelming,” he said.
The Albanese government removed the activity test for subsidies earlier this year so all children could access the childcare subsidy regardless of how much their parents work – known as the three-day guarantee. That measure is not captured in the latest data, but Phillips was not optimistic that it would make a substantial change.
“The evidence I have seen so far from the increases in the childcare subsidies, you won’t get substantial outcomes from that either,” he said, adding that safety concerns and other growing costs could have led to parents keeping their children at home.
“We still have seen some reasonably big increases in price growth, although potentially not quite as strong as we’ve seen in other recent years.
“[The subsidy] probably did work in terms of making childcare more affordable initially, but that’s starting to wash out now, as prices increase.”
Phillips said the stalling growth should serve as a warning for the government to be cautious in how it developed a universal childcare model – an aspiration of Prime Minister Anthony Albanese. He said it could even incentivise providers to raise fees further.
“That would be a very big impost to the government, it would become like another, potentially, an NDIS giant, where the budget costs become out of control,” he said.
“I’m having increasing doubts as to whether we’ll have a universal childcare system anytime soon.”
Opposition childcare spokesman Matt O’Sullivan said the system was operating near capacity, and that options beyond centre-based care needed to be looked at.
“Centre-based day care is highly saturated. Many services are full or constrained by staffing shortages,” he said. “As a result, even where subsidies improve affordability, families are often unable to access additional hours or places.”
He said significant work was still needed to restore trust in the system following the allegations of abuse in centres.
Andrew Hudson, the chief executive of the independent Centre for Policy Development, said it was likely that stories of abuse in childcare settings had “really affected parents’ confidence”.
“The most important thing to take away from this is we need a high-quality, accessible, affordable, universal learning system in Australia. We don’t want falling usage rates. No one thinks that’s a good idea,” he said.
Minister for Early Childhood Education Jess Walsh was contacted for comment.
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Brittany Busch is a federal politics reporter for The Age and Sydney Morning Herald.Connect via email.