APPENDIX 2 CHILD CARE SERVICES IN THE CPI
INTRODUCTION
1 The purpose of this article is to describe how the costs of child care services are treated in the Australian Consumer Price Index (CPI). It provides an outline of the methodology for pricing child care in the CPI and describes the current and previous treatments of the rebates and subsidies, referred to as child care 'benefits', provided by the federal government. This includes the Child Care Rebate (CCR) and Child Care Benefit (CCB).
CHILD CARE IN THE CPI
2 As part of calculating the CPI, the ABS seeks to measure the rate at which the price of child care changes from quarter to quarter. Child care is one of the items in the basket of consumer products that the ABS measures to produce the CPI. The CPI is calculated as a weighted average of the percentage price changes of these items. The composition and weights are based on information gathered via the Household Expenditure Survey (HES), a sample survey conducted periodically by the Australian Bureau of Statistics (ABS) to determine the expenditure patterns of private households.
3 Weights are assigned to each item to reflect their relative importance to household consumption in Australia. The 16th series CPI weighting pattern, introduced from the September quarter 2011, was determined according to the 2009-10 HES, and assigns average household expenditure on child care a weighting of 0.69% of the All groups CPI. This percentage might appear low to some, but it represents the average outlay across all households, not just those with children.
4 Child care is one of many components that go into the production of the CPI, an important and useful measure of the change in consumer prices over time. The CPI measures the price inflation experienced by households and informs the community about changes to the real purchasing power of consumers' incomes. The CPI assists governmental economists in conducting general economic policy, especially monetary policy, and is also widely used for indexation arrangements in both private and public sectors.
METHODOLOGY FOR MEASURING CHILD CARE
5 In regard to timing, consumption of child care is recognised at the time when the child care service is provided, rather than at the time of payment. This is consistent with the 'acquisitions' approach and the concept that 'a service is acquired at the time that the producer provides it' explained in para 1.151, Consumer Price Index Manual: Theory and Practice, International Labour Organization, 2004.
6 The price of child care in the CPI is equal to the gross fee payable by the parents, less the amount of subsidies directly related to child care services that they receive. It is measured on an out-of-pocket expenses basis as follows:
Net Child Care Fees = Gross Child Care Fees - Child Care Benefit - Child Care Rebate.
BENEFITS, SUBSIDIES AND REBATES IN THE CPI
7 Subsidies directly related to child care services are in scope of the CPI, to ensure a symmetrical treatment with taxes on products. The ABS follows the advice that 'subsidies should be taken into account, being treated as negative taxes on products' (para 3.135, Consumer Price Index Manual: Theory and Practice, International Labour Organization, 2004).
8 Following from the acquisitions approach, child care subsidies are in scope of the CPI only where 'they are tied to the level of consumption' of child care services (para 5.7, Australian Consumer Price Index: Concepts, Sources and Methods, 2009 (cat. no. 6461.0)).
9 For inclusion in the CPI the ABS also requires that the benefit is not an integral component of the income tax system and is available to non-taxpayers as well as taxpayers. The term 'taxpayer' refers to households that are paying income tax.
CHILD CARE SUBSIDIES PROVIDED BY THE FEDERAL GOVERNMENT
10 The federal government subsidises some of the costs of child care. Two such payment types are discussed below, the Child Care Benefit (CCB) and the Child Care Rebate (CCR).
CHILD CARE BENEFIT (CCB)
11 CCB is a payment to assist families with children in registered and approved child care, administered by the Department of Education, Employment and Workplace Relations (DEEWR) and delivered by the Families Assistance Office (FAO). Families can claim up to 24 hours of care per child per week, and up to 50 hours if the parent(s) are studying, working or looking for work.
12 As of January 2005, grandparents who have the primary responsibility for raising a grandchild, can claim up to 50 hours of care per child per week and are eligible to have the full cost of fees covered. This is referred to as the Grandparent Child Care Benefit (GCCB). Eligibility depends upon the grandparent carer receiving an income support payment from Centrelink or Department of Veterans Affairs (DVA).
13 CCB payments depend upon the family's income, the amount of care the family uses, the reason for using care, the number of children in care and the type of care used (approved or registered). From 4 July 2011 the maximum rate of CCB for one child in full-time approved child care centres increased from $184.00 to $189.00 per week. For families using registered care the maximum rate of CCB increased from $30.75 to $31.60 per week. Payments are based on the family's annual income, and CCB rates reduce on a sliding scale depending on income and the number of children in care. CCB is not available to high income families whose combined income exceeds a certain limit, for example the income limit is $138,065 for a family with one child in care. For more information on CCB see: <http://www.familyassist.gov.au/payments>.
14 The CCB is considered in scope of the CPI, and has been included in the calculation of child care expenses since the September quarter 2000.
CHILD CARE REBATE (CCR)
15 The CCR was introduced by the federal government in 2004-05 to assist working families with the cost of child care. One important distinction between the CCB and the CCR is that the CCR is not means tested. The CCR scheme provides assistance to families using approved child care for work, training or study-related purposes. Families who use registered care are not eligible to receive CCR.
16 In the initial design the government offered to pay 30% of out-of-pocket child care expenses, defined as total child care costs minus any Child Care Benefit received. The CCR was initially delivered as a tax offset and fell outside the scope of the CPI according to criteria set out in Australian Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0). The original form of the CCR prevented non-taxpayers from accessing the benefit. Legislation stipulated the CCR was a non-refundable tax offset and could only be claimed in the tax return of the following year (Tax Laws Amendment (2005 Measures No. 4) Bill 2005). The ABS viewed this mechanism as being integral to the income tax system and therefore out of scope.
17 The CCR was brought into scope of the CPI on 1 July 2007 due to a change to the administration of the CCR which enabled non-taxpayers to access the benefit. The new design meant that the FAO would pay the CCR payment directly into the bank account of eligible families, after the family's tax returns had been lodged but regardless of tax liability. Consequently, the CCR has been included in the calculation of child care expenses from the September quarter 2007.
At that stage CCR = (Gross Child Care Fees - CCB) x 30%.
18 On 1 July 2008 the CCR was raised to cover 50% of out-of-pocket expenses up to an annual threshold of $7,500. The CPI calculates the CCR as (Gross Child Care Fees - CCB) x 50%. CCR payments are made to eligible families at the end of each quarter. From 1 July 2009 the annual cap for CCR claims increased to $7,778 per child. Since 5 July 2010 the annual cap for CCR claims has been lowered back to $7,500 per child, per year. For more information on CCR, see:<http://www.familyassist.gov.au/payments>.
19 From July 2011, eligible families receiving the CCB and the CCR can choose to have the CCR paid either fortnightly or weekly directly into a bank account or to the provider of approved child care services and have the amount deducted from the gross child care fees. However, 15% of the CCR entitlement will be withheld until the end of the financial year if this option is chosen. Alternatively, CCB can be paid directly into a nominated bank account either quarterly or at the end of the financial year. For the purpose of compiling the CPI, it is assumed that the household receives the CCR as a direct payment not as a deduction from the gross child care fees.
NET CHILD CARE FEE CALCULATION
20 The ABS calculates net child care fees after calculating the two components, gross fees and child care benefits, separately. To produce an estimate of an average household's gross child care fees payable, the ABS collects prices from a sample of child care centres, including family day-care, and private and community child care centres, in each capital city.
21 The ABS models the value of the average household's CCB and CCR entitlements using a random sample of family profiles from the population of families that receive CCB and CCR. These profiles include a range of attributes such as income, number of children and hours in care for each child, that are necessary to generate the estimate taking account of any change to the annual CCR thresholds. The incomes of the sampled families are indexed quarterly in line with a four-quarter moving average of the wage price index from Labour Price Index, Australia (cat. no. 6345.0). The ABS updates the model annually as new CCB and CCR rates and limits apply from each year.
EXAMPLE OF HOW NET CHILD CARE RATES ARE CALCULATED IN THE CPI
22 The following examples illustrate how the CPI measures the changes in a family's out-of-pocket expenses when either the child care fees increase and/or the family receives a pay rise. The maximum CCB that can be claimed from 4 July 2011 is $189.00 per week for one child in full-time care. In the examples below the family has a combined annual income of $65,000. Families earning $65,000 per year are entitled to $140.51 (74.34% of the maximum) child care benefit. The CCR is 50% of the difference between the child care fees incurred and the CCB.
EXAMPLE 1 - THE FAMILY RECEIVE A 4% PAY RISE |
|
 | Period 1 | Period 2 |
|
| Combined household income | $65,000 per annum | $67,600 per annum |
| (% change) | | 4.0 |
| Gross child care fees | $300 per week | $300 per week |
| (% change) | | 0.0 |
| Eligible child care benefit | $140.51 per week | $135.51 per week |
| Eligible child care rebate | $79.75 per week | $82.25 per week |
| Net child care fee | $79.75 per week | $82.25 per week |
| (% change) | | 3.1 |
|
EXAMPLE 2 - THE CHILD CARE FEES INCREASE BY $10 PER WEEK |
|
| Period 1 | Period 2 |
|
| Combined household income | $65,000 per annum | $65,000 per annum |
| (% change) | | 0.0 |
| Gross child care fees | $300 per week | $310 per week |
| (% change) | | 3.3 |
| Eligible child care benefit | $140.51 per week | $140.51 per week |
| Eligible child care rebate | $79.75 per week | $84.75 per week |
| Net child care fee | $79.75 per week | $84.75 per week |
| (% change) | | 6.3 |
|
EXAMPLE 3 -THE FAMILY RECEIVE A 4% PAY RISE AND CHILD CARE FEES INCREASE BY $10 PER WEEK |
|
| Period 1 | Period 2 |
|
| Combined household income | $65,000 per annum | $67,600 per annum |
| (% change) | | 4.0 |
| Gross child care fees | $300 per week | $310 per week |
| (% change) | | 3.3 |
| Eligible child care benefit | $140.51 per week | $135.51 per week |
| Eligible child care rebate | $79.75 per week | $87.25 per week |
| Net child care fee | $79.75 per week | $87.25 per week |
| (% change) | | 9.4 |
|
GROSS VERSUS NET PRICES
23 The table below compares the price indexes for gross and net child care fees over the period from the September quarter 2005 to the September quarter 2011. It should be noted that the gross price index has only been prepared from the September quarter 2005 and has a different reference base from the CPI net child care index.
24 Since the September quarter 2005, the gross child care price index rose 48.9%, higher than the net child care price index which fell 16.2%. The Consumer Price Index (CPI) rose by 19.8% over the same period.
25 From the table it can be seen that many components impact on this net price index. In the September quarter 2007 the net price index showed a reduction in 'out-of-pocket expenses' with the impact of the inclusion of the CCR as a rebate for the first time and an additional 10% indexation of the CCB rates on top of the usual annual CPI indexation. The net price index showed another reduction in September quarter 2008 due to the increase in CCR from 30% to 50%.
26 The net price index generally rises more rapidly than the gross prices charged by the child care providers. This is because over recent years, the Labour Price Index (LPI) has been rising at a faster rate than the Consumer Price Index (CPI) and so family incomes are increasing faster than the income thresholds used in calculating CCB. As a result, the subsidy paid under the CCB becomes a smaller proportion of the overall costs of child care. The CCR does take up some of this gap. The exception to this pattern is in the September quarter of each year, which is the time that fee increases by child care providers usually take effect.
27 In other words, the out-of-pocket expenses (prices after CCB and CCR rebates are taken into account) that form the basis of the net prices recorded in the CPI generally rise more rapidly than the gross prices charged by the child care providers.
CHILD CARE TIME SERIES TABLE |
|
| NET CHILD CARE (CPI measure including CCB and CCR) | GROSS CHILD CARE |
| Index Numbers(a) | Percentage Change from previous quarter | Percentage Change from corresponding quarter of previous year | Index Numbers(b) | Percentage Change from previous quarter | Percentage Change from corresponding quarter of previous year |
|
| Sep 2004 | 187.4 | 4.6 | 10.3 | na | na | na |
| Dec 2004 | 192.2 | 2.6 | 13.1 | na | na | na |
| Mar 2005 | 198.7 | 3.4 | 12.0 | na | na | na |
| Jun 2005 | 201.5 | 1.4 | 12.4 | 100.0 | na | na |
| Sep 2005 | 204.4 | 1.4 | 9.1 | 103.2 | 3.2 | na |
| Dec 2005 | 211.8 | 3.6 | 10.2 | 104.3 | 1.1 | na |
| Mar 2006 | 222.5 | 5.1 | 12.0 | 106.3 | 1.9 | na |
| Jun 2006 | 226.5 | 1.8 | 12.4 | 106.8 | 0.5 | 6.8 |
| Sep 2006 | 233.9 | 3.3 | 14.4 | 110.8 | 3.7 | 7.4 |
| Dec 2006 | 238.5 | 2.0 | 12.6 | 111.5 | 0.6 | 6.9 |
| Mar 2007 | 251.3 | 5.4 | 12.9 | 113.9 | 2.2 | 7.1 |
| Jun 2007 | 255.6 | 1.7 | 12.8 | 114.3 | 0.4 | 7.0 |
| Sep 2007 | 170.2 | -33.4 | -27.2 | 119.4 | 4.5 | 7.8 |
| Dec 2007 | 172.3 | 1.2 | -27.8 | 119.9 | 0.4 | 7.5 |
| Mar 2008 | 180.1 | 4.5 | -28.3 | 122.5 | 2.2 | 7.6 |
| Jun 2008 | 182.3 | 1.2 | -28.7 | 123.0 | 0.4 | 7.6 |
| Sep 2008 | 140.5 | -22.9 | -17.5 | 128.1 | 4.1 | 7.3 |
| Dec 2008 | 142.5 | 1.4 | -17.3 | 128.8 | 0.5 | 7.4 |
| Mar 2009 | 146.8 | 3.0 | -18.5 | 130.7 | 1.5 | 6.7 |
| Jun 2009 | 148.2 | 1.0 | -18.7 | 131.1 | 0.3 | 6.6 |
| Sep 2009 | 149.5 | 0.9 | 6.4 | 134.9 | 2.9 | 5.3 |
| Dec 2009 | 151.4 | 1.3 | 6.2 | 135.7 | 0.6 | 5.4 |
| Mar 2010 | 156.0 | 3.0 | 6.3 | 138.0 | 1.7 | 5.6 |
| Jun 2010 | 156.4 | 0.3 | 5.5 | 138.0 | 0.0 | 5.3 |
| Sep 2010 | 160.2 | 2.4 | 7.2 | 141.7 | 2.7 | 5.0 |
| Dec 2010 | 162.0 | 1.1 | 7.0 | 142.4 | 0.5 | 4.9 |
| Mar 2011 | 166.7 | 2.9 | 6.9 | 144.5 | 1.5 | 4.7 |
| Jun 2011 | 168.2 | 0.9 | 7.5 | 145.0 | 0.3 | 5.1 |
| Sep 2011 | 171.3 | 1.8 | 6.9 | 148.8 | 2.6 | 5.0 |
|
| na not available |
| (a) Base 1989-90 = 100.0 |
| (b) Base June quarter 2005 = 100.0 |
FURTHER INFORMATION
28 For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070.
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