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The federal government contributes about $7 billion a year for childcare. This covers about two thirds of parents' childcare costs.
There are two main forms of payment. One is the childcare benefit, which is for families with an annual income under $43,000. It covers up to 100 hours a fortnight of care and parents need to work or study 15 hours a week to meet it.
The rate depends on the number of hours parents work, how many children they have in care, how old they are and what type of service they use.
The other is the childcare rebate, which covers 50 per cent of out-of-pocket childcare expenses, up to a maximum of $7500 a year. This is not means tested and more than 90 per cent of families who use childcare services are estimated to receive it.
Parents' can qualify for both the benefit and the rebate, and currently about 686,000 families do.
There is also a third payment, the Jobs, Education and Training Childcare Fee Assistance, for parents who qualify for the maximum rate of the childcare benefit.
It pays most of the gap in out-of-pocket costs not covered by the benefit when a parent is working or studying.
What is being proposed?
The Productivity Commission wants to roll the childcare benefit, rebate and fee assistance into a single subsidy.
It would be paid straight to the childcare provider and be means tested.
How much would people get?
The subsidy rate would be between 85 per cent for family incomes at or below $60,000 and 20 per cent for family incomes at or above $250,000.
The average rate of assistance across all income groups is estimated to be about 65 per cent, which is "largely unchanged" from the average rate provided under the current scheme, the Productivity Commission says.
It would involve an hourly benchmark price, which is based on the median fees charged for the type of service and the age of the child.
In its report, the commission said the rates for 2013-14 were estimated at $7.41 an hour for children under three in long day care, $7.20 for a child over three in long day care, $6.94 for all children in family day care (which would also be applied to nannies) and $6.00 for outside school hours care.
To qualify for the subsidy, most parents would need to work at least 24 hours a fortnight.
How many hours would it subsidise?
100 hours a fortnight
What does this actually mean for parents?
This is where it gets tricky. The amount you receive will depend on what type of childcare you access, how old your children are and how much income you earn.
Also, the subsidies will only apply to the benchmark price. So if you are in an area where childcare is more expensive than $7.41 an hour, then you will be picking up the cost.
