But the minister responsible for childcare, Sussan Ley appeared open to the idea of government-supported nannies - if they were employed within the "existing regulated system".

The Assistant Education Minister said she wanted to solve the crisis of finding childcare for shift workers, who might work beyond the time that childcare centres are open.

"We won't be paying for au pairs to unstack the dishwasher," she told Radio National on Tuesday.

"We will be focused on early education and care."

The Productivity Commission released a 900-page interim report into childcare on Tuesday, suggesting that multiple subsidies be replaced with a single means-tested payment that would go to the parents' provider of choice.

The report, which is now open to public feedback, suggests that nannies and grandparents could be eligible to receive government payments if they had the proper early childhood education qualifications.

It also suggests a change to means testing of payments, that would see a family on an income of $60,000 or less get 90 per cent of the cost of childcare covered by the government. Families on $300,000 or more would get 30 per cent back from the government.

In politically charged comments, the Productivity Commission took a swipe at the Abbott government's paid parental leave scheme, which seeks to pay the primary carer their wage for 26 weeks, plus superannuation, capped at an annual salary of $100,000.

This is an increase on the current scheme, introduced under Labor, which pays women the minimum wage for 18 weeks.

"The Commission considers that it is unclear that the proposed changes to the paid parental leave scheme . . . would bring significant additional benefits to the broader community beyond those occurring under the existing scheme," the report says.

"There may be a case, therefore, for diverting some funding from the proposed new scheme to another area of government funding, such as [early childcare education and care], where more significant family benefits are likely."

But on Tuesday, Ms Ley stood firm on the government's policy.

"It's the right policy for the modern woman in a modern workplace," she told ABC TV.

"I guess I get frustrated when people don't see the difference between childcare policy and paid parental leave policy."

While Ms Ley stressed that the Productivity Commission had only issued a draft report at this stage - and that the final report was not due until October - she did appear open to the idea of nannies if they were properly regulated.

She also backed the idea of simplifying payments, but suggested the government was not looking to means test them.

"I think a single payment is important," she told Radio National. "Whether its means tested or not, we have no plans for that right now."

The Productivity Commission's initial report cautioned against making childcare tax deductable - as it was not an "effective means of support for lower and middle income families" - but Ms Ley said it was still on the table for the government.

She added that she wanted to have new policies ready for early 2015.

PPL scheme under fire

This is not the first time Mr Abbott's PPL policy has been independently criticised.

Earlier this year, the Audit Commission suggested that the wage replacement cap be reduced to average weekly earnings (currently about $57,000) and that savings be redirected to offset the cost of expanded childcare assistance.

Earlier this month, free market think tank the Centre for Independent Studies said it would be fairer and less expensive to fund the 26 weeks of parental leave through a HECS-style loans scheme.

Despite these suggestions - and significant disquiet within Coalition ranks about his policy - Mr Abbott has remained firm in his support for the "signature" scheme, however in April he did drop the wage cap from $150,000 to $100,000.

Labor's education spokeswoman Kate Ellis said that "funding things like nannies can only come from cutting existing childcare support".

'The only guarantee that this government has given when it comes to childcare is that there will not be an additional dollar invested in the sector."

The Greens' childcare spokeswoman Sarah Hanson-Young said the government needed to boost funding if it was going to adequately reform the sector.

Nannies 'must be qualified'

David Byrne, the acting national secretary of United Voice, said that childcare workers’ union wasn’t opposed to including nannies in the childcare rebate, as long as they were properly qualified.

But Mr Byrne was concerned that introducing new types of childcare workers would put even more pressure on existing funding.

“As with all outworkers, we would be concerned about their levels of support and their ability to access training and personal development”.

He also pointed out that in a childcare centre setting it was far easier for staff to take breaks and get assistance from other workers.

The Productivity Commission recommends that all people working with children get a Certificate III in early childhood education, which is the current minimum requirement for staff working in childcare centres.

But Helen Coffey, director of the Monash Community Family Co-operative, said this qualification was regarded merely as a “starting point” and almost all of her staff held at least a diploma.

She said many educators were passionate about their work but poor salaries made it tough to continue in their chosen career and the sector desperately needed more government support.

Childcare workers earn between $40,000 and $60,000 a year.

With Miki Perkins

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