Childcare providers say they are facing a disaster when the sector is cut off from JobKeeper payments and the free childcare package comes to an end in July.
Federal education minister Dan Tehan said the coronavirus childcare package, which mandated free childcare in exchange for subsidies of 50 per cent of fee revenue, will end on July 12 with a new set of measures to be introduced as the sector transitions back to the fee subsidy model.
The $1500 per fortnight JobKeeper payments will cease for the sector from July 20.
Instead the government will pay childcare services a "transition payment" of 25 per cent of their usual fee revenue. This payment will be made from July 13 to September 27 as it transitions back to the childcare subsidy system.
Providers will be asked to cap fees at the level of the reference period, which is the fortnight ending in March 2.
YWCA Canberra chief executive Frances Crimmins said while the free childcare scheme would have to end it was very concerning that JobKeeper payments would end.
"That's a disaster. JobKeeper should not stop for the sector," she said.
"This is a highly feminised work sector. As much as we've been trying to get higher professional wages for our staff, it's very disappointing that you would devalue the sector and not keep the JobKeeper subsidy."
She said it raised complications in organisations, such as the YWCA, that provided other services outside childcare.
Early Childhood Australia chief executive Samantha Page said the impact of losing the JobKeeper payment could be "really significant".
"We shouldn't experiment with people's lives and income....This is not a well paid sector to start with," she said.
"The sector employs 200,000 people. Every dollar invested keeps people employed, keeps others going to work and gives children an early childhood education."
Mr Tehan said demand for childcare places had reached 74 per cent, prompting the new transition phase.
"No one imagined two months ago that we would be in the position that we are," he said.
"I think most people, most experts thought it would take at least four to six months for us to be in this position.
"So what we must do is now put in a system, in place, that enables us to transition, to be able to deal with the extra demand that is coming into the system and that is what this package is designed to do."
Mr Tehan said the activity test for families eligible for childcare subsidies would be eased until October 4 to support those whose employment had been impacted by COVID-19. This will allow families to access 100 hours of subsidised childcare according to their annual income.
Labor's early childhood education spokesperson Amanda Rishworth said the government wanted to snap back to a complex system with high fees.
"What we know is for many families, the cost of child care prior to this pandemic was out of reach. It was too expensive and too difficult.
"And now with this announcement from the Minister that he wants to just snap back, many families are just going to shrug their shoulders and say it's all too hard."
Ms Crimmins said the childcare system was too complicated and needed an overhaul.
"From a provider's point of view, we do need to get back to having more than 50 per cent of income coming in but we also need a more simplified system."
Ms Page said she was concerned children would miss out on early childhood education when fees were reintroduced.
"Parents are paying a lot of money in this country for early childhood education and we can't assume they still have the capacity to pay.
"There's no reason why we couldn't be more supportive of our children's early education experience."
Mr Tehan said the transition scheme was developed in consultation with the sector but Ms Page said she did not see much of the advice provided by the Early Childhood Australia and others reflected in the announcement.