The federal government will ditch its free childcare scheme next month, moving to reintroduce childcare subsidies for parents while ending the JobKeeper payment for workers in the sector.

The scheme was introduced in April with the aim of keeping providers afloat during the coronavirus pandemic.

But changes announced by federal Education Minister Dan Tehan on Monday will see free childcare come to an end on July 12, with a three-month, $700 million support package to be offered to the sector from the following day.

Under the changes, parents will go back to paying for their children’s care, with the reintroduction of the Child Care Subsidy, but the government will loosen the criteria for subsidised care for families hit by the economic downturn.

“The government will also ease the activity test until October 4 to support eligible families whose employment has been impacted as a result of COVID-19,” Mr Tehan said.

“These families will receive up to 100 hours per fortnight of subsidised care during this period.”

Changes to government support for the sector will also see the JobKeeper payment ended for workers in the sector.

Instead, the government will bring in a $708 million support package, which will require employment levels be guaranteed to protect staff coming off of JobKeeper.

The funding will also be contingent on childcare fees being capped at the level they were at in late February.

The transitional funding will last until September 27.

The free childcare policy was introduced with the goal of continuing the essential service as parents pulled their children from child care at the height of the pandemic.

But Mr Tehan said it was no longer needed.

“What we have seen is demand grow and grow over the last few weeks so that we needed to change the system,” Mr Tehan said.

“This system was designed for when demand was falling. Now we are seeing demand increasing.”

Mr Tehan said he could not guarantee demand would not shrink as free child care ended on July 12.

-ABC