The Abbott government’s $5.5 billion paid parental leave (PPL) scheme has been slammed by the Productivity Commission, who say they doubt the policy will encourage more woman to go back to work.

In a report into the childcare industry released today, the commission has recommended more government investment in childcare subsidies, according to an Australian Financial Review report.

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Commission recommendations

The commission recommends funding from the PPL scheme be diverted into a new childcare subsidy, which they claim would see more women participate in the workplace.

The key recommendation from the report is a single payment, known as an “early care and learning subsidy”, which would cover a higher proportion of childcare costs for lower and middle income families.

The report has also suggested children with additional needs have access to a ‘top-up’ subsidy to meet additional care costs.

The report says that while parental leave is important, “the workforce participation of mothers of children aged under 15 years is affected by the costs and availability of suitable childcare.”

What’s covered?

The report recommends that both existing child care providers and in-home services such as nannies be covered by the subsidy, in order to make both options more affordable.

While assistance will be provided for approved nannies, au pairs would not be included.

The subsidy would support 100 hours of care a fortnight, for families that meet an activity test of 24 hours of work, study or training per fortnight.

Is it means tested?

The new report claims there needs to be more support for low-income families seeking childcare.

Under the recommended subsidy, low-income families with household incomes of $60,000 or less would see 90 per cent of their childcare costs paid for by the government.

Under present childcare arrangements, all families are entitled to a childcare rebate which covers 50 per cent of expenses of up to $7500 a year.

Under the proposed subsidy, families with incomes of $300,000 or more would see their assistance reduced to 30 per cent of expenses.

According to a report by The Australian, middle income families would also be better off, with a proposed assistance rate of 76 per cent for households earning $80,000 to $100,000.

How much will it cost?

The Productivity Commission’s recommendations would cost an extra $800 million per year, but they argue that the pay-offs would be an extra 47,000 people in the workforce.

This would lead to a lift in the economy, with gross domestic product increasing by $5 billion, or 0.4 per cent.

Industry and government reaction

Assistant Minister for Education Sussan Ley rejected the Productivity Commission’s suggestion of diverting funding from the PPL scheme in to childcare.

“I guess I get frustrated when people don’t see the difference between childcare policy and paid parental leave,” Ms Ley told ABC’s News Breakfast.

Labor’s early childhood spokeswoman Kate Ellis welcomed the report, saying the proposed changes would be get a “better outcome for Australian families.”