By Kathryn Magann in Sydney

CHILDCARE fees and operating costs have jumped amid concerns the sector is failing to deliver an adequate service to Australian families.

The Australian Competition and Consumer Commission has released a second interim report from its inquiry into the childcare industry.

The consumer watchdog found Australian parents on average incomes with two children in care are paying about 16 per cent of their net household funds on childcare costs, much more than the OECD average of nine per cent.

The numbers come in the face of the Australian government spending more than double the OECD average on subsidies.

ACCC Chair Gina Cass-Gottlieb said the market forces under current policy settings were not delivering on accessibility and affordability for all children and families across Australia.

The figures cover the period before the current Labor government’s  Commonwealth Child Care Subsidy came into effect in July.

Education Minister Jason Clare said the report made it clear that the current cap on child care fees, introduced by the previous government, was ineffective and reform was needed.

“This report reveals that child care costs under the former government went up by twice as much as the OECD average and the reforms they introduced to cap prices haven’t worked,” he said.

He said the government’s Cheaper Child Care investment meant families paid on average 14 per cent less per hour per child for centre-based day care in its first week.

The report also found that large, not-for-profit providers, had a higher proportion of staff employed full-time and at an above award wages compared to for-profit providers.

Minister for Early Childhood Education Anne Aly said the report would inform a Productivity Commission review.

“We want to ensure all Australian families, no matter where they live or their background, have equitable access to affordable quality early childhood education and care,” she said.

One recommendation from the interim report was for the government to consider supply-side subsidies and direct price controls to limit the impact on taxpayers.

“We have observed that many countries are spending more on childcare to improve affordability and are moving towards greater regulation of childcare fees by offering low fees or free hours, supported by supply-side subsidies,” Ms Cass-Gottlieb said.

The current activity test, judging a household’s eligibility for subsidised hours of care, was noted for reducing demand due to higher costs of childcare.

The report found that households with the lowest entitlements to subsidised hours of care also had the lowest median incomes, driving up their costs.