Government-funded child care subsidies aim to achieve two key objectives: increasing maternal labour force participation and improving access to formal child care for disadvantaged children. However, effectiveness depends on policy design. To assess how specific design features influence these outcomes, we examine effects of a major child care policy reform implemented in 2018.

The 2018 reform aimed to expand subsidy eligibility for low- to middle-income households while reducing subsidies for higher-income households. This was paired with a restructured activity test which tied access to subsidised hours to hours of activity, such as work or study.

We find that the reform:

• had no measurable effect on maternal labour supply; and
• led to a limited increase in formal child care use, with no impact on low-income households.

These unintended outcomes stem from two key factors.

• The interaction between the new subsidy schedule and more stringent activity test resulted in minimal overall changes in subsidy eligibility across income levels. Most households, especially those on low-to-middle incomes, experienced a net reduction in subsidies under the new system.
• The changes to child care subsidies interacted with the broader tax and transfer system, created financial disincentives for mothers to increase labour supply or use formal care.

Investigating the causal effect of the 2018 reform offer valuable lessons for future policy design, including for universal child care. The recent abolishment of the activity test could increase child care use, particularly among low-income households, but increasing maternal labour force participation requires broader reforms. Addressing disincentives in the tax and transfer system is essential to unlocking the full economic benefits of child care support.