JOE Hockey has warned that childcare and family welfare payments are set to explode by $5.6 billion in a cost blow-out that will reignite the debate over means testing.

The Treasurer’s budget update will confirm on Monday that the Senate’s refusal to pass budget measures to reduce spending have torpedoed the Treasurer’s hopes of delivering a budget surplus by 2018.

The Sunday Telegraph can also reveal that his budget update will confirm that childcare and family payments are ballooning in cost contributing to a budget deficit that is larger than original forecasts. The cost blow-out is one of the factors in the Prime Minister’s recent decision to trim his paid parental leave scheme to fund more affordable, flexible childcare.

The Mid Year Economic Fiscal Outlook will confirm that Family Tax Benefits payments are expected to increase by more $3.2 billion over the next four years.

This blowout is despite the Senate agreeing to a tougher means test for Family Tax Benefit A that will scrap payments for parents earning over $100,000. Labor has blocked proposals to restrict payments to families with children over the age of six.

The budget update will also confirm that the Child Care Rebate and Benefit payments are expected to grow by around $2.4 billion over the next four years. Combined, the cost blow-outs will contribute additional cost pressures of $5.6 billion. Over the next four years, the government is already on track to spend $28 billion on childcare subsidies.

Lower wages are partly to blame for the bigger welfare bill, because what some experts are describing as an “income recession’’ means that more families are qualifying for government handouts.

Mr Hockey stressed that spending on childcare was vital to boost female participation in the workforce

“Australian people want to work and we want to give them the flexibility they need to do it,’’ he said.

“People just want to get on with it and we want to make sure support for families is sustainable and flexible.’’

The Prime Minister said that work to refine the government’s new approach to childcare would continue over the summer break.

“Australian families are doing their best to juggle work, family life and child care,’’ he said.

“So we’re developing a comprehensive plan that will both deliver a parental leave scheme which really helps families as well as deliver more affordable and more accessible child care.’’’

media_camera Prime Minister Tony Abbott and Treasurer Joe Hockey are set to reveal updates on the federal budget.

Mr Hockey said each month more than 10,000 jobs have been created this year compared to last year.

“More jobs, including for women, are a key part of our strategy to improve people’s lives and create more prosperity,’’ he said.

“As the Grattan Institute has observed, if we improve our female workforce participation rate to the same level as Canada’s our economy would be a permanent $25 billion bigger. “

But the increasing cost of childcare subsidies is likely to increase the pressure on the government to consider radical options including rolling two existing childcare payments — the childcare rebate and the childcare benefit into a single, means tested system.

The Prime Minister has already signalled that he is reviewing his paid parental leave scheme and childcare policies over the Christmas break.

The changes will include a new means testing the paid parental leave scheme and introducing a tougher cap on payments that will ensure women earning $100,000 or more no longer secure six months pay or $50,000 under the scheme.

Further means testing of childcare payments could include further restricting access to free or low cost childcare for stay-at-home parents who do not meet a work test and means testing the childcare rebate for the first time.

Any decision to means test the childcare rebate would be controversial but might also answer critics of the Prime Minister’s plan to extend the rebate to nannies.

If the Abbott Government chose to extend the rebate to nannies but also means test the childcare rebate it might soften criticism that it was welfare for the rich.

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