The answer in brief: The Commonwealth now ties a service's Child Care Subsidy funding to its safety and compliance record. Since that funding covers around 70 percent of a centre's running costs, losing it is close to fatal. The Department can impose conditions (including requiring a quality improvement plan) or issue a formal notice giving 28 days to respond before suspending or cancelling funding. In 2026 it began using these powers. For approved providers, Assessment and Rating is no longer only about your rating. It is about staying open.
| Applies to | All CCS-approved services under the NQF: centre-based, family day care, in-home and outside school hours care |
| Key law | Strengthening Regulation of Early Education Act 2025; National Quality Standard, Quality Area 7 |
| Jurisdiction | Australia-wide (the Child Care Subsidy is Commonwealth) |
| Key dates | Child safety embedded in the NQS from 1 January 2026; enforcement actions announced from mid-2026 |
| Sources checked | 20 July 2026 |
For years, an Assessment and Rating visit felt like a quality exercise: important for your reputation, stressful for your team, but rarely a threat to the doors staying open. That has changed. In 2026 the Commonwealth can withdraw a service's Child Care Subsidy funding for failing to meet child safety standards, and it has started to. If you are an approved provider or sit on a board, the stakes of getting A&R right just moved from your rating to your survival.
Here is what actually changed, how the funding power works, and how to be ready rather than anxious.
Funding is now the lever
The Child Care Subsidy is about $16 billion a year, and it is the single biggest source of income for most services. It covers roughly 70 percent of a centre's running costs: wages, rent, electricity. A service cannot really operate without it.
That is exactly why the government has made it the enforcement tool. Losing CCS approval does not just mean a fine. It makes a service ineligible for families, who can no longer claim the subsidy against their fees, which makes the service unaffordable, which empties it. In practical terms, cutting the funding cuts the service. It is a blunt instrument, and that is the point.
Two guardians, one system
It helps to know who does what, because the two halves now work as one.
Your state or territory regulator enforces the Education and Care Services National Law and rates your service against the National Quality Standard. They do the inspections, they set the ratings, and if there is an immediate threat they can close a service on the spot.
The Commonwealth controls the money. It manages CCS eligibility and, now, can suspend or cancel it. So the pattern is simple: the state regulator provides the evidence of a breach, and the Commonwealth provides the financial consequence. A gap the state flags can now become a funding decision in Canberra.
How the funding power actually works
Required by law: under the Strengthening Regulation of Early Education Act 2025, a provider's quality, safety and compliance history is now something the Department must weigh when deciding whether to approve, keep approving, or let a provider expand. That link between your record and your funding has never existed before in the CCS system, which began in 2018.
There are two routes the Department can take. It can impose conditions on your approval, and you must meet them within a set timeframe to keep your funding. Tellingly, the law names following a quality improvement plan, or bringing in a quality and safety expert, as examples of those conditions. Or it can move straight to a formal notice to suspend or cancel, which gives the provider 28 days to respond. If there is no genuine explanation and commitment to fix things, the approval can be cancelled.
Alongside this, Commonwealth officers can now do unannounced spot-checks, entering a service during operating hours without a warrant, and share what they find with state regulators.
Your compliance record is going public
This is the part boards should sit up for. The Department's Enforcement Action Register is being expanded from a quiet internal record into a public one.
| What is published | Before | Now |
|---|---|---|
| Suspensions and cancellations | Yes | Yes |
| Conditions imposed on a provider | No | Yes, with details |
| Infringement notices and fine amounts | Largely private | Published |
| Refusals of new service approvals | No | Yes |
The reason this matters is reputational, not just regulatory. A parent choosing a service, or leaving one, can now see your compliance history. A single public notice can start an enrolment decline well before any formal action lands. And the law deliberately points at company directors and board members, not just on-site managers, so "a staff issue at one centre" is no longer a place to hide a systemic problem.
The lesson from the first funding cut
In 2026 a family day care service in Victoria became one of the first to lose its CCS approval under the new powers, after a sustained decline in compliance and repeated warnings that went unaddressed. The provider argued the problems had been fixed. It did not save them.
That is the lesson worth carrying. Fixing a breach after an inspector finds it does not undo a pattern of failure, once the regulator has lost confidence. Funding was not pulled over one bad day. It was pulled over a known problem left to sit. Which, encouragingly, is the opposite of most services' situation.
The loophole still being closed
One gap remains, and it is worth understanding. The Commonwealth can defund a provider, the business, but an individual educator involved in a breach could historically move to a different provider and keep working. The National Early Childhood Worker Register is being built precisely to close that, tracking educators across services and state lines so a poor history cannot simply be left behind. Mandatory child safety training, now completed by almost the entire workforce, supports the same goal.
What this means for approved providers
It is easy to read all of this as a reason to panic. The detail says otherwise, and it is more useful.
The services being defunded were warned, sometimes for years, and did not act. The 28-day notice, and the option of conditions rather than cancellation, are deliberately built to give a provider who is genuinely trying a chance to fix things. This system is designed, in the Minister's own framing, to raise standards up rather than shut services down.
Ask ECE interpretation: the question that matters is no longer only "will we pass our next rating." It is "is there anything we have been warned about, or already know is not right, that we have not fixed." If the answer is yes, that is where your attention belongs this month.
How to be genuinely ready
- Know Quality Area 7 and the child safety requirements cold, and make sure your policies (digital technology, child safe environment, supervision) are current and actually known by your team, not just filed.
- Self-assess honestly against the NQS. The value is in finding your real gaps, not reassuring yourself.
- Fix known gaps now. Do not wait for A&R, and never sit on a regulator notice. That is exactly what cost the defunded services their funding.
- Keep your evidence organised against each standard, so at assessment you can show, not just tell.
- Write a Quality Improvement Plan that owns the gaps and sets out a real plan. An honest QIP reads better than a tidy one that hides things, and the law now treats a QIP as a remediation tool a regulator can require.
- If you sit on a board, ask to see your service's compliance history and any open conditions. Accountability now reaches the boardroom.
How Ask ECE helps you prepare
This is exactly the preparation Ask ECE is built to support. The NQS toolkit helps you self-assess against the National Quality Standard, including the child safety focus in Quality Area 7, organise your evidence against each standard, and draft a stronger, honest Quality Improvement Plan. It helps you find and close gaps before an assessor, or a notice, finds them for you. And since the law itself names the QIP as a remediation mechanism, getting good at writing one is no longer just good practice.
To be straight about what it is and is not: Ask ECE helps you prepare and self-assess. It does not guarantee a rating, it does not protect or restore funding, and it does not replace your regulatory authority or your team's professional judgement. The regulator assesses. You and your team decide and act.
The plain value is this. With funding now tied to meeting the standards, walking into assessment genuinely prepared matters more than it ever has. A tool that helps you surface and close gaps before they become a notice is a small investment against a very large risk. You can try it free at askece.com.au.
Related questions
Could one failed rating cut our funding overnight? On the evidence so far, no. The services defunded were warned repeatedly and did not act, and the process gives 28 days to respond. But the power now exists, so a pattern of unaddressed failure is the genuine risk, not a single tough assessment.
Does this apply to family day care? Yes. The powers cover every CCS-approved service type, centre-based, family day care, in-home and outside school hours care. The first funding cut was a family day care service.
The final thought
None of this is cause for panic. The services that lost funding had been warned for years and chose not to act. The message for everyone else is quieter and more useful: the gap you already know about is the one worth closing this month.
So the question to take to your next leadership meeting is not "are we compliant enough to pass." It is "what is the one thing we have been meaning to fix, and what is stopping us from doing it now?"
Sources: the Hon Jason Clare MP, second reading speech on the Strengthening Regulation of Early Education Bill 2025; SBS News (funding cut announced, June 2026); The Sector; and ACECQA and the Department of Education on the NQS and quality and safety. Checked 20 July 2026. This is general information, not legal or compliance advice; confirm what applies to your service with ACECQA and your regulatory authority.