Mr Tehan said the overhaul would deliver the highest rate of child care subsidy to those on the lowest income levels and more hours of subsidy to those who work the most.

The new subsidies will come into effect in July next year. 

Mr Tehan said the base subsidy would also be increased from about 72 per cent to 85 per cent for the more than 370,000 families throughout Australia earning about $65,000 or less a year.

Low and middle income families, earning up to around $185,000, would no longer be limited by an annual $7613 cap on the amount of subsidised child care they could access, he said.

The change would cover more than 85 per cent of families using child care and meant families would not run out of subsidy mid-year as presently occurred, he said. 

Families earning more than about $185,000 would also benefit from an increased cap of $10,000.

Federal education and training minister Simon Birmingham said the child care changes were focused on helping families that needed it most. 

“Almost one million families will benefit from our additional $2.5 billion investment and comprehensive changes to the subsidy system, our new hourly rate cap to put downward pressure on fee increases and the end of the $7613 annual rebate cap,” Mr Birmingham said.

He said a $1.2 billion Child Care Safety Net would also support vulnerable children and families who needed extra support.