Treasurer Josh Frydenberg says a planned $1.7 billion injection into the childcare system will give families choice and make the economy stronger.
The package, which will be included in the May 11 budget, is particularly aimed at low and middle income families earning $130,000 or less.
It will also increase the subsidies given to families with more than one child in child care.
The childcare subsidy for families with two or more children aged five and under will increase to a maximum of 95 per cent, up from 85 per cent.
Mr Frydenberg said Treasury estimates the measures will help to boost economic growth by about $1.5 billion a year and provide the opportunity for up to 300,000 extra hours a week to be worked.
"That is the equivalent to 40,000 people working an extra day a week," Mr Frydenberg told reporters in Canberra on Sunday.
Minister for Women Marise Payne said the measures are also about ensuring families have choice.
"It is about supporting women into the workforce who want to work more days or more hours," she told reporters.
The announcement came after a week of calls for a more generous and less complex childcare system from business, welfare and early education groups.
However the package is less generous than Labor's promised of universal child care.
Opposition Leader Anthony Albanese said the government's announcement doesn't go far enough.
"There is nothing there to regulate the costs that are at record highs under this government. This does nothing to move towards a universal, affordable childcare system," he told reporters in Sydney.
He said child care is not about welfare.
"Child care is about providing an essential service which boosts our economy and is essential economic reform as organisations like the Business Council of Australia have said."
Even so, the Business Council of Australia believes the changes are a crucial step to fixing the barriers to women who want to get back to work, while boosting economic growth.
"This doesn't just help make a fairer society, it's also an economic imperative," BCA chief executive Jennifer Westacott said.
The Australian Childcare Alliance said the sector was shown to be the backbone of the economy when it played a critical role in allowing essential workers to stay on the frontline during the COVID-19 pandemic.
"Whilst there remains an opportunity for further refinements, we look forward to working with the federal government on implementing these reforms and identifying further opportunities to invest in Australia's children and their future," ACA president Paul Mondo said.
But shadow treasurer Jim Chalmers believes the announcement was more about getting the Liberals through the next election, not about getting women back to work.
"It makes it more complex and misses the chance to do a key economic reform," he told Sky News' Sunday Agenda program.
He said there will be hundreds of thousands of families that will be better off under Labor's plan.
A federal election is due in the next year.
© AAP 2021