The Abbott government's childcare package is "decades out of date" and will put Australia behind other developed nations when it comes to early childhood reform, a new McKell Institute report says.

University of New South Wales researchers Deborah Brennan and Elizabeth Adamson argue the proposed childcare changes are not focused enough on children's development and that there is no "policy rationale" for the government's move to fund the $3.5 billion reforms through cuts to paid parental leave and family tax benefits.

"The Abbott government's childcare package reflects a philosophy that is decades out of date," Professor Brennan said.

"All over the developed world, a revolution has occurred in the way childcare services are viewed: from mere child minding, to vital early childhood education. Yet somehow Australia missed the memo."

The report, Baby Steps or Giant Strides, released by the Labor-aligned McKell Institute, says the new childcare package is also disappointing because of its emphasis on getting parents into work without addressing "serious shortage" of places for babies and toddlers, attendance rates for early childhood education or staff shortages.

It says that while families who have household incomes above $185,000 will benefit - because their annual subsidy cap will be lifted from $7500 a year to $10,000 - parents with unpredictable work and children in poor families will lose out. This is due to the new "activity test" that will require parents work at least eight hours a fortnight to qualify for the lowest amount of government subsidy.

The report argues that Australia should look overseas, where childcare reforms have been more ambitious. It says England has moved in the "complete opposite" direction to Australia's current approach by offering 15 hours of free early childhood education a week for all three and four year-old children, as well as for the most disadvantaged 40 per cent of two year olds.

In New Zealand, there is 20 hours of free early years education  a week for all three and four year olds, while in Canada's Quebec, there is a flat-rate price for childcare of $7 a day. In Norway, childcare fees are capped.

The report recommends that the Australian government looks at providing a "seamless transition" from parental leave to a guaranteed childcare place.

The Abbott government announced in May that it would roll multiple existing childcare payments into one and peg them to a new benchmark price.

The changes will see families on incomes of up to about $65,000 a year get about 85 per cent of their childcare fees back. This will reduce to 50 per cent for families earning about $170,000 or above. The reforms maintain the national quality framework for childcare introduced under Labor and will also introduce a nannies trial.

The package faces an uncertain future in the Senate, as Labor, the Greens and many crossbenchers oppose the Coalition's proposal to link it to family tax benefit savings.

Social Services Minister Scott Morrison has argued that childcare package is about "ensuring people stay in work and get in work when they choose to have families".

"It is not a welfare payment," he has said.