Free childcare for low income families and increasing subsidies for everyone else is the most cost-effective path to universal early childhood education.
At least half of Australian families could benefit from the recommendations of the Productivity Commission's childcare roadmap, published on Wednesday.
The report urges the federal government to fund childcare for families with incomes up to $80,000 and households earning less than $140,000 and with multiple children under five.
It also suggests scrapping the childcare subsidy activity test as children's attendance in early education facilities should not depend on how much their parents work.
Addressing these barriers would increase early childhood education attendance by 10 per cent.
Although this would raise the cost of the government's subsidy from $12 billion to $17 billion per year, the commission maintains the changes would likely be the most cost-effective way to achieve universal access.
For example, the Commonwealth has considered a universal 90 per cent subsidy rate, which would reduce out-of-pocket expenses for some.
However it would drive increased demand from higher income families rather than more disadvantaged households already eligible for this rate.
The federal government will consider the report and consult with the childcare sector before announcing any plans.
Education Minister Jason Clare said changing the subsidy was a "substantial investment".
"But it's not just an investment in the children who are there at the moment, it's an investment in our future," he told reporters in Brisbane.
Early childhood education and care provides significant benefits, particularly for children from vulnerable or disadvantaged communities.
But those who stand to gain most are also more likely to miss out, the commission found.
All children deserve access to high-quality childhood education services at least three days a week and Early Childhood Education Minister Anne Aly said the report would help build a system Australia's children deserve.
"All children should be able to access the transformational benefits of quality, early childhood education and care, no matter their background or postcode," she said.
However the blueprint warned against rushing its recommendations.
Those who need early education most could be crowded out of services, childcare centres forced to change without adequate support could close and some could expand without maintaining quality.
To improve the availability of childcare, the Productivity Commission recommends addressing sector workforce shortages through accelerated qualification pathways.
The report comes after the federal government on Thursday introduced laws to boost the wages of childcare workers by 15 per cent over two years in a bid to attract more staff.
Prime Minister Anthony Albanese said previously the wage boost was a first step towards a possible universal childcare scheme.
Higher attendance of childcare allowed more parents to return to work and state governments should also provide outside-school-hours care for children in public primary schools, the report said.
The commission recommends an independent body be established to support, advise and monitor governments' progress.
The report has been welcomed by Georgie Dent, chief executive at advocacy group The Parenthood, who says a fee cap is the only way to ensure early education is truly accessible.
The Greens have called on the federal government to take immediate action as any delay causes kids to miss out on an education and parents to miss out on work.
