The Abbott government will make funding for nannies available under a pilot program that will target people in remote areas and on shift work and is likely to roll out later this year.
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Social Services Minister Scott Morrison does not want to make nannies a "mainstream alternative" to long and family day-care services, but is keen to trial how nanny services could be funded for select groups.
These could include families who live in remote locations who do not have access to regular services, parents who do shift work, and children with special needs.
Support for these groups is currently provided through an in-home care program, which has a small number of capped places.
In a speech to the childhood sector last week, Mr Morrison said the government acknowledged the need for nannies and saw it as an area that could provide flexibility for some families.
But he cautioned that the government would take a "modest" approach to the policy.
"If you move too quickly on this, you are prone to a whole range of unintended consequences," he said.
There have been concerns about how nannies would be regulated and what sort of qualifications they would require, as well as fears that funding for nannies could result in childcare centres losing staff.
"That will only force prices up for centres today if they lose their workers off to be nannies," Mr Morrison said.
Mr Morrison said the government would go through the "normal pilot process" to roll out funding for nannies.
This is a more cautious approach than recommended by the Productivity Commission in its final report. The commission made a suggestion that approved nannies should be eligible for government funding, provided they met the national quality standards for childcare providers. It also recommended the existing in-home care program be abolished.
On Monday, Mr Morrison said while the report highlighted how opening up the sector to nannies could bring greater flexibility, it was not a mainstream alternative to other childcare options but rather "more to address quite specific needs".
"Even in these cases there is still much to work through in terms of registration and accreditation issues which the government would need to be confident about before moving to a more mainstream implementation of any measures for in-home care that included nannies," he said.
The Australian Nanny Association welcomed Mr Morrison's comments about nannies, saying it was "excited that nannies are being recognised as professional childcare providers".
"We agree that adding nannies to Australia's subsidised childcare options needs to be carefully planned and implemented," spokeswoman Annemarie Sansom said.
"We also agree that nannies will not be an alternative to existing childcare services, but complement them by providing flexible childcare for those families whose childcare needs are not currently being met within the existing formal childcare sector."
About 2 per cent of children are usually cared for by nannies and babysitters. The Productivity Commission found that many parents wanted to use nannies but found them too expensive.
Mr Morrison is finalising a new families package that is expected to streamline the multiple childcare payments into one and provide more help for low and middle-income families. He is due to release the policy before the budget on May 12.
