Families with one child in full-time day care are devoting about 9 per cent of their disposable incomes to childcare fees even though the federal government spends more than $5 billion a year subsiding parents.

A new Productivity Commission issues paper says families earning $35,000 a year with one child in long daycare for 50 hours a week are receiving nearly $18,000 a year in government assistance. But they are still spending 9.1 per cent of their disposable income on childcare despite that fee support. Without government assistance those families would be spending 40 per cent of their income on childcare, the commission says.

Families across the income scale with one child in full-time long daycare spend about 9 per cent of disposable incomes on fees after subsidies. Out-of-pocket expenses are almost double that for families with two children in full-time care.

The issues paper says many families have difficulty paying for childcare despite recent increases in direct subsidies to parents. Federal support for childcare has grown from $1.5 billion a year in the early 2000s to an estimated $5.2 billion this financial year. The paper is the first publication from a commission review of the childcare sector ordered by the Abbott government last month.

The paper highlights concerns about excessive regulation of childcare. Even though a new National Quality Framework was adopted last year "there are concerns in the sector about the cumulative impact of regulation and the ability of services (particularly smaller operators) to cope with new regulatory requirements", it said.

However, childcare experts have warned that any push to reduce regulation, especially the level of staff training or educator-to-child ratios, could seriously compromise the quality of childcare services.

The commission has been asked to recommend ways Australia's childcare regime could be improved although the overall cost of any changes must remain broadly within the government's existing financial commitment to the sector. The review will canvass whether support should be extended to types of childcare not now subsidised including nannies.

The commission says fees for long daycare rose an average of 7 per cent a year in the decade to 2011-12, well above inflation. However, an increase in childcare assistance in 2008 meant that average out-of-pocket costs to families in 2012 was similar to 2008. Nationally, the average fee for both long daycare and family daycare was just over $7 per hour in the March quarter 2013, before subsidies.

Figures published by the commission show families with one child in full-time long daycare on an income of $135,000 devoted the biggest proportion of disposable income to childcare - 9.7 per cent. Families with one child in childcare full-time with an income of $95,000 devoted the smallest proportion - 8.4 per cent.

The paper says almost all of Australia's 3.7 million children aged 12 years and under have participated in some form of early childhood care and education.