Childcare and preschool workers will be given a $114 a week payrise from July 1 under a deal to raise the level of education and early childhood care.
Lifting the incomes of 67,000 of the lowest-paid workers in the country will cost the federal government $300 million.
But Treasurer Wayne Swan claimed it would be offset by "savings" from the Budget.
The payrise would come from grants to childcare centres and services that can prove how they will comply with the new National Quality Framework.
The grants will be given to centres to help them offset the costs of increasing the ratio of qualified carers as part of the NQF reforms.
School Education Minister Peter Garrett said, to receive funds, employers and childcare centres would have to agree to pay workers with a certificate III rating $3 an hour more from July 1 this year. Similar proportional increases would be paid to higher qualified staff.
The sector's union, United Voice, has been pushing the government for payrises for childcare workers to meet the increased qualifications demanded for better child- care services.
To be eligible, service providers must demonstrate how they will meet the new NQF criteria, which now apply to most long-day care, family-day care, preschool and outside hours care services.
They will apply new ratios for the number of carers and educators; some day-care centres have complained this would increase childcare costs.
But providers would also have to agree to not increase their fees beyond operational costs, so as not to punish families.
"We know that quality early childhood education and care is dependent on having a qualified and professional workforce," Mr Garrett said.
"We have listened to the sector and to parents and we are pleased to introduce this fund to help attract and retain qualified staff," he said.
Childcare Minister Kate Ellis said an advisory board would administer the fund.
"We know it gives children comfort as well as parents peace of mind when children have the chance to form an ongoing bond with their childcare educator," Ms Ellis said.
"This fund will further promote our early childhood and childcare priorities by making sure centres show a demonstrated commitment to affordability for Australian families through fee restraint."
-reprinted from the Daily Telegraph