The government will provide free child care in a move aimed at ensuring parents, especially in essential services, are able to keep working.

Without a rescue package large parts of the industry could have collapsed, leaving health and other workers finding it difficult or impossible to keep doing their jobs.

More than 945,000 families with 1.3 million children will benefit.

The new arrangement will scrap, after Sunday, the present funding system – including the means test and the activity test - and instead the government will pay half the sector’s revenue up to the existing hourly rate cap.

The plan will cost the government $1.6 billion over three months - compared with $1.3 billion if current revenues and subsidies had continued, based on the existing system and the big reductions in enrolments that have taken place.

The funding will be paid direct to the centres, with the condition they remain open, so parents do not have the disruption of having to seek out another provider. There are some 13,000 childcare and early leaning services. The new arrangements will also extend to after school and school holiday services.

Priorities will be set for access, with the first in line being working parents, vulnerable and disadvantaged children, and parents with existing enrolments.

Centres should “re-engage with those parents who have taken their children out of care, to see whether they can be accommodated as necessary as well,” Education Minister Dan Tehan said.

“But there is a clear priority list that we want centres to take into account, and the most important of those are those essential workers and the vulnerable children.”

Scott Morrison said: “In this ‘new normal’ that we’re living in, it’s no longer about entitlement. It’s about need.

"And we’re calling on all Australians to think about what they need, and to think about the needs of their fellow Australians who may have a greater need when it comes to calling on the many things that are being provided.”

For parents who have removed their children from childcare, centres can waive the gap fee, dating back to March 23.

The payment to centres will start to be made in a week’s time, and will run initially for three months, after which it may be extended.

Morrison and Tehan said in a statement the plan would provide “planning certainty to early childhood education and care services at a time where enrolments and attendance are highly unpredictable”.

Childcare centres can also get assistance under the JobKeeper program announced this week and the cash and loan schemes also available for businesses.

The Australian Childcare Alliance, the peak body for early learning services, welcomed the announcement as “extraordinary”. It said an overnight survey it had done had shown 30% of providers “faced closure this week due to as massive, shock withdrawal of families - either from fear or unemployment – and another 25% were not sure they could ever recover, even once the virus crisis has passed”.

But with the new financial measures , plus the JobKeeper payment and other existing support mechanism the early learning sector should be able to continue to play its essential role, ACA said.

Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.