The government says it will “road test” its promised childcare overhaul, after a major review called for means-testing of payments.

The federal government is being warned that some families could be priced out of child care if it means-tests taxpayer-funded payments.

Assistant education minister Sussan Ley is not ruling anything in or out of the government’s promised overhaul of the sector, following a Productivity Commission recommendation for a single subsidy.

Childcare payments should be means-tested with 90 per cent of costs covered for families earning less than $60,000 a year, the commission said in a draft report released on Tuesday.

Under a tapered payment system, families bringing home more than $300,000 should only have 30 per cent of their costs covered but those on $160,000 would be better off than they are now.

Families employing nannies – as long as they meet quality standards – should also get government subsidies for the first time, the commission said.

Ms Ley says the government will wait for the commission’s final report in October before outlining its plans, but she promised to “road test” any changes.

“This is about supporting everybody’s choices to participate, to find the child care they need, the hours they want at the price they can afford,” she told reporters in Canberra.

Business, childcare providers and parents groups have all raised concerns about the prospect of means testing, saying some families could be priced out of care.

Advocacy group The Parenthood warned means testing would take Australian women back to the 1950s.

The Australian Childcare Alliance said families were already struggling financially to keep both parents in the workforce, and the funding of nannies would only complicate the early childhood sector.

Labor questioned how the government would fund nanny payments, when it has already said it won’t increase spending on child care.

The commission estimates its changes would cost an additional $1 billion a year, and recommended money be diverted from the government’s multibillion dollar paid parental leave scheme.

That scheme provided no clear benefit beyond the one now in place, it said in a another blow to a plan that aims to provide working mothers with up to $50,000 over 26 weeks.

Treasurer Joe Hockey insists money won’t be diverted from the scheme to pay for child care.

“There is no doubt that it is a core promise of the government to deliver a fair dinkum paid parental leave scheme,” he said.