Parents at nearly half of the country's early childhood centres could face increased fees of up to $42 a week per child under plans announced in the Budget.

The Government plans to spend an extra $107 million on early childhood education during the 2010/11 year, saying it wants to ensure the service is available to "families in most need".

However, it would appear that investment comes at a cost to the families of nearly 100,000 children who are already in teacher-led care.

New funding of $91.8 million over the next four years is to be invested in five intensive community-led participation projects in high priority areas and 20 hours ECE will remain, but in return cuts will be made to the funding of many existing centres.

Education Minister Anne Tolley said the Government had to take into account escalating costs of ECE to taxpayers given the current constrained fiscal environment.

"Substantial changes to funding priorities have been made to redirect funding to areas of the greatest need and manage the rapidly rising costs as more children spend more time in ECE."

Early childhood services currently receive government funding at different rates - with the highest funding going to those who employ 100 per cent fully qualified and registered teachers.

Under the new scheme the top two funding bands will be removed meaning funds will be taken away from centres where more than 80 per cent of teachers are fully qualified.

NZ Childcare Association chief executive Nancy Bell said the removal of those bands was a "brutal blow" which would affect more than 2000 teacher-led services and around 93,000 children.

"Funding will drop by up to $42 per week per child, making many services unviable without massive fees hikes."

Ms Bell said services with 50 children would see funding shortfalls of up to $109,000 per year.

"Most parents will simply not be able to afford these changes and this will lead to children being taken out of ECE. Services will be forced to shed teachers leading to higher teacher-child ratios and lower quality."

Ms Bell said removing the top bands would destroy the ability of services to employ qualified teachers.

"The Government is penalising centres who have committed to delivering high quality ECE.

"We don't buy the arguments about reallocation of funding nor the claims made by Government about the impact of these funding cuts. They are massive."

NZ Kindergartens chief executive Clare Wells said the sector was "deeply shocked" by the move which stripped more than $12 million a year from kindergarten budgets.

"As community-based, not-for-profit organisations, kindergartens rely on the funding from government to meet most of our costs.

"We will have to make up the short-fall by cutting back spending which could jeopardise the quality of our service, or be forced to pass some costs onto parents.

"That means children could miss out."

Ms Wells said the cuts undermined the investment the Government had made in recent years and could only be described as "shortsighted".

"Employing qualified teachers is a mark of quality and we know children attending high quality services are likely to be more successful at school.

"There is little doubt that the cost cutting by the Government will have negative results, potentially reducing quality and participation. Either way, it is the children and the families that lose out."

NZEI, the union representing ECE workers, said the Budget threatened to dumb down the early childhood sector by punishing the services most committed to improving quality.

Vice-president Judith Nowotarski said centres would not be allowed to pass on the additional cost to children receiving 20 hours ECE so increased costs would fall disproportionately on children under 3 and in care for more than 20 hours a week.

"While we welcome the boost of $91.8 million over four years for Maori and Pasifika children this shouldn't be at the expense of quality teaching and learning for all."

Early Childhood Council chief executive Peter Reynolds said the potential loss of qualified staff was likely to be offset by the benefits of other staff with rare and special skills needed by individual centres.

He said many centres would be hurting, but also understanding of what the Government was trying to achieve.

"There is no question that low socio-economic children benefit most from access to quality early childhood education, and we cannot oppose entirely a policy package that sets out to achieve this."