Federal Government Backs Down on Backpacker Tax

The Federal Government has announced that it has altered its 2015–16 "backpacker tax" Budget measure. The Backpacker tax was to be a new tax, which, as originally proposed, would have seen the imposition of a 32.5 percent tax on temporary working holiday makers (commonly referred to as backpackers). The change to the government's plan to tax backpacker workers 32.5 percent was in response to wide adverse reaction to the 32.5 proposal. The adverse reaction coming from various sources, including from within the government's own ranks and also from tourism, farming, rural and regional business interests, where backpackers provide a valuable source of tourist income as well as providing accessible temporary labour for seasonal work such as fruit picking and cropping.     

What is the Change to the Original Proposal

In a Media Release on Tuesday (27 September 2016), the Assistant Minister for Trade, Tourism and Investment, Mr Keith Pitt announced that the proposed 32.5 percent tax rate that was to apply to working holiday makers holding 417 and 462 class visas will be slashed to 19 percent ". . . following strong representations by regional members of the Coalition Government".

Recouping the Difference Between 19 and 32.5

The ABC News reports that, while most farming and industry lobby groups appear satisfied with the deal, the Tourism and Transport Forum was furious the lower tax would be offset by an increase in the Passenger Movement Charge (the PMC). In its original plan, the government had indicated it expected to recover $500 million from the backpacker tax but now to provide an offset for the lower tax rate the government proposes a $5 increase to the current passenger departure tax. The current PMC is $55 and is usually included in the cost of transport for passengers departing Australia.

The ABC News reports the Tourism and Transport Forum chief executive Margy Osmond as saying that the announced lower backpacker tax rate was an improvement on the original plan but that the increase in the PMC ". . . showed the tourism industry was being treated as a 'cash cow'" and that the government was a long way from fixing the problem.

It should be noted that the government has announced a $10 million fund for the tourism sector to market jobs to backpackers

Reactions and Comment

The Treasurer, Mr Morrison, is reported as saying that the package was fair and protected the integrity of the budget, while addressing concerns from the farming and business sectors. The Treasurer also indicated that new ". . . legislation will be required to enact the new tax arrangements" and it is not as yet clear whether Labor will support or oppose the changes. The Greens are reported to be opposed to any change in backpacker taxes, and have committed to vote against any increase, even the 19 percent one.

The Assistant Minister for Trade, Tourism and Investment, Mr Keith Pitt has said of the change: 

The change represents the second significant change to a 2015-16 budget measure in the last few weeks, following closely on the retreat on changes to superannuation. The Backpacker tax back down is reported as significant, given the  tax commission has ruled backpackers should not be eligible for a tax-free threshold. The fate of the legislation once introduced will be interesting and of great importance given figures that indicate Backpackers comprise up to 25 percent of the farm workforce each year, and in more remote place like the  Northern Territory, can represent as much as 85 percent of farm labour.

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Backpacker tax: Federal Government backs down on plan (ABC News)

Backpacker tax changes to benefit regional Australia (Media Release)

Backpacker tax: Agriculture sector grows impatient for prompt resolution (ABC News)