Backpacker tax to be 19% but departure tax will rise $5 in compromise package

The government will impose a A$5 increase in the departure tax, to A$60, and claw back more superannuation from holiday makers departing Australia to pay for a A$350 million compromise on the controversial backpacker tax.

From January 1, the tax rate for those on working holidays will be 19% on earnings up to A$37,000. This has been brought down from the proposed 32.5%. That was originally announced in the 2015 budget and due to start July 1 this year but was deferred before the election.

Above A$37,000 ordinary marginal rates will apply.

In other measures to encourage working holiday makers - who are vital to the tourism and agricultural industries in certain areas but have been declining since 2012-13 - the government will reduce the application charge for visas for these travellers by A$50 to A$390.

The much-anticipated changes were announced by Treasurer Scott Morrison, who took them to cabinet. Deputy Prime Minister Barnaby Joyce, who originally had been expected to be part of the submission to cabinet, gave a separate news conference.

Morrison said the changes would “lower the cost of coming to Australia for working holiday makers and leave them with more money in their pockets to spend while here”.

The government will make changes to the 417 and 462 visas to improve the supply of working holiday makers and to improve the attractiveness for backpackers.

The eligible age will be increased from 30 to 35. There will also be more flexible arrangements, allowing an employer with premises in different regions to retain a backpacker for a year, so long as the second six months is worked in a different place. At present a backpacker can only stay six months with the same employer.

Tourism Australia will receive A$10 million for an international advertising campaign to attract young people to come on working holidays.

To promote tax integrity as well as to collect more data the government will require employers of backpackers to register with the Taxation Office. Those who fail to register will have to withhold tax at the 32.5% rate – the backpacker would then have to get the extra tax back on lodging their tax return. The names of registered employers will be public, so available to those on working holidays and to other employers.

Morrison – who had earlier insisted that the cost of changes to the backpacker tax proposal would have to be covered – said the offsets would raise A$365 million so that the package “washes its face”.

The rise in the departure tax - which is called the passenger movement charge - will apply from July 1, 2017. The tax applies to anyone departing from Australia. Morrison said the Coalition had opposed the last increase which had been in 2012 when “it was done simply as a revenue measure”.

The tax on working holiday makers’ superannuation payments when they leave Australia will be increased to 95%, yielding A$105 million over the forward estimates.

Morrison said: “this is consistent with the objective of superannuation, which is to support Australians in their retirement, not to provide additional funds for working holiday makers when they leave.”

Morrison said the new registration system would give better data on who is employing backpackers, and “also help us to address what is the other side of the equation - and that is why are Australians not taking up jobs in the first place? What are the things that need to be done to ensure that Australians will take up these jobs?”.

Morrison said the backbench committee had been consulted and was happy with the backpacker changes. “As one said, they were a pig in mud.”

Joyce said in a statement the win on the backpacker tax was “a win for our farmers who can get their fruit off the tree, off the vine and off to market” and emphasised the role of the Nationals in getting the change.

“The Nationals, including Assistant Minister Luke Hartsuyker and our senators and members of parliament have been fearless champions on behalf of their regions, their agricultural stakeholders and common sense.

"The decision to reduce the proposed tax rate from 32.5% to 19% tax maintains Australia’s status as one of the most competitive destinations for working holiday makers, while ensuring they pay a fair level of tax.”

Opposition Leader Bill Shorten said Labor would study the package before deciding its stand on it.

He said the original decision had been poor and poorly executed. “They then refuse to back down until they are dragged kicking and screaming and then they come up with a new policy made on the run.”

Postscript: The government has received a knock in Tuesday’s Newspoll in The Australian, which shows Labor with a two-party lead of 52-48% and the Coalition’s primary vote at 38%. This is the first time its primary vote has been under 40% since Malcolm Turnbull became prime minister.

Turnbull’s net satisfaction is minus 23 points, a worsening of four points in a fortnight. Bill Shorten’s net satisfaction improved from minus 17 points to minus 15.

A fortnight ago, Coalition and Labor were on 50-50 two-party preferred.

Tuesday’s Essential poll also had the Coalition trailing Labor 48-52 on a two-party vote.