The Turnbull government has cut back the controversial 'backpacker tax'

Photo: Johannes Simon/Getty Images.

Treasurer Scott Morrison will reduce the $500 million “backpacker tax” his predecessor Joe Hockey announced in the 2015 Budget.

The Hockey plan had backpackers paying 32.5% on every dollar they earned, without the usual $18,200 tax-free threshold. Under Morrison’s new regime, approved by Cabinet today, the rate will be reduced to 19% from January 1, 2017, on earnings up to $37,000 per annum.

The change should calm sustained anger amid the government’s coalition partner, the Nationals, who opposed the tax, fearing it would damage the agricultural industry, which relies on backpackers and overseas seasonal workers during harvest seasons. Backpackers make up around a quarter of the itinerant rural workforce.

The government announced a review of the working visa tax in May during the election campaign, led by Barnaby Joyce. It received more than 1,700 submissions overwhelmingly against the tax.

The tourism industry has also been vocal in its opposition and in a sweetener to that sector, the treasurer announced $10 million for a global youth-targeted advertising campaign to lure more backpackers to come visit Australia on working holidays.

Earlier today, Tourism & Transport Forum Australia (TTF) CEO Margy Osmond called on the government to scrap the tax, pointing to a continued fall in visitor numbers. The agriculture industry says visitor inquiries are currently down 40%.

“The message has gone out across the world over social media from backpackers already in Australia – ‘Do not come to Australia because you are about to be slapped with a massive new tax on your working holiday’,” she said.

The Department of Immigration and Border Protection’s latest Working Holiday Maker Visa Program Report shows the number of visas granted dropped by 5.4% in the 12 months to June 30, 2016, which meant 12,229 less visas were granted. Since 2012-13, the fall is 17% (43,665) to 214,583 in 2015-16.

“These figures confirms what the tourism and agricultural industries have been telling the Federal Government for months – the working holiday maker exodus has already begun because of the ill-considered backpacker tax,” Osmond said.

Treasurer Morrison said his changes would leave backpackers with “more money in their pockets to spend while here”.

“One of the great virtues of backpackers is they leave with their pockets empty,” he said.

The treasurer argued that the drop in working holiday applications was “not a new phenomenon” and “there are many reasons for that”, from changed economic conditions in their home nation to the cost of flights and variations in the exchange rate.

But the government has found another way to slug tourism workers. To pay for the changes, which hit the Budget by $365 million, the tax on superannuation payments to working holiday makers will increase to 95% when they leave Australia.

Morrison said the change had to “wash its own face” in terms of Budget impact and the increase was “consistent with the objective of superannuation, which is to support Australians in their retirement”.

The government will also increase the Passenger Movement Charge by $5 from 1 July, 2017. There will also be changes to 417 and 462 visas and the application charge for working holiday maker visas will be reduced by $50 to $390.

“The Turnbull government recognises that working holiday makers are an important part of Australia’s $43.4 billion tourism industry and a key source of labour, particularly in the agriculture, horticulture, tourism and hospitality sectors,” Morrison said.

As part of increased scrutiny of the sector, employers will be required to register with the ATO. Morrison says it prevents the exploitation of working holiday tourists.

The treasurer called on the ALP to support the government’s changes. Opposition leader Bill Shorten has not yet announced Labor’s view, but the Greens oppose any increases.

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