THE Federal Government today dropped its plan to introduce a 32.5 per cent tax on backpacker workers, instead setting the tax rate for working holiday makers at 19pc of earnings up to $37,000.

In agriculture, the move, which will come into effect from January 1 next year, will benefit the grain sector, particularly where overseas workers are engaged in machinery and harvesting operations.

A statement from Federal Treasurer, Scott Morrison, said Cabinet had approved the following changes:

“From 1 January 2017 the Government will set the tax rate applying to working holiday makers at 19 per cent on earnings up to $37,000, rather than the 32.5 per cent announced in the 2015-216 Budget, with ordinary marginal tax rates applying after that. The Government will also reduce the application charge for working holiday maker visas by $50 to $390. These changes will lower the cost of coming to Australia for working holiday makers and leave them with more money in their pockets to spend while here.

“We will also seek to boost the arrivals of working holiday makers, which have been in decline since 2012-13 as a consequence of factors including exchange rate variations and changed economic conditions in source countries. We will introduce more flexible arrangements to benefit working holiday makers and industry, allowing an employer with premises in different regions to employ a WHM for 12 months, with the WHM working up to six months in each region. In addition, we will task Tourism Australia to promote Australia to potential working holiday makers through a $10 million global youth targeted advertising campaign.

“To generate more accurate data and boost integrity of the scheme by preventing exploitation of working holiday makers, their employers will be required to undertake a once-off registration with the Australian Taxation Office [ATO]. This simple and easy registration process will help provide valuable data on the employment of working holiday makers. Employers who do not register will be required to withhold tax at the 32.5 per cent rate. Working holiday makers will be made aware of registered employers via the publication of a list on the ABN Lookup.

“The Turnbull Government’s package of reforms to working holiday maker arrangements will therefore not only ensure working holiday makers pay fair tax on their earnings but also increase Australia’s attractiveness as a top destination for backpackers.

“The Turnbull Government’s strict budgeting rules have applied to ensure the budget impact of these changes is fully offset.

“The Government will increase the tax on working holiday makers’ superannuation payments when they leave Australia to 95 per cent. 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 Australia. There will also be a one-off increase to the Passenger Movement Charge of $5.00 from 1 July 2017.”