Turnbull Deal Paves Way for Aussie Backpacker Tax Law to Pass

  • Greens announce they will support cutting tax rate to 15%
  • Agreement comes on last day parliament will sit in 2016

Australia's Prime Minister Malcolm Turnbull.

Photographer: Peter Parks/AFP via Getty Images

Australian Prime Minister Malcolm Turnbull’s government won a deal to lower a tax on the earnings of working foreign holidaymakers to 15 percent as the parliamentary year concludes.

Greens Leader Richard Di Natale told reporters in Canberra on Thursday his party will support the tax rate, giving the government enough votes in the Senate to pass legislation implementing it. The accord, which was welcomed by Turnbull at a news conference, ends months of squabbling over what the rate should be after the government’s plans were stymied in the upper house, where it lacks a majority and needs support from rival lawmakers to pass legislation.

Had the impasse remained, employees on working holidaymaker visas would have been forced to pay a tax of 32.5 percent from their very first dollar of earnings. That contrasts with most employees in Australia who don’t pay any tax at all on their first A$18,200 ($13,500) of income, with higher rates kicking in for earnings above that level. A failure to reduce the backpacker rate from its existing level would put Australia at a competitive disadvantage to lure the itinerant workforce that farmers rely on for seasonal fruit- and vegetable-picking when compared with countries such as neighboring New Zealand, which taxes such workers at a rate of 10.5 percent.

The legislative change will “provide security and assurance for farmers and many industries across Australia,” Turnbull said in Canberra.

Backlash Over Backpackers

The decision to remove the tax-free threshold for backpackers was announced by the Liberal-National government in its May 2015 budget as a revenue measure. The government’s bid to target backpackers from overseas was openly criticized by rural voters and members of Turnbull’s Liberal-National coalition, with the tourism industry blaming uncertainty over the issue for a decline in visitors. Backpackers pump A$3.5 billion a year into the economy, according to a report by the Australian branch of the Youth Hostels Association, the world’s largest backpacker accommodation network.

The legislation is now poised to be passed by parliament as lawmakers prepare for a two-month hiatus at the end of this week’s sitting. The deal comes a day after the government persuaded lawmakers to pass a law to resurrect a union corruption watchdog, boosting Turnbull’s standing after a tough year in which he was almost voted out of office.

Turnbull’s government is seeking alternative revenue sources to boost his government’s drained coffers. Credit assessor S&P Global Ratings has warned that Australia’s AAA score is at risk, with the budget deficit forecast to reach A$37.1 billion next year as a mining boom withers.

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