Working holiday makers in Australia will start paying tax on their earnings from January 2017, but at a lower rate than originally planned, it has been confirmed.

The Australian Government's announcement of tax for those in the country with a working holiday makers visa was dubbed 'the backpacker' tax and met with a barrage of criticism from employers and tourism operators and officials.

backpackerThe policy to make backpackers pay tax of 32.5% was criticised by all kinds of groups. They said it would put off young people from coming to Australia as the level was too high. In particular employers in the agricultural industry said it would leave them short staffed over the vital harvest season as backpackers would choose other countries with lower tax levels.

Now the Government has backed down and said that the tax will still be introduced, but a much lower level of 19%. However, there will be no tax free threshold so they will pay tax on everything they earn.

Treasurer Scott Morrison confirmed that the tax will be introduced from 01 January 2017 and he also said that the age limit for working holiday visas will be increased from 30 to 35. The Government will also take 95 cents from every dollar of superannuation earned by a foreign working holiday maker.

'The 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,' said Morrison.

'We also recognise, as do stakeholders, that working holiday makers should pay fair tax on their earnings,' he added.

So from January working holiday makers will pay tax of 19% on earnings up to $37,000, rather than the 32.5% announced in the 2015/2016 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. Morrison said that 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 in the country.

'We will also seek to boost the arrivals of working holiday makers, which have been in decline since 2012 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,' Morrison explained.

That will mean that an employer with premises in different regions will be able to employ a working holiday maker for 12 months, with the WHM working up to six months in each region.

Morrison has also asked Tourism Australia to promote Australia to potential working holiday makers through a $10 million global youth targeted advertising campaign.

Also, 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 one 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% rate,' Morrison added.

He confirmed that the Government will increase the tax on working holiday makers' superannuation payments when they leave Australia to 95%. '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 from 01 July 2017,' Morrison said.

However, the agricultural industry says there has already been a drop off in backpackers who did not know what was going to happen from the start of 2017. According to Tania Chapman, a citrus farmer in Victoria and chairwoman of lobby group Voice of Horticulture, the reputation of Australia as a backpacker destination has already been damaged.

'We have got such bad publicity out there at the moment about this backpacker tax, a lesser rate would have maybe made it more attractive to people who have already booked their flights to New Zealand or to Canada,' she said.

AusVeg, the national body representing vegetable growers which campaigned against the tax, welcomed the news but is also concerned about the damage already done, especially for harvest times in early 2017.

'The decision to reduce the tax rate from 32.5% is a welcome relief for our industry and we are pleased to see a tax more in line with the rate that backpackers pay in New Zealand, Canada and the United Kingdom,' said chief executive officer Simon Bolles.

'It remains to be seen what impact the revised tax rate will have on the number of backpackers coming to Australia, but we are thankful to the government for coming to a compromise position significantly lower than what was initially proposed. We will monitor backpacker numbers under the revised rate to see if backpacker numbers falter and whether further intervention is required,' he added.