Scott Morrison (Cook, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill is the first of four bills to implement the government's working holiday-maker reform package.

The government has been committed to getting the policy right on working holiday-makers. The government has been working hard to ensure Australia remains an attractive and safe destination for working holiday-makers—a critical source of labour for the agricultural, tourism and hospitality sectors, in particular.

But, at the same time, we have been intent on instituting reform that continues to allow us to arrest the debt and deficit left to us by our predecessors. Policy initiatives of this government must be paid for, and this package is no exception.

The working holiday-maker reform package will ensure working holiday-makers pay their fair share of tax, establish an employer register and a compliance regime to address concerns about the exploitation of working holiday-makers.

The package shall also make changes to increase Australia's attractiveness as a destination for working holiday-makers by reducing visa fees, providing new visa flexibility initiatives and providing additional funding for tourism.

Despite these significant and positive changes, the Turnbull government's strict budgeting rules have applied to ensure the budget impact of these changes is fully offset. This can only be achieved if the package is passed in its entirety—we must be able to pay for the changes we want to make.

The 2015-16 budget announced a measure to treat working holiday-makers as non-residents for tax purposes and tax them at 32.5 per cent from their first dollar of income.

The measure was introduced in response to the previous government's changes to the tax-free threshold that meant working holiday-makers who were residents for tax purposes and earning below the $18,200 tax-free threshold were effectively having not just a working holiday but a tax holiday as well under the previous government's arrangements.

Despite continuing to take advantage of Australian services and infrastructure, the obligation to pay Australian income tax was removed for many working holiday makers visiting Australia.

Concerns were raised about the impact of the budget measure, particularly on our global competitiveness as a backpacker destination.

The government listened to stakeholders and reviewed the broad range of issues affecting the supply and taxation of working holiday makers as part of ensuring the policy achieves its objectives.

The government subsequently developed the working holiday reform package now before parliament represented in this package of measures.

Our package acknowledges the importance of ensuring the integrity of the tax base in relation to what is an important area of growth in the economy, but also that this is done in an appropriate way that addresses the concerns of stakeholders that have arisen.

The government understands that working holiday makers are an important source of labour in Australia for sectors that rely on seasonal employment.

After many years of strong growth, since 2012 the number of working holiday makers coming to Australia has been falling. There have been many reasons for this decline, including the state of economy in their home countries, exchange rates, competition from other jurisdictions, and airfares.

The Turnbull government's package of reforms to working holiday maker arrangements not only ensures working holiday makers pay a fair amount of tax on their earnings but also increases Australia's attractiveness as a destination for backpackers.

This bill will set the tax rate to apply to working holiday makers at 19 per cent from their first dollar of income up to $37,000, rather than the 32.5 per cent that applies to the majority of backpackers under non-resident tax rates and that would apply under the announced 2015-16 budget measure. Ordinary marginal tax rates apply for income above $37,000. The new tax rate will apply from 1 January 2017.

Taxing working holiday makers at 19 per cent tax from the first dollar of income up to $37,000 is internationally competitive—Australia will still be a destination with one of the highest expected after-tax incomes for working holiday makers.

Even after taking cost of living differences into account, this change will mean that the after-tax incomes of working holiday makers in Australia are comparable or better than New Zealand, Canada and the United Kingdom.

This bill gives both working holiday makers and employers certainty about the tax arrangements that will apply, as well as protecting the integrity of Australia's revenue base.

The working holiday maker reform package makes other changes to lower the cost of coming to Australia for working holiday makers. A separate bill will reduce the application charge for (subclass 417 and 462) working holiday maker visas by $50 to $390.

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

We are also making other changes to working holiday maker visas to boost the supply of working holiday makers and make it more attractive to visit Australia.

Separately, we are extending the age of eligibility for working holiday makers from 30 to 35, increasing the pool of potential working holiday makers.

We are also introducing more flexible arrangements to benefit working holiday makers and industry, allowing an employer with premises in different regions to employ a working holiday maker for up to 12 months, with the working holiday maker working up to six months in each region.

The government is aware of concerns about exploitation of working holiday makers. A separate bill establishes a compliance regime to help address these concerns. In particular, we will be requiring all employers of 417 and 462 visa holders to register with the Australian Taxation Office.

Registration will entitle employers to withhold at the new working holiday maker tax rate of 19 per cent, from the first dollar of income up to $37,000, rather than 32.5 per cent.

Employers who are not registered will be required to withhold tax at 32.5 per cent from the first dollar of income. Working holiday makers whose employers withhold at 32.5 per cent will have access to the 19 per cent rate on lodgement of their tax return.

The registration process will be simple and will provide valuable data on the employment of working holiday makers. The register will be made public, making it easier to check the registration status of a potential employer. In addition, the Australian Taxation Office will prepare an annual report on working holiday maker employment.

The government is also committing an additional $10 million to support the compliance operations of the Fair Work Ombudsman and the Australian Taxation Office to ensure employers are doing the right things by working holiday makers when they are working in Australia.

These measures are being presented as a package, as they work together to address the issues that have been raised with us as a government. Together these measures will cost some $350 million to implement.

To ensure this package washes its face fiscally, two additional bills outline what we will be doing to pay for these changes. The first provides for a one-off modest increase to the passenger movement charge of $5 to $60 from 1 July 2017. The second increases to 95 per cent the rate of tax on superannuation payments to working holiday makers after they leave Australia. This new rate will also apply from 1 July 2017.

Ensuring the budget is not worse off relies on passage of the full legislative package.

With this package the government has achieved a better policy outcome for Australians and Australian businesses. We have done this, however, while still adhering to the strictest principles of budget management.

Full details of the working holiday maker reform package are contained in the explanatory memorandum.

Debate adjourned.