Senate debates

Thursday, 24 November 2016


Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016, Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016; In Committee

12:48 pm

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

No, that was actually the tail end of the Fraser government. It was the 1983-84 budget. So it has been in place since 1983-84. It was 29 per cent in 1983-84. It was increased under the Labor government, the Gillard government, by the then Treasurer Wayne Swan to 32.5 per cent in the 2012-13 budget. And as you know, under our legislation, we are proposing to reduce that to 19 per cent from 1 January 2017.

It is true that, if the legislation is not passed, the current rate of 32.5 per cent will continue to be the tax rate from that time. I also have to say that the $18,200 tax-free threshold for residents in Australia is only a recent development. It was increased quite substantially in the wake of the introduction of the carbon tax by way of carbon tax related compensation.

When it comes to foreign workers, the uncertainty that existed prior to the 2015-16 as to the status of backpackers, working holiday-makers, was whether they were residents or nonresidents. If they were treated as nonresidents, like any other foreign worker in Australia they paid tax from day one. The tax rate applied by Labor was 32.5 per cent. If they were treated as residents then they were able to take advantage of the same tax-free threshold arrangements as Australian taxpayers.

That was an unresolved issue back in 2015. The budget measure was designed to provide certainty and to resolve that issue. But around the same time as that measure was being discussed the Administrative Appeals Tribunal heard a number of cases which were handed down on 6 March 2015. Those cases confirmed that working holiday-makers invariably were nonresidents for tax purposes, and the tax office clarified it and provided certainty around the status of working holiday-makers as non-resident taxpayers and workers. In statements released by the tax office on 2 November 2016, the tax commissioner has made that very clear. He said:

We consider that most working holiday makers are non-residents due to their pattern of working and holidaying while in Australia.

We will help working holiday makers understand Australia’s self-assessment tax system, so that they correctly advise their employers of their residency status …

The implication of all of this, as you quite rightly pointed out, is that if this bill today does not pass or does not pass in a way that is acceptable to the government the consequence of that will be that the Labor tax rate of 32.5 per cent will apply to every foreign worker in Australia, including working holiday-makers. That will be the consequence.

We are proposing a sensible compromise which Liberal and National Party senators along with their colleagues in the House of Representatives worked on very hard with stakeholders across the sector to come up with. We are proposing to bring the rate down to 19 per cent, which we think is sensible. Obviously we have a fiscal challenge in Australia. Obviously we need to raise more revenue. I guess the implication of the proposition put by some that we should cut the tax further is that we would be cutting taxes for foreign workers and forcing taxes up for Australian workers or forcing deeper cuts in order to get the budget back into balance. We do not believe, on balance, that that is the right way to go. This is going to be my only contribution in order to facilitate the process.

The way this has been framed by the government, in close consultation with all relevant parts of the sector and in close consultation ,from the government's point of view, with Liberal and National Party members and senators in particular, has been to ensure that those holiday-makers coming to Australia have a better deal than if they went to New Zealand, the United Kingdom or Canada, for example. Indeed, under our government's changes, a backpacker earning $30,000 in Australia during their holiday would have $10,530 in their pocket after tax. Under similar working arrangements, take-home pay in Canada would be just $9,937. In New Zealand it would be $10,126. In the United Kingdom it would be $10,470. So when you look at the pure financials you will see that the arrangement we are proposing is internationally competitive.

Let me assure you as somebody who as a student came on a holiday to Australia—and, of course, I stayed!—that I came to Australia because of what a wonderful country Australia is. I did not sit there with my laptop trying to figure out what the tax rates were in Australia. It might surprise you, but I certainly did not think, 'What are the tax rates in Australia? Oh, okay. They are slightly better than in New Zealand or Canada. Let's go to Australia because they have a more competitive tax rate!' That is certainly not the way it worked for me. I put it to you that that is not the way it works for most holiday-makers. I think most holiday-makers come to Australia because of what a beautiful country Australia is. It is because of what a wonderful country Australia is. It is because it is such a great country to visit with such great opportunities and such great people to meet. Yes, of course, you have to be mindful that your tax arrangements are internationally competitive. We believe that what is on the table here is internationally competitive, and we commend it to the Senate.


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