27 September 2016
Transcript - #2016139, 2016

Press Conference, Canberra

SUBJECTS: Better working holiday maker tax arrangements; GST; asset recycling. 

TREASURER:

Today I’m here to announce that during the course of the election, you’ll be aware that we undertook to review the taxation arrangements for working holiday makers, those on 417 and 462 visas in relation to the measure that was introduced in the 15/16 Budget, which treated those working holiday makers as non-residents for tax purposes, and were taxed at 32.5 cents in the dollar. That measure was introduced as a result of the change to the tax-free threshold under the previous government, which meant that those who were here working on those visas, and only earning up to the tax free threshold were effectively having not just a working holiday but a tax holiday while they were here.

It is important that we ensure the integrity of the tax base in relation to what is an important area of growth in the economy, but, also, it is important that this is done in an appropriate way and deals with any issues that may have arisen.

Now, we recognise absolutely the important part that backpackers play in the overall tourism industry. It has been an area of strong growth over many years, but regrettably, since about 2012, this is not a new phenomenon, since 2012 we have seen the number of backpackers coming to Australia falling.

Now, there are many reasons for that. It represents to the state of the economy in their host country, exchange rates, airfares, all of these sort of issues contribute to those movements in backpackers. The backpacker markets tend to come from more established markets, over a long period of time, out of Europe, North America, places like that. We get very few backpackers, for example, out of China. That is subject to a capped arrangement currently. That is not one of the countries that has obviously been driving the backpacker market. It is an important sector for the tourism industry, it’s also a very important source of labour in the agricultural sector, particularly for seasonal labour. It is very frustrating and the Government is frustrated that in many parts of Australia, whether it is in northern Tasmania or northern Queensland, Darwin, southwestern Western Australia, where there are real difficulties in getting Australians, who may be in these places, to actually work in these locations. But those who run the businesses and have to pick the fruit and have to ensure they get their product to market, well, they don't have the luxury of waiting for someone to come and take that job.

As a result, those on 417 and 462 visas have been an important supplement to the labour market in those areas. As a result of what has been a consultation process run since the election, which has involved Deloitte doing a formal process of consultation. I received that report over the course of the last week. I have taken a package of measures to cabinet today, and received their endorsement, and have consulted with the backbench committee on these measures that I'm about to announce today, who have also given their fulsome support. As one said, they were ‘a pig in mud’ when it came to the changes that I'm about to announce now.

Those changes are as follows, from January 1 of this year 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 15/16 Budget, with ordinary marginal tax rates applying beyond that point.

The Government will also reduce the visa application charge for working holiday makers 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 be able to spend here in Australia, in communities right across the country. One of the great virtues of backpackers, when they come to Australia, is they leave with pair pockets empty because they spend what they earn here. This change will ensure that they will be able to put more in their pocket while they are working here, and be able to spend that while they are working here as well, right around the country.

We will also be making some changes to the 417/462 visas to improve the supply of working holiday makers at this current time, and to improve its attractiveness, as a visa, for people to come on holiday to Australia. This will include two things – the first is to extend the age of eligibility from 30 to 35, and to change the same employer test to say that someone can work for the same employer for 12 months, but no more than six months in the one location. So, for example, if you are working for one employer, who has an abattoir in NSW, you can be there, and then you can go and work for the same employer, who may have an abattoir in Western Australia. This is some of the feedback we have had on the working holiday maker program. These reviews give us an opportunity, I think, to look at the overall system and how it's working and how it can be improved. So, they are the changes that we will be making to the visas themselves.

In addition to that, we will be requiring all employers of 417 and 462 visa holders to register with the ATO for that purpose. That will give them the entitlement to withhold at 19 cents rather than 32.5 cents. Now, what this will do will assist with the compliance in relation to working holiday makers in Australia, and we are committing $10 million over the next two years to support the compliance operations of Fair Work Australia and the Australian Taxation Office to ensure that employers are doing the right things by working holiday makers when they are working in Australia. The registration process will assist that. Now, obviously when someone is registered to be able to employ people in this situation, in the event of quite significant malfeasance and findings of courts and otherwise, there is the potential for the Government to cancel that registration and remove that entitlement for people to employ workers on 417 and 462 visas. That provides a pretty strong incentive for those employers to continue to do the right thing by those guests to our country who are in their employ.

In addition, we will be providing to Tourism Australia effective from now $2.5 million in this Budget year, $10 million over the next two years, $5 million next fiscal year and then $2.5 million the year after, to engage in a backpacker tourism promotion, marketing fund, which would be a cooperative marketing fund, which would have the opportunity for state and territories, tourism administrations as well as industry to partner with Tourism Australia to get this message out and to promote a backpacker holiday experience here in Australia.

These measures are combined to ensure that we address the various issues that have been raised with us over the last six months or so, as we have sought to address this issue. All of that combined will cost some $350 million to implement. To pay for that, there are two things we will be doing. The first is to increase the departing Australia superannuation payment, and that rate will go up to 95 cents in the dollar. So effectively, that superannuation is paid by backpackers, when they are in Australia, will be returned to the Commonwealth at the rate of 95 per cent. Remember, the superannuation guarantee is there to support Australians' savings in their retirement, not for foreign residents, and it is important that employers can continue to operate on the same basis, whether they are employing residents or non-residents, and there has to be a parity in the wage arrangements. The award arrangements and so on, that is what sets the wage. Then, of course, there's the SGC commitment on top of that. Now, the SCG component in the fund, that will be taxed at 95 per cent, and that will go back into general revenue, that raises $105 million over the forward estimates.

In addition, to that, given that the overwhelming benefit of having more backpackers come to Australia is in the tourism sector, and that ensures that there is more money moving around, within our economy, from tourists moving all around the country. We will be increasing the passenger movement charge from 1 July of next year by $5. So, that will take it to $60. That is the first time the passenger movement charges have been increased since 2012. So, that is quite a period of distance since the last change. I remind everyone that since that period of time – and when it was last put up it was done simply as a revenue measure, and we were critical of it at the time. It was $9 when they put it up last time. I'm advised that they increased the passenger movement charge under Labor by some 45 per cent. Now, this is an increase of less than 10 per cent and in the intervening period this Government has invested hundreds of millions of dollars, particularly at our airports, the e-gates which were introduced by this Government in the last term, have significantly improved the performance of our airports and the passenger experience through our airports. We have established the counterterrorism units, which have also come at significant cost, but are important parts of the border management responsibility. Now, not once did this Government go to the passenger movement charge to fund those initiatives, they were funded out of the Budget.

Now, on top of that, you will be aware that the Financial System Inquiry recommended the banning of credit and debit card surcharges. Now, we've now taken action on that and that means if you are a traveller in Australia you are no longer subject to the excessive surcharging, whether it is when you book into a hotel, book a flight, catch a cab, go to a concert or something like that.

So, we have already taken actions as a Government over the last three years to lower the cost for travellers when they are coming, and to improve the visitor experience through the airports. So, on the balance of having actually provided the better service and the better arrangements first, to now see that charge increase by $5 on 1 July of next year, to ensure that we can have these changes to backpacker arrangements, to encourage more backpackers to come to Australia, which will be good for the tourism industry, then that, as a whole, is a balanced package. Those measures combine raised $365 million which means, like with super, this package washes its face. Michelle? You have a keen interest in that phrase. It is important that it do so because we are a Government that is committed to budget repair. Absolutely committed. So when we deal with issues like this, then we make sure that they wash their face from the point of view of the Budget, and that's what this package does.

QUESTION:

Treasurer, just on how this makes Australia a destination for backpackers, previously you had 32.5 per cent tax, now it is 19. That's a reduction, but they lose basically all of their super. How much better off are backpackers going to be?

TREASURER:

They will be commensurate when you take into account how much it costs to live here and move around Australia, they will be on the same wicket in terms of what money is in their pocket, compared to Canada, compared to New Zealand, and compared to the UK. So, these changes put us on a level footing for what is in their pocket, when they are earning here in Australia. That 19 per cent was a figure that was also arrived at through the process of the consultation, recognising that that 19 per cent would put us back on an even wicket with our competitors.

QUESTION:

The 19 per cent was first raised as a real option in February this year. You have been hearing these concerns since May of last year. What on earth has taken the Government so long?

TREASURER:

You will be pleased to welcome the announcement today.

QUESTION:

What has taken you so long to arrive at this announcement?

TREASURER:

We have been working through the issues. There are a range of proposals that were put up before the Budget, which in my view, didn't satisfy the test that was necessary to ensure you could make the changes and not erode the integrity of the Budget. And we have now arrived at a package of measures which does protect the integrity of the Budget, and does address the concerns of the sector, and does support the tourism industry more broadly and the labour market issues that are out there. I would say that when you do the work and you consult properly, and you come to the right outcome, that is something that should be acknowledged.

QUESTION:

Could the 95 per cent recovery of superannuation payments unintentionally drive people towards participating in the cash economy?

TREASURER:

No. That is why we put $10 million into the integrity package and the registration package. It would not be a small thing for some employer to be able to lose their registered ability to employ people on 417 and 462 visas. What we are saying is we will be toughening up the cop on the beat when it comes to policing how people are employed under these visas around the country, and so people should not enter lightly into illegal behaviour. They never should, because the consequences could be significant.

QUESTION:

  Is this actually quite a good mechanism for stamping out the black economy, which has been a problem in some of these sectors in the past?

TREASURER:

I'd agree that going down this new path now of this new rate, with the other offsets that we’ve put into the package, means that fiscally it is tight but at the same time I think we get ourselves back where some of the incentives to do the sorts of things which James was suggesting would be removed by this package.

QUESTION:

The registration [inaudible] it will be given a positive incentive to employers to actually register...

TREASURER:

Absolutely. The register will be public so backpackers will be able to see, am I working for an employer who is registered. Well, they will know pretty quick because if they are not they will be taxed at 32.5 cents. It is important that for those who are guests in our country that we provide them with that surety about the employer that you are employed by, is a registered employer for the purposes of this program, and there will be arrangements that will follow through the Department of Employment, Fair Work and others, who will be able to further outline how we will ensure the integrity of the program.

QUESTION:

Treasurer, just going on the washing of the face, the passenger movement charge, how much is actually backpackers going to pay of that? I think it is $245 million. How much is actually the general tourist population who have nothing to do with working visas going to pay?

TREASURER:

The backpackers obviously only form a small component of the overall travelling public. And under what I'm announcing today, they will actually have their visa application charge dropped by $50. The clear intent here is for us to be a lot more aggressive in our marketing and our campaigns and programs to attract backpackers to come to Australia. The passenger movement charge, a $5 movement. You would see that variation in a week if you go on to ‘wot If’ or ‘Webjet’ or something like that. I have been around the tourism industry myself. I know the prices can be variable, and I have never seen the evidence which suggests that there is a linkage when there are marginal changes on these types of charges to any change in visitor behaviour. That said, I understand that the tourism sector would prefer that the passenger movement charge doesn't go up. There are many things I would prefer but when you are in the fiscal setting we're in, then every area has to wash its face.

QUESTION:

Will these changes keep George Christensen in the Government tent and how confident are you of getting it through the Parliament?

TREASURER:

Well, it is a big tent and George is always in it.

QUESTION:

Treasurer, is legislation required for these changes? If so, how confident are you that the Labor, Greens and the crossbenchers will actually support them?

TREASURER:

It is very important they do. Labor at the last election effectively adopted our policy, which was to see it postponed for six months. They would have been working through a very similar exercise. I know Joel Fitzgibbon would be keen to see this issue resolved. He's been also raising issues on this, and I think he's been very genuine about that. So, we will work closely with the Opposition. They will get the normal briefings from today. I encourage them to take that up. It is our hope to be able to bring the legislation in when we come back, and should we be able to do that, then I think it will be important to get that legislated so we can have the certainty there both for backpackers and employers. There is also this reason as well – that the AAT already has decisions which mean that the tax rate is 32.5 cents. Unless we actually change it by legislation, that is the default position in terms of the administrative law. That is important, that we get that legislation passed.

QUESTION:

Will labour hire companies have to register? And will they be deregistered if companies they place workers into are ones that exploit them?

TREASURER:

They will have to be registered to employ 417 and 462 visa holders. They will have to be registered. If they fail in their obligations under those registrations, then they could potentially face that consequence.

QUESTION:

Just going back to the question of registrations, Treasurer, do you have any estimate of, there has been a lot of anecdotal reports over the years about the extent to which there has been a black economy going on in the agriculture sector. Do you have any idea of how extensive that is? And, therefore, whether you are actually going to reap some rewards in extra revenue from the fact that it might actually pull people out of the cash economy?

TREASURER:

I think they are all good points. That is why we are going down this path of registration. I think the answers to some of your questions we will know in time. Having better data on who is employing 417 and 462s and where, and why, I think that will also help us to address what is the other side of the equation and that is why are Australians not taking up these jobs in the first place. What are the things that need to be done to ensure that Australians will take up these jobs and that is an issue that still remains to be addressed. You will be aware that we already have legislation on the four-week waiting period, and I welcome the support of One Nation for that package of measures and frankly many more measures they have indicated their support for in our social services package which we have been seeking to get through the Parliament. It is important we address why young Australians, in these locations, are not taking up these jobs. But you have got to solve both problems simultaneously – you have got to ensure the employer is going to get access to the workers, and you have got to ensure also working on the welfare side of things that you are doing everything you can to get people into these jobs, whether it is this job or somewhere else.

QUESTION:

The West Australia is reporting that the Prime Minister has written to all state premiers and territory leaders saying that any floor price under the GST...

TREASURER:

Before we go there, any other questions on the topic of today? Yes. You have been patient.

QUESTION:

Does the policy washing its face, does that mean its revenue neutral? Does that mean you have taken a lot of heat on this for a long time for nothing in terms of budget repair?

TREASURER:

What it means is we have worked a problem and we have solved it and we are moving on.

QUESTION:

Did you not create the problem in the first place?

TREASURER:

We were seeking to address an issue that was left to us by the previous government, which by raising the tax-free threshold they were giving backpackers a tax holiday in Australia. They opened up a hole in the revenue. Treasurer Hockey introduced a measure to address that. That wasn't to come into force until now – until just this year. It was only due to start on July 1 this year. As that measure got closer to implementation, issues were raised, and that's what this Government will do. We will address those issues. We will work through them. We will consult with them. We are not so precious, as a Government, to think we can't improve on things, and that when people give us feedback we can't make them better. Now, that's what we have done on superannuation. That's what we have done on this issue. We're not a Government that seeks to dig itself in on these sorts of things. We are a government that solve practical problems, and gets on with the job. That's what they elect us to do in the 45th Parliament, to work these problems and to get answers and to get on with it and today, on backpackers, we are getting on with it.

QUESTION:

Some producers are already struggling to get the right backpackers to come in and they have strawberry growers who in a month's time will be picking their crops and they are still struggling to get the labour to pick those crops. What are your words of encouragement to them? On another point you have mentioned twice how frustrating it is in areas where producers are trying to find the seasonal workforce, that local Australians won't do the work. You have talked about your Newstart measures. Are there other incentives the Government is looking at to try to encourage young Australians to take up that work?

TREASURER:

This Government will never rest on our commitment that the best form of welfare is a job. The best thing we can do to help young Australians – all Australians – the best way to ensure that the social services budget does not swamp the budget is actually to get Australians, wherever we can, whatever ability they have, into work and to be self-supporting. That is our mission as a Government. That is how you actually address the long-term costs in your social security system. That's the answer. That's the biggest answer. Yes, it has to be fit for purpose, it has to be well-targeted, it has got to have the well timed interventions, like Minister Porter has been talking about with the Try, Test and Learn approach. So, at every point, whether it's the PaTH program that I announced in the Budget, at all points we are working to ensure we have the right systems in place to get young people, in particular, but Australians more broadly into work. Because that's where they will be able to make their own choices about their own lives about education for their children, and where they live and all the things that an Australian family would want to decide for themselves. If they are in a job, they are more empowered to have those decisions made by themselves and not by others. So this is an absolute commitment. We have time for one or two more.

QUESTION:

[Inaudible] The West Australian is reporting that the Prime Minister has written to all state leaders saying that he fully expecting any floor price under the GST carve up would never actually kick in, that it would be, if you like, academic or cosmetic, what does that say about the value of a promise that, in fact, would never alter a dollar in terms of the way the GST were carved up?

TREASURER:

Tim, I think you are looking at it the wrong way, in the way you have couched it. What the Prime Minister said when he was in Perth is to acknowledge what, I believe, was the unintended consequence of when they first put this formula together, that has seen what has happened in Western Australia happen. I don't think there is anyone who would think that that hasn't been a fairly unforecast – yes, it is budgeted in terms of how the system works. But that's not what the system was designed to deliver, is the point the Prime Minister and I have been making. What is best is to look at the matter, once the system has normalised, and to ensure that there won't be a repeat of the type of circumstance we have seen for Western Australia or any other state, for that matter, in the future. I mean, Western Australia was the one that was caught very much by it this time. But there are possible scenarios that could see Queensland faced by that sometime in the future or New South Wales or Victoria. It's important that over the course of the next few years that we do whatever we need to do to make sure the system doesn't repeat what I think has not been an intended consequence of the system in the first place.

QUESTION:

Simon Birmingham indicated last night that the Government believes that there are some schools that are overfunded. What's the definition of...

TREASURER:

I will leave the education matters to the Education Minister.

QUESTION:

They are fiscal matters as well though.

TREASURER:

He is working through the matters with the states. He is engaged in those consultations. I will leave him to pursue those with the states.

QUESTION:

The first part of the question, the Government has been criticised by farmers for over a year who have described this process as destructive, shambolic, chaotic. You have said that numbers of backpackers were already declining. Why did the Government move through with this process before doing any consultation in the first place? How do you account for that process?

TREASURER:

I have already outlined why the measure was introduced in the '15/16 Budget. I have outlined the measures that we have taken as a Government today to address the problem. I am sure that those Australians will be very pleased that we have been able to come to a resolution.

QUESTION:

[Inaudible] Farmers who are struggling to find a workforce now...

TREASURER:

This is why we have made these changes.

QUESTION:

Have you recently met with Tim Pallas or do you have a meeting coming up soon? And is there any sympathy with the Federal Government for the Victoria Government’s claim for the, I think it is around $1.45 billion extra money coming out of the asset recycling?

TREASURER:

  First of all, the asset recycling initiative closed on 30 June. It is no longer running. It was open for two years. Everybody knew that they had two years to go and do that. So, they had two years for that program to run. We were aware, coming out of the Budget and going into the election that the deadline was approaching. We had been consulting with the Victorian Government prior to that and the way the system works is it isn't 15 per cent on the sale price, it's 15 per cent on the agreed – the agreed – apportionment of funds for projects that come from the asset recycling process. So, it's based on what they propose to spend on infrastructure as a result of those sales, and that those projects were agreed with the Commonwealth. Now, we set out, in the process around about Budget time, just before the Budget, we had come to a position based on some suggestions they had made to us that there were two projects, the Metro and the Murray Rail, and they had told us they were planning to spend a certain amount of funds on those, and we applied that ratio to those funds. We offered that deal. Same deal that was offered to New South Wales, the Northern Territory and the ACT. They all signed up to it. Happy to do it on that basis, given they knew the program was ending. This was a commitment to Victoria of $877.4 million for infrastructure. Tim Pallas didn't sign the agreement, he didn't accept the agreement. Now, we're committed to still follow through, despite the fact that that agreement was not reached as it was with the other state and territories. I look forward to working through with the Victorian Government on those issues. But I think there has been some misinterpretation and wilful misunderstanding on behalf of the Victorian Government, who always wants more money from the Commonwealth, but from a Victorian Government that spent more than a billion dollars of their own taxpayers' money not building a road, I don't think they argue from a particularly strong position.

Thank you.