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This week, the Government introduced an important piece of legislation that will slash the rate of taxation for working holiday makers, namely the 32.5 per cent figure that became known as the Backpacker Tax.

The Government has acknowledged such a rate of taxation would be counterproductive, given its potential to drive away a much-needed source of labour from the regions.

Much of the logic behind the initial proposal was lost in the public debate about the Backpacker Tax, however, and it’s important to know how we arrived at that 32.5 per cent rate.

The foundations for tax reform relating to working holiday makers began when the tax-free threshold was trebled from $6000 to $18,200 in 2011, under the carbon tax.

This policy had significant implications for tourists coming here on Working Holiday Visas, as it was standard practice for backpackers to declare themselves Australian residents for taxation purposes to the Australian Tax Office.

The flat rate of taxation for non-residents in 2011 was 29 cents from the first dollar earned.

This rate was later increased to 32.5 cents from the first dollar earned – the rate of taxation which became associated with what is now known as the “Backpacker Tax”.

By declaring themselves as Australian residents for taxation purposes, working holidaymakers could avoid paying tax on their earnings for the first $6000.

In simple dollar terms, the increase to the tax-free threshold meant backpackers working in Australia suddenly pocketed an extra $4000.

The Government of the day had effectively created a situation where working holiday-makers could enjoy the benefits of Australia’s first-class infrastructure and services, funded by the taxpayers, without contributing any of their income to the provision and maintenance of those services.

This anomaly was recognised by the Australian Tax Office when it revisited its interpretation of the tax treatment of working holiday makers.

Prior to the 2015/16 budget, the ATO ruled that, under existing law, they should always have been treated as non-residents for tax purposes.

In the 2015/16 budget, the Government announced its intentions to amend the legal loophole and treat most people on a working holiday as non-residents.

While this move was consistent with the reasoning of both the ATO and Administrative Appeal Tribunals, it also gave rise to a new and more complex set of problems.

Working holiday makers have become an integral part of regional economies.

They provide a source of labour in the regions for farmers, horticulturalists, tourism operators and hospitality providers.

My regional colleagues and I had a responsibility to support our local economies, and outline the adverse impacts of deterring temporary overseas workers.

As we know, the Government responded by agreeing to drop the proposed rate of taxation to 19 cents in the dollar.

We have acknowledged that taxing backpackers at 32.5 cents in the dollar would have been detrimental to the overall economy, and the working holiday maker visa review has helped us form a position that will benefit the entire country.

The Government will endeavour to pass this legislation before January 1 and ensure no regional economies suffer from a reduction in the supply of overseas labour.

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MEET RICK

I was inspired to run for Parliament following my involvement in a decade-long campaign to deregulate the wheat industry, which brought about the end of the Australia Wheat Board’s monopoly.

“I stand proudly for the Liberal philosophy of free markets, vigorous competition, small government and individual responsibility. These are the principles that guide me in my life and in this place. My track record in public life shows clearly that I am prepared to stand up for those principles.”

“To the electors of O'Connor, I reiterate the commitment that I have made to work tirelessly on your behalf, to always be frank and honest about the challenges we face, and to work cooperatively and collaboratively to improve the lives of the people who live in the greatest part of the greatest nation on earth”

– Rick Wilson MP Maiden Speech.