27/09/2016 1:50 PM AEST | Updated 27/09/2016 5:46 PM AEST

Turnbull Government Drops Proposed 32.5 Percent Backpacker Tax

Instead, working holidaymakers will be taxed at a lower rate.

CANBERRA -- People entering and leaving Australia will be charged an extra $5 to cover the Turnbull Government's back down on plans to tax overseas backpackers like Australian residents.

Coalition backbenchers have been described as "pigs in mud" after the Turnbull Government dropped its $540 million plan from the 2015 federal budget to introduce a 32.5 percent tax on temporary working holiday makers.

Instead, a 19 percent tax rate will be applied as well as a series of revenue raising measures --including increasing the Passenger Movement Charge (PMC) by $5 -- that ensures the government still raises $365 million.

Andrew Meares, Fairfax
Treasurer Scott Morrison says holiday workers should not have a tax holiday

The $5 increase in the PMC - a tax payable by all passengers entering and departing Australia on international flights or sea transport - has angered the tourism sector which is furious it is being "treated as a cash cow."

The Tourism & Transport Forum Australia (TTF) said it has been blindsided.

"At no point was it flagged in any discussions in which we took part and is a bitter disappointment that we've been slapped with this tax hike on every traveller – Australian or international visitor – heading overseas," declared the TTF's CEO Margy Osmond.

The watering down of the proposal comes after protracted pressure from farmers, tourism operators and Coalition backbenchers from regional areas.

"What it means is we have worked a problem and we have solved it and we are moving on," Mr Morrison told reporters in Canberra.

"This package washes its face."

It is a win for the National Party, as it and other regional voices argued the backpacker tax would push temporary workers to other countries, a disaster around harvest time.

Mr Morrison said the Coalition backbenchers are pleased with the new proposal.

"As one said they were a pig in mud when it came to the changes," Mr Morrison said.

As well the visa application charge for working holiday makers is being reduced by $50 to $390.

Tourism Australia will also get $10 million to market backpacker jobs.

Farming bodies have welcomed the backdown with National Farmers' Federation President, Brent Finlay describing the new rate of 19 per cent as "fair and reasonable."

"We are delighted today to see Government listen to its constituency and not put in place a tax that would have hurt farm production and, ultimately, the Australian economy," Mr Finlay said.

"We have consistently said agriculture simply cannot do without backpackers and, following today's announcement, we can again go to the working holiday maker community and say that coming to work on our farms is worth it."

The Treasurer Scott Morrison said the backpacker tax was an integrity measure that ensured holiday workers did not take a "tax holiday."

Mr Morrison said Australia will compete with Canada, New Zealand and the United Kingdom with the new 19 percent rate.

The Opposition Leader Bill Shorten said he wants to consider the new backpacker tax proposals.