The federal government will water down its proposed $500 million backpacker tax in a deal that will please Nationals MPs who had campaigned against the measure.
Under the deal hammered out by Treasurer Scott Morrison and Nationals leader Barnaby Joyce, the plan to impose a 32.5¢ tax rate on backpackers from the first dollar they earn while working in Australia - rather than when they pass the $18,200 tax-free threshold - has been walked back.
Instead, a 19¢ rate will apply and the revenue foregone under the change will be made up by a $5 increase in the passenger levy that applies to some flights.
The tourism sector will also get a $10 million hand out to market jobs to backpackers.
Cabinet ticked off on the changes to the backpacker tax, which was announced by former treasurer Joe Hockey in his 2015 budget and had been due to to start on July 1, on Tuesday.
Earlier this month, Mr Morrison said that if there were to be changes to the tax, "it is my view as Treasurer they will be made in a way that does not disadvantage the budget".
The compromise deal appears to have ensured that no revenue will be foregone.
