The Federal Government will forgo $40 million in revenue by delaying the introduction of its backpacker tax by six months.

Key points: Government will postpone changes to backpacker tax until January next year

Government will postpone changes to backpacker tax until January next year Some Liberal MPs believe the delay is enough to "kill" it altogether

Some Liberal MPs believe the delay is enough to "kill" it altogether Shorten says "bits and pieces falling off" Government's budget

Assistant Treasurer Kelly O'Dwyer announced today that the Government would conduct a review of working holiday visas and postpone any changes to the current system until January next year.

If implemented, the 32.5 per cent backpacker tax would have saved government coffers $540 million over the next three years.

Some Liberal MPs believe the delay will be enough to "kill" it altogether, but National MPs who lobbied for the delay support the notion that backpackers should pay some level of tax.

The Deputy Prime Minister and Nationals leader Barnaby Joyce said it was a good outcome for regional Australia.

"I'm just very happy that today we have got a further extension so we can continue on attracting season workers to Australia to 1 January to give us enough time to get to a longer term solution," he said.

"I've been in negotiations with the Liberal party and Mr Morrison and Mr Turnbull, people have heard my commentary on this. I've been vitally aware of concerns in the industry and I gave a commitment we've have a resolution on this issue."

But the farm sector says the outcome is not "ideal" and the Opposition Leader Bill Shorten has called the entire proposal a "shemozzle".

"The budget was barely two weeks ago and the wheels are falling off it. What a shemozzle".

"Whenever the Government has a tough issue they desperately want to get through the election, this is a Government who can't govern," he said.

Mr Shorten said it was cynical of the Government to delay the matter until after the election.

The National Farmers' Federation told the ABC it supported the review of the visa system but said the delay created further uncertainty for farmers who need to lock in workers to pick crops later in the year.

"Putting it off for another six months doesn't help anyone," NFF chief executive Tony Mahar said.

"If it is bad policy it shouldn't be there."

Labor not committed to scrapping tax; Greens want it gone

Labor has not committed to reducing or scrapping the tax, but the Greens want it dumped altogether.

Sorry, this video has expired What is the backpacker tax and why is it delayed?

The change would have seen backpackers taxed at a rate of 32.5 per cent tax on all earnings from July 1.

Working holidaymakers currently only pay tax on money earned above the $18,200 tax threshold.

The Government will also review the 417 and 462 subclass visas, which allow people to work while on holiday in Australia, over the next few months.

The agriculture and tourism sectors, and backpackers themselves, have all expressed concern that higher taxes will see working holidaymakers choose countries like New Zealand or Canada for their travels instead.

Farmers and tourism operators accept that backpackers should pay some tax, but say the 32.5 per cent rate renders them unable to compete with other countries.

A delay would allow the Government time to consider introducing a new class of visa, specifically for backpackers who work.

The new or reformed visa would likely include some rate of tax.

The Coalition said the review will report back in mid-October, allowing for its recommendations to begin by January 1.