PNG’s tax breaks make a mockery of the salary cap. And you’re paying for it
When Chancellor of the Exchequer Jim Chalmers steps towards the dispatch bin to hand out his federal budget on Tuesday night, he can be relieved that the distance between him and the opposition is no shorter than two swords. But no matter what, it’s going to be a tough night; It’s not nice to steal too much from most people.
But as a nation, we must all search behind the sofa for our lost coins. Because whether we like it or not, we need to find $600 million for a new rugby league team outside Australia.
Papua New Guinea Chiefs do not yet exist in any meaningful way. They have no jerseys, no captains, no players on the field.
They’ve got some managers, a coach, a “resort” to be repurposed to house players and a recruitment offer no other club in the NRL can match: tax-free wages.
This seems to make the NRL’s salary cap a farce.
The salary cap exists for only two reasons, neither of which are specific to rugby league. First, to create a competitive balance: the spread of playing talent so that the richest clubs do not outbid the rest for the elite.
The second is duller but more important: the cap prevents clubs from driving themselves into bankruptcy in the pursuit of championships they cannot afford.
Both goals are about limiting the consequences of unequal money. The Melbourne Storm scandal of 2010, which saw the club stripped of two premierships and a financial penalty of nearly $1.7 million, remains a sign of what happens when these disciplines fail.
A tax exemption for a club’s players through intergovernmental agreement is exactly the kind of selective intervention that the cap is designed to prevent, and the mathematics of it are undeniable. At the 2025-26 Australian resident tax scale, about $436,000 of a $1 million salary goes towards income tax and $20,000 is withheld for Medicare. The remaining $544,000 remains in the hands of the employee.
But $1 million tax-free paid in PNG remains $1 million in the bank. The NRL player’s salary, in the hands of a seven-figure Chiefs player, buys out roughly 1.84 per cent of taxed Sydney equivalents. The gross equivalent purchasing power spread across the $12 million salary cap could be north of $22 million. The Chiefs do not officially operate under a higher salary cap; but in practice the total of their players would fall short of the amount available at all other NRL clubs.
This is actually not new territory. Spain enacted the “Beckham Law” in 2005, which allows foreign professionals a flat 24 percent tax rate on Spanish-sourced income. This resulted in a 50 percent increase in the number of foreign players in La Liga, with many leaving for Real Madrid.
By about 2010, the Spanish parliament passed a law that excluded professional athletes from the regime entirely; Public anger over tax breaks for football players has been more lasting than any sporting benefit.
of italy Decreto CrescitaThe 2019 growth decree similarly created an advantageous tax regime for high-income foreign nationals moving to the country by exempting 70 to 90 percent of their earnings from tax, depending on the region in which the person lives. The effect of this was that Serie A clubs were able to offer significantly higher salaries without spending more. Within five years the Italian Treasury promoted the idea.
In Australia, the Australian Football League continued its cost-of-living allowance for Sydney clubs until 2014, when the 10-year signing of Lance Franklin made the policy politically untenable as it distorted the player market. The Swans were subsequently subject to AFL targeted list management sanctions, which were imposed in 2015-16. things got better, as it is.
The common thread is that tax-based sports recruitment regimes are politically fragile; They tend to die as soon as they start working.
The North American comparator is still sharper. The six National Hockey League franchises operate in jurisdictions with no state income tax, where the NHL (like the NRL) operates with a salary cap that is blind to tax differences. Five of the last six Stanley Cup champions reside in these states. This points to at least one possible outcome of inequality.
But we have to be real. Port Moresby is not Sydney. Homicide rates in PNG’s National Capital Territory are the highest found in the East Asia-Pacific region and among the highest found anywhere in the world, while the World Health Organization reports that the country faces significant challenges in accessing primary healthcare and essential services.
International education capacity in PNG is limited to a handful of campuses, and a significant proportion of expatriate families with middle-aged children in Australia are based on these campuses. Chiefs’ players will live behind barbed wire in a 67-villa hotel village equipped with armed guards. A gilded cage, but a cage nonetheless.
The common thread is that tax-based sports recruitment regimes are politically fragile; They tend to die as soon as they start working.
Players asked to move from Bondi to the Gold Coast, for example, are not expected to move to a country suggested by the Australian government’s own Smartraveller advice: “We continue to advise a high degree of caution in Papua New Guinea due to high levels of crime, tribal violence and civil unrest.”
There is a defensible principle of compensation here; This is not unfamiliar to any commercial lawyer drafting a hardship allowance for an overseas secondment, or any tax advisor advising a project worker deployed for a remote operation.
The problem is that the regulation is not presented as compensation or structured as such. This is a blanket tax exemption that applies to every contract on the list, framework or development list for at least ten years and will seriously bite taxpayers as the Australian public will also pay for capital gains tax reform, among others.
While people can’t pay for gas, adults in many families are going without food so their children don’t have to, and we’re supposed to approve of such obvious spending?
In any case, the law does not work as advertised for any player who has family, school enrollment or a mortgage in Australia. Australian tax residence is determined by four tests of residence rules; An exemption granted by another sovereign does not by itself eliminate the right of residence. There will no doubt be a need for change.
The Australia-PNG agreement allocates the primary taxing right to the country in which the services are performed; If PNG levies no taxes, Australia’s worldwide taxation rights remain and the foreign tax credit mechanism is reduced to a formality.
Players who actually give up residence, such as those who move their families to PNG for the year, will benefit from this. Players who fly home in the off-season, maintaining properties in Sydney and training in Australia, may find themselves taxpayers nowhere where they want to be. Unless the federal government changes previously prescribed laws.
The tax exemptions offered constitute an unfair advantage; because the structure is set at the highest marginal rate rather than the actual non-pecuniary cost of relocation; and because it covers the entire list, not just those for whom Port Moresby presents a real disadvantage. The exemption is used as a carrot to persuade people who would not normally choose to live in the country. And you and I are kicking the can for it.
It is also unfair because it operates outside any formal cap mechanism and therefore integrity disciplines.
All comparable foreign regimes – Spain’s, Italy’s and the AFL’s – have either been disbanded, restricted or now stand as a cautionary tale.
The reality of Port Moresby may justify this allowance. This does not justify effectively removing the salary cap for a team dressed in foreign policy language and regional unification iconography.
The cover is a fig leaf only as long as the leaf is still attached to the tree.
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Darren Kane is a sports columnist for The Sydney Morning Herald.Connect with: X or email.
