When Treasurer Jim Chalmers steps towards the dispatch box on Tuesday night to deliver his federal budget, he might be relieved the distance between him and the opposition isn’t shorter than that of two swords. But it’ll be a rough night regardless; robbing much from many isn’t pleasant.
But as a nation, we’ve all got to search down the back of the couch for our misplaced coins. Because we have to find $600 million for a new non-Australian rugby league team, whether we like it or not.
The Papua New Guinea Chiefs don’t yet exist in any meaningful sense. They have no jersey, no captain, no player who has taken the field.
What they do have is some directors, a coach, a “resort” to be repurposed for player accommodation, and a recruitment proposition no other club in the NRL can match: tax-free wages.
Which would appear to render the NRL’s salary cap an absurdity.
The salary cap only exists for two reasons, neither of them unique to rugby league. The first is to manufacture competitive balance: the spreading of playing talent, so the wealthiest clubs can’t just outbid the rest for the elite.
The second is duller, but more important: a cap restrains clubs from cannibalising themselves into insolvency in pursuit of premierships they can’t afford.
Both purposes are about restraining the consequences of unequal money. The Melbourne Storm scandal of 2010, when the club was stripped of two premierships and financial penalties of nearly $1.7 million, remains a portent as to what occurs when those disciplines fail.
A tax exemption by intergovernmental agreement on the players of one club is precisely the sort of selective intervention the cap was designed to prevent, and the mathematics are undeniable. On the 2025-26 Australian resident tax scales, a $1 million salary has about $436,000 siphoned off in income tax and another $20,000 levied for Medicare. The employee keeps the remaining $544,000.
But a tax-free $1 million paid in PNG lands as $1 million in the bank. The NRL player’s salary, in the hands of a Chiefs player earning seven figures, buys roughly 1.84 per cent of its taxed Sydney equivalents. Spread across a $12 million salary cap, the gross-equivalent buying power could be north of $22 million. The Chiefs aren’t officially operating under a higher salary cap; but in practice the sums their players will pocket dwarf what is available at every other NRL club.
This actually isn’t new territory. Spain enacted the so-called “Beckham Law” – in 2005, permitting foreign professionals a flat 24 per cent tax rate on Spanish-sourced income. It in turn induced a 50 per cent rise in foreign footballers in La Liga, many landing at Real Madrid.
By about 2010 the Spanish parliament legislated professional athletes out of the regime altogether, with public outrage at footballers’ tax breaks proving more enduring than any sporting benefit.
Italy’s Decreto Crescita, or growth decree of 2019 similarly created a favourable tax regime for high-earning foreign nationals relocating to the country by exempting between 70 and 90 per cent of earnings from taxation, depending on the region the person lived in. The effect was that Serie A clubs could offer seriously higher salaries without spending more. Within five years, the Italian Treasury spiked the idea.
In Australia, the Australian Football League maintained its cost-of-living allowance for the Sydney clubs until 2014, when Lance Franklin’s 10-year signing rendered the policy politically indefensible because it had distorted the player market. Subsequently, the Swans were hit with an AFL-targeted list management sanctions that applied in 2015-16, to even things up, as it were.
The common thread is that tax-driven sporting recruitment regimes are politically fragile; they tend to die the moment they begin to work.
The North American comparator is still starker. Six National Hockey League franchises operate in jurisdictions with no state income tax, where the NHL (like the NRL) operates with a hard salary cap blind to taxation differentials. Five of the past six Stanley Cup champions are domiciled in those states. Which points to at least a possible consequence of the disparity.
We must, however, be real. Port Moresby isn’t Sydney. The homicide rates in PNG’s National Capital District are the highest found in the East Asia-Pacific region, and among the highest found anywhere in the world, while the World Health Organisation has reported that the country experiences significant challenges in access to primary health care and essential services.
International schooling capacity in PNG is constrained to a handful of campuses and a significant proportion of expatriate families with secondary-aged children board them in Australia. The Chiefs’ players will live behind razor wire in a 67-villa hotel village complete with armed guards. A gilded cage, but a cage nonetheless.
The common thread is that tax-driven sporting recruitment regimes are politically fragile; they tend to die at the moment they begin to work.
Players asked to relocate from, say, Bondi to the Gold Coast aren’t expected to move to a country of which the Australian government’s own Smartraveller advice recommends: “We continue to advise to exercise a high degree of caution in Papua New Guinea due to high levels of crime, tribal violence and civil unrest”.
There’s a defensible compensatory principle here; one not unfamiliar to any commercial lawyer who has drafted a hardship allowance into an offshore secondment, or to any tax adviser advising a project worker bound for a remote operation.
The trouble is that the arrangement isn’t presented as compensation, nor structured as such. It’s a blanket tax exemption applied to every contract on the roster, marquee or development list, for a minimum of a decade, which the Australian public will pay for at the same time capital gains tax reform, among others, will bite the highest taxpayers severely.
People can’t pay for petrol, while adults in many families go without meals so their kids don’t have to, and we’re supposed to countenance such flagrant spending?
In any event, the law doesn’t operate as advertised for any player who keeps a family, a school enrolment, or a mortgage in Australia. Australian tax residency is determined by the four tests of residency rules; an exemption granted by another sovereign does not, of itself, defeat residency. No doubt, an amendment will be needed.
The Australia-PNG agreement allocates the primary right of taxation to the country in which services are performed; if PNG levies nothing, Australia is left with worldwide taxation rights, and the foreign tax credit machinery is reduced to formality.
Players who genuinely sever residency, such as those who relocate their families to PNG year-round, will benefit. Players who fly home for the off-season, retain Sydney property and Australian schooling, may find themselves tax residents of nowhere they wish to be. Unless the federal government changes the laws, which has been foreshadowed.
The tax exemptions on offer constitute an unfair advantage because the structure is calibrated to the highest marginal rate rather than to the genuine non-pecuniary cost of relocation; and because it captures the entire roster, not merely those for whom Port Moresby imposes a real disadvantage. The exemption is used as a carrot to entice people who wouldn’t otherwise 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 beyond the integrity disciplines.
Every comparable foreign regime – Spain’s, Italy’s and the AFL’s – has either been dismantled, restricted, or now stands as a cautionary tale.
The Port Moresby reality may well justify an allowance. It doesn’t justify effectively abolishing the salary cap for one team, dressed up in the language of foreign policy and the iconography of regional unification.
The cap 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 via X or email.
