The federal government announced on Tuesday that a proposed 32.5 per cent tax on earnings would be dropped, after facing considerable pressure from Nationals MPs and industry groups.

Backpackers will now be taxed at 19 per cent on earnings up to $37,000 with lost revenue to be made up by a $5 increase in the passenger levy. The tourism sector will also get a $10 million hand out to market jobs to backpackers.

Treasurer Scott Morrison said the government would also reduce the application charge for working holiday visas by $50 to $390.

"These changes will lower the cost of coming to Australia for working holiday makers and leave them with more money in their pockets to spend while here," he said.

The government announced it would delay the tax for six months pending a review in May, but this did little to alleviate concerns at Canberra wineries.

The region is heavily reliant on backpackers during harvest season and to a lesser extent for pruning and thinning. Many winemakers feared the changes would limit their access to labour.

John Leyshon, president of the Canberra District Wine Industry Association, said the compromise was "fantastic news" for the region.

"We have repeatedly made the point that we cannot afford to employ people full-time and are dependant on seasonal labour, like most farmers across the country," he said.

"We are premium wine producers so much of us need to pick the fruit as soon as it is ripe. There is no use saying I'll pick it in a few days once I secure labour."

Mr Leyshon said backpackers were exceptional workers and many had experience at other vineyards.

"We have been lucky enough to have many from France who have gone on to help us with crushing in the winery," he said. "They spend almost everything they earn in Australia and are paying GST just like everyone else."

Ken Helm, of Helm Wines, said the compromise would be welcomed by many reliant on temporary labour.

"Backpackers work for us at all times so we welcome anything that would encourage our workforce to stay," he said.

"We just can't find casual workers to do a lot our jobs. These backpackers were not going to come to us if they were going to be taxed at that rate."

Eden Road winemaker Nick Spencer said he hoped the compromise would make it easier to find labour during peak capacity times.

"It is always a challenge to find enough pickers and you are at risk of compromising and not getting the start you really need," he said.