‘Backpacker tax’ win for Australian agriculture

The Australian government has finally settled on a deal to lower the tax on earnings for foreign workers, easing fears over industry labour shortages

 
'Backpacker tax' win for Australian agriculture
The Australian 'backpacker tax' has been amended following a slump in tourism and agriculture  
Author: Erica de la Harpe
December 1, 2016

White, sandy beaches and glorious weather are not the only reasons tourists from around the globe flock to Australia: they also form a large part of the labour market. With attractive visa options for visitors under the age of thirty, many workers spend a year contributing to the island’s economy. Thanks to a quirk in the immigration system, travellers are able to obtain visa extensions through rural farm work – with the vast majority concentrated in the fruit picking industry.

Last year, however, the government increased the tax rate for foreign workers, damaging the appeal of the country’s working backpacker culture. Before the change, foreign workers could claim residency status and benefit from the tax-free threshold of AUD18,200 ($13,500). In March 2015, the government proposed to overturn this system, hitting holiday-workers with a 32.5 percent tax liability for every dollar they earned up to AUD80,000 ($59,120).

[The tax reform] neglected to account for the subsequent decline in working holidaymakers and the impact this would have on farming and tourism as a result

The government’s rationale behind the change based on increasing revenue – estimating the tax hike would return AUD540m ($399m) in three years. It would seem, however, that the estimation neglected to account for the subsequent decline in working holidaymakers and the impact this would have on farming and tourism as a result. As persimmon grower Brett Guthrey told Australian Associated Press reporters: “It’s not only the farmers, it’s the caravan parks, the fish and chip shops, the pubs, the tyre repair place.”

In February, the National Farmers’ Federation (NFF) launched a petition against the tax reform, saying: “[It] will erode the agriculture workforce and the prosperity of regional communities.” The seasonal nature of the agricultural industry, they argued, meant backpackers were often required to fill the temporary labour shortages.

Additionally, with countries such as New Zealand and Canada having lower tax liabilities for transient workers, the rise in tax would put Australia at a significant competitive disadvantage both continentally, and internationally. New Zealand, for example, has a tax rate of just 10.5 percent.

The fallout from the government’s decision has been heavily criticised and unduly protracted. In 2015, the State Economics Committee referred the government’s proposed compromise for review, at which NFF Workplace Relations Manager, Sarah McKinnon, urged all parties to speed up the resolution process. McKinnon said: “The seasons don’t wait. Parliament has a process to go through, but every day of delay is costing the farmer and that’s why an urgent resolution is so critical.”

Finally, on December 1 the NFF tweeted:

For farmers and rural communities, the compromise was a monumental success – halving the levels originally proposed in 2015. While the deal still awaits the approval of the senate, there is an increasing optimism among seasonal traders that the door will be left open for a continued influx of backpacker labour.