The Backpacker Tax: just more money in the government’s rucksack?

The Backpacker Tax: just more money in the government’s rucksack?

Every Christmas, European families are regaled with tales from one sunburnt relative’s summer trip to Australia, where they spent a few months picking apples and the remainder of the time travelling around the vast continent.

Since 1975, when the Working Visa program was established, tourists from around the world have used their holiday to work in Australian industries such as agriculture and hospitality on a temporary basis. It is estimated that these visitors spent $1.3 billion annually in Australia. This figure may be even higher, however, where these tourists upon return to their home country act as ambassadors advertising the country to family and friends, who then may subsequently visit. Importantly, the Working Holiday visa offers individuals the opportunity to travel relatively cheaply, given that they may earn money while also exploring the country they are visiting, where some workplaces can be just as scenic as any tourist destination.

However, this may change as the newly re-elected Coalition seeks to levy a 32.5% tax on all earnings from people with working holiday visas, known as the ‘Backpacker Tax’. Working holidays in Australia have traditionally been attractive because tourists can be treated as residents for tax purposes. To that end, they were previously only taxed once they reached an income of $18,200. Now, backpackers are set to lose many more of their earnings, and this may have wide implications for the economy as a whole. The government has modelled that this tax could bring in up to $540 million. However, they have not accounted for a potential decrease in backpackers coming to Australia that may result from this.

Working Holiday Visa holders provide an ample solution to the difficulties the agriculture sector have in attracting workers. The work is often seasonal and temporary, with a local workforce that may be looking more often for permanent work being uninterested to such jobs. It is also often physically taxing, where a young workforce such as those on working holidays is best suited to do such tasks. For these people, being ‘in the outback’ is much more of a novelty and more of an exciting experience than for the majority of Australian society, who wish more often to live and work in major cities instead of in rural areas. Australian agriculture as a sector contributes to 3% of Australia’s GDP, and produces 93% of the domestic food supply. Working Holiday visa holders predominately work in this sector and, in fact, are required to for a portion of their time given that it is classified as an industry with a labour shortage. This workforce forms 25% of the agricultural sector Australia wide, and in some regions it is much higher, such as in the Northern Territory, where such workers comprise 85% of agricultural employment. It is no surprise then that the agricultural industry, faced with the prospect of an even worse shortage of labour, is unhappy with this policy.

This sentiment is echoed by employers in horticulture and tourism, who also rely heavily on working holiday visa holders for employees. It has been estimated that making working in Australia more difficult for these visa holders could prevent the $10 billion Australian horticulture industry from becoming a $30 billion industry by 2030.

Where there is less prospect of earning enough to have a nice holiday around the country afterwards, it has been envisaged that, where such a policy was in place, many Europeans would choose instead to work in New Zealand and Canada. This process is already in motion, with many holiday makers already discouraged by the much higher comparative cost of Australian working holiday visas, and tales of poor conditions and exploitation of other temporary workers. The tax proposed is also at least twice as high as in these countries.

Even for the tourists that do come to Australia, this policy may place employers in a position where they can be more exploitative of the workers they employ. Visa holders may be inclined towards cash in hand arrangements, which lack the labour protections which formal, legal agreements have. This, coupled with the much lower wage and disposable income that will result from further taxation, may place them in a more vulnerable position to exploitation by employers by way of working conditions and wages.

This policy has been delayed pending further investigation by the government. Whatever the outcome of this investigation, if this policy is to pass they will have more than sunburnt British tourists to answer to.