Apr 6, 2016

New backpacker tax must stack up

The Coalition’s new backpacker tax must meet key criteria to ensure Australia’s tourism competitiveness and agricultural labour is not affected as a result of its decision to impose income tax from the first dollar on working holiday makers.

In March ABC Rural reported that the Government had self-imposed a deadline of today, April 6, less than a month before the Budget, to determine a new rate of tax for working holiday makers after admitting the existing proposal was flawed.

In last year’s Budget the Government announced it would remove the tax free threshold of $18,200 for working holiday makers and impose a rate of 32.5 per cent from the first dollar earned, a move slammed by the tourism and agricultural sectors.

Spending from working holiday makers is worth $1.8 billion every year with every five arrivals creating one new FTE job. But under the Coalition, backpacker demand has plummeted with 10,000 fewer applications lodged in 2014-15 compared to 2013-14.

There are three key tests for the Government in announcing a new backpacker tax.

First, the Government must demonstrate that it has a plan to protect and grow demand for working holiday maker visas, not just cede our competitive edge to lower taxing nations in our region and allow application figures to continue to fall.

Working holiday makers are among our highest spending visitors and taxing them by any percentage will decrease their disposable income proportionately, meaning less money and jobs in accommodation, restaurants and bars, tourism and education.

Minister Colbeck must also outline a proactive plan to educate potential applicants on tax arrangements and counter misinformation through a communications campaign appropriately targeted to the digitally savvy, hyper-connected backpacker market.

If the Government claims there will be no drop in demand for working holiday visas as a result of introducing income tax from the first dollar, it will fail the first test of credibility.

Second, Minister Colbeck must be able to show that the Government is using reliable data on backpacker earnings to generate an estimate of revenue earned from the introduction of a new backpacker tax.

During Senate estimates in February, Immigration officials revealed that the Government keeps no data on backpacker earnings, placing the Government’s claim of $540 million revenue from its proposed backpacker tax in serious doubt.

Third, the proposal must have the broad support of the tourism and agricultural sectors following proper consultation, taking into account the unique nature of the tourism industry as both an employer of, and supplier to, working holiday makers.

How the Government’s proposal stacks up against these criteria will be the real test. Australia’s tourism and agricultural sectors deserve better than another ill-considered and counterproductive measure introduced in haste.