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Backpacker tax review must deliver for rural Australia

In its 2014-15 Federal Budget, the Government announced that from 1 July 2016 all working holiday makers would be taxed one third of every dollar they earn.

The measure was developed with an aim to raise $540 million over four years – a drop in the ocean in the context of a $40 billion budget – and came without warning to rural Australia.

The announcement also met with fierce opposition from Australian agriculture given its potential to crush availability of the workers required to service the farm and tourism sectors.  An online petition developed by the NFF and its members attracted near 50,000 signatures.

Working holiday makers, or ‘backpackers’ are an important source of economic revenue for Australia. In the last financial year, they contributed more than $3.2 billion to the economy and much of this was spent in rural and regional communities. Importantly, they do not compete with local workers for regional agricultural work given the seasonal and short-term nature of the jobs they are employed in. They are also not a source of cheap labour - their wages and conditions are the same as Australian employees doing the same job.  

It is not widely understood that working holiday makers make up a quarter of Australia’s total agricultural workforce (in the Northern Territory, it’s closer to 85 per cent). Last year, more than 33,300 backpackers worked on Australian farms and, until now, government policy has encouraged tourists to spend more time in rural Australia. This has largely been achieved by giving backpackers access to a second year visa if they work in Australia for three of their first twelve months and has been an overwhelming success for farming with roughly 92 per cent of backpackers who apply for a second year visa undertaking agricultural work to qualify.

the broadness of the review also threatens to distract attention away from the core issue - a fair rate of tax for backpackers
Brent Finlay, NFF President

The ‘backpacker tax’ is another demonstration of Australia being well behind other countries in recognising the importance of economic migration to agriculture.  In the United Kingdom, Canada and the USA harnessing the value of migration to the farm sector has been a strategy in place for decades.

Following a persistent industry campaign against the unexpected measure, an early Election announcement promised to review the ‘backpacker tax’ for a second time. The review will be performed by consultants Deloitte Touche Tohmatsu and will report back to Assistant Agricultural Minister, Luke Hartsuyker. It is wide ranging in scope, covering issues from workforce supply and demand, labour hire regulation and protection of vulnerable workers. Just how all of these issues can be resolved before 1 January 2017 is anyone’s guess.

For the farm sector, the broadness of the review also threatens to distract attention away from the core issue - a fair rate of tax for backpackers, and one that continues to attract them into agricultural work.

It’s an extremely straightforward premise. Taxing backpackers a third of every dollar will drive them away from Australian agriculture and the farm sector will be at risk of losing a quarter of its human capital – one of the most critical farm inputs. The backpacker tax is just another tax on farmers’ already high costs of production. It wasn’t fully thought through, and it doesn’t make sense.

Backpackers contributed $3.2 billion to the Australian economy last year - much of it in rural and regional Australia

If backpackers can’t afford to fund their stay or explore our beautiful country for one year, they certainly won’t do it for two.  Instead, they will go home for Christmas at the end of this year, a week before the tax is due to commence, cutting their travel short or flying on to Canada, New Zealand or South Africa where the tourist offering is comparable and earnings potential greater. Billions injected into the Australian economy each year will be at risk.

Long term agricultural workforce planning is strategically important and an ongoing priority for the National Farmers’ Federation, but not at the cost of our immediate workforce needs. Already, labour shortages are estimated to cost the farm sector around $700 million each year and reducing our available work pool by 25 per cent overnight will take us back to a time when farmers were losing hundreds of thousands of dollars each year because they couldn’t find enough hands at harvest time.

Any outcome from this review needs to secure access to an available and adequate workforce for our farmers from day one. We must avoid the temptation of looking for solutions to broader questions, such as how workers find their way to the farm, or are managed once they get there, in the short time frame we have to fix this tax. Each of these questions are important, but they are also complex, and highly political. Trying to address them before the end of the year is setting us all up to fail.

Brent Finlay is the President of the National Farmers' Federation, and a farmer from Stanthorpe QLD

Read a copy of the NFF's submission to the Backpacker Tax Review by clicking here.

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