Not before its time, the long running drama of the Backpacker Tax looks set for its final curtain call as the Government and key cross-benchers reach agreement on a rate of 15 percent.
This follows months of back-and-forth on proposals which have ranged from the Government’s original 32.5 percent, down to 10.5 percent backed by Jacqui Lambie and Labor.
This final compromise puts the figure within the band of 15-19 percent which industry groups (led by the National Farmers’ Federation) have fought for since March. But what makes this the Goldilocks figure? Here are five good reasons…
1. It makes Australia internationally competitive
Australian agriculture is highly reliant on overseas workers – with around 40,000 working holiday makers helping out on Australian farms each year. Without this workforce, farmers simply couldn’t meet their labour needs, meaning some food would never make it onto consumers’ plates.
The Backpacker Tax threatened to undermine this workforce by sending working holiday makers overseas in search of fairer tax rates.
A rate of 15 percent puts us back in the game. With 15 percent, we’re comparable to New Zealand (10.5 percent) and Canada (15 percent), especially when you take into account higher hourly rates of pay in Australia.
2. It is fair to Australian workers
While we need to make sure tax rates for backpackers are internationally competitive, we also need to make sure they give Australian workers a fair go. That means keeping rates roughly in line with what Australian workers would pay over the course of the year.
While it is difficult to directly compare a flat rate of tax paid by working holiday makers to the system which applies to residents (which includes the tax free threshold and progressive rates), industry groups have held that a range of 15-19 percent gets that balance about right.
Deeper concessions for backpackers would risk sending the wrong message to Aussie farm workers.
3. It aligns with the Seasonal Worker Program
The Seasonal Worker Program (416 visa) allows workers to enter Australia to help meet seasonal labour shortfalls. While this program is beneficial for the agriculture sector, its primary intent is to support economic development in the Pacific and East Timor by providing short-term economic opportunities in Australia. Accordingly, this foreign aid program receives a concessional tax rate of 15 percent.
While there is no need for seasonal workers and backpackers to pay the same tax rate, it would be bad policy to set a tax rate for backpackers which is lower than that which applies to workers who come to Australia on the basis of economic disadvantage.
4. It acknowledges the importance of budget repair
The height of the political turmoil surrounding the Backpacker Tax coincided with another important political development: a stern warning from a big ratings agency that Australia had to return to a budget surplus, and fast, or risk its prized AAA credit rating.
Failure to tackle serious budget repair will have genuine long term consequences for Australia’s economic prosperity, and reduce our attractiveness as a destination for global capital.
The Government hoped to raise $540 million from its 32.5 percent Backpacker Tax. While that figure was damagingly high, by our estimates 15 percent will still contribute a respectable $250 million to budget repair.
5. It gets a result, and sends the right message
Resolving the Backpacker Tax debacle before Christmas was incredibly important. Many overseas workers were considering their travel plans and may have decided not to travel or return to Australia if uncertainty continued into the New Year.
This is the last sitting week scheduled for Federal Parliament, and accordingly the last opportunity to get the necessary legislative fix. In the absence of legislation (which is still to be passed at the time of writing), the 32.5 percent tax rate would come into effect on 1 January 2017.
Sufficient political support for a compromise of 15 percent sends a clear message to potential workers: Australia is open for business, we’re a great place for a working holiday, and you’ll get a fair shake from our tax system.
What do you think about this outcome, or the process that brought us here? Log in and leave us a comment below!