RSM Australia

15 percent backpacker tax, a win for primary producers

After waiting 18 months for legislators to reach a sensible conclusion to the highly contentious backpacker tax, a vote for 15 percent in the final hours of the parliamentary year is a major victory for long-suffering Australian farmers.

The Green’s decision to support the coalition-Government’s proposed 15 percent backpacker tax rate, effectively rescues farmers from a likely withdrawal of a labour force for harvest, had the original 32.5 percent rate not been removed.

Based on uncertainty over the tax rate, the horticulture industry claims backpackers had already been planning to leave Australia. As case in point, it’s understood growers in Tasmania reported a 40 percent drop in backpackers applying for horticultural jobs due to political uncertainty around this tax.

This landmark BACKPACKER TAX decision fully recognises the direct correlation between rural tourism and primary producer productivity.

Given the heavy reliance particular regions have on backpacker labour, the role they play within the Australian workforce can’t be understated. In addition to earning billions for the Australian economy, youth tourism and is a very real asset for the horticulture industry, which contributes $2.1 billion in exports and produces 93 percent of fresh food consumed in Australia.

While substantially lower than originally envisaged, a backpacker tax of 15 percent will still raise around $640 million from 2016-20.

Immediate casualties of any decision not to amend the current onerous backpacker tax rate, would have been winery regions, like Murray-Riverina, which is about to commence grape picking season early next year, and the harvesting of fruits over summer months.

If the political deadlock had not been removed, fruit pickers would have been slugged the 32.5 percent, originally proposed in the 2015 budget from 1 January 2017.  It’s conceivable that this season’s harvest for many hardworking farmers would have been severely compromised. Many fruit pickers would have favoured more globally competitive countries in attracting crucial seasonal workers, including the UK, Canada and New Zealand.

It’s interesting to note, that at 15 percent, backpackers will still receive more income in Australia than they would receive in New Zealand, which has a 10.5 percent tax rate. While New Zealand may continue to offer a lower tax rate, a backpacker's after-tax income here in Australia,  will still be higher as Australia provides other tax incentives that New Zealand doesn’t have, such as claiming work-related deductions and superannuation entitlements.

After-tax income for working holiday makers

 

COUNTRY

AFTER-TAX INCOME

1

Australia with 15% tax

A$11,050

2

England

A$10,470

3

New Zealand

A$10,126

4

Canada

A$9,837

 

After-tax income received by a working holiday maker who works 734.5 hours (approximately 28.25 hrs per week) on the minimum wage, and adjusted for cost of living differences by using purchasing power parity exchange rates. The Australian figures do not include superannuation benefits.

Source: Kathrin Bain Get the data

Backpacker tax explained - employers take note! For more information about the backpackers tax, please read on here...

Authors

Gerard O'Brien
Partner - Albury
Jason Croker
Partner - Albury
Peter Nicol
Partner - Albury