SMALL Business Minister and Assistant Treasurer Kelly O’Dwyer has announced the government’s highly anticipated position on the backpacker tax.
The government said it would defer for six months an increase on the tax to a flat 32.5 per cent rate that was due to start on July 1.
The increase was announced in last year’s federal budget but has sparked an ongoing headache for the Coalition after the National Farmers Federation (NFF) launched a ferocious public campaign in January, backed by tourism groups, to soften the increase.
The review into the tax arrangements and supply for working holiday makers will be led by Federal Agriculture and Water Resources Minister Barnaby Joyce.
Mr O’Dwyer said the review would be “supplemented” by the ministers for immigration, employment, tourism and the Prime Minister’s Department and Treasury.
She said the “whole of government” review would look at making sure Australia is internationally competitive with its visa arrangements and issues are also addressed concerning the taxation and supply of working holiday makers and the broader impacts for the farm and tourism sectors.
Ms O’Dwyer said “by necessity” there would be a six month deferral of the tax measures announced two budgets ago, while the review is held.
She said any outcomes of the review would be considered by cabinet in October or November this year and any changes would commence from January 1, 2017.
“We will look at enacting any of the outcomes made from that review from the first of January 2017.
Ms O’Dwyer said the deferral and review had shown the government had “listened” to rural and regional communities and in the tourism sector and Coalition members who had warned about negative impacts of the tax increase.
She played down suggestions the government had not done its homework ahead of the increase in last year’s budget saying she was announcing a much broader review to look closer at the issues.
The deferral will have a budget impact of about $40 million, she said.
“I commend my colleagues right across the country who have been so strongly advocating for their communities people like Tony Pasin in South Australia, my WA colleagues like Nola Marina, Andrew Hastie, Christian Porter, Melissa Price, Rick Wilson the Tasmanians who of course have got a number of wine regions in their areas as well and a bustling tourism sector,” she said.
“It affects all of Australia which is why we are absolutely committed that this needs to be a whole of government review.”
Ms O’Dwyer said the announcement of the deferral provided backpackers with confidence they could come to Australia and work and travel and make a contribution to regional communities either in jobs like working picking grapes or working in the tourism industry.
“They can enjoy their time in Australia and at the same time make a wonderful contribution,” she said.
“The government has announced that they will not be treated as non-residents for tax purposes for the next six months – I can say that with absolutely certainty.
“I can tell you with great certainty that this is very good news for rural and regional communities; it’s good news for our tourism sector; and it’s good news for working holiday makers.”
Anxious rural MPs have lobbied Treasurer Scott Morrison and Mr Joyce intensely amid fears the tax hike will reduce seasonal farm workforces and other fragile labour supplies, in rural and remote communities.
Most Coalition PMs have agreed with Mr Morrison’s view that working holiday makers should pay some form of taxation - as per an ATO ruling - but have pushed back on the 32.5pc increase which also removed the tax free threshold.
Concerns have also been raised by Victorian Nationals MP Andrew Broad and NSW Senator Bill Heffernan that the tax increase was announced in the 2015 budget without proper consultation or consideration of impacts.
An interdepartmental review was also conducted leading into this month’s federal budget led by Tourism Minister Richard Colbeck which gathered input from the agriculture and tourism sectors.
Assistant Agriculture and Water Resources Minister Anne Ruston and Mr Joyce assistant minister Keith Pitt were also involved in the review which put forward a 19pc tax rate and changes to superannuation payment arrangements to deliver a $540 million cost-neutral budget outcome but it was rejected by cabinet.
The $540m was used in last year’s budget to help fund policy initiatives in the Agriculture Competitiveness White Paper and Northern Development White Paper.
Under current 417 working holiday visa conditions, backpackers are eligible for a tax-free threshold of $18,200 then pay a rate of 19pc up to $37,000 and 32.5pc up to $80,000.
It’s estimated the average working holiday maker earns about $15,000 while in Australia.
But Australian Greens agriculture spokesperson Rachel Siewert said deferring the backpacker tax increase for six months for a ‘whole of government review’ was just a tactic to hose down opposition in the lead up to election day, on July 2.
"The Government's backpacker tax is a grab for revenue that ignores the impact on growers,” she said.
"The Government's delay of the tax is a cynical election move to delay the operation of the tax until after the election - the Government should abandon the tax now.”
Mr Joyce said the review would form part of a broad review of the workforce shortages faced by the agriculture and tourism industries.
“The Coalition understands the agriculture sector faces ongoing challenges to secure an adequate workforce to pick the fruit, harvest the crops, process the meat and milk the cows,” he said.
“Upon our re-election, the Coalition will establish an inter-departmental Review into 417 and 462 Visa Labour which will report by October 14 allowing any changes to be introduced by January 1, 2017.
“The Coalition will continue to stand by our farmers, helping them to lift farmgate returns, grow quality food and fibre and create jobs in our regional communities.
“Australia has the opportunity to double its agricultural production to meet growing global food and fibre demand – but it needs the workforce to do so.”
Mr O’Dwyer also said the review would include consultation with stakeholders.
Key issues to be addressed:
· Australia’s competitive position in attracting seasonal and temporary foreign labour, including; comparative wages, entitlements and conditions; comparative taxation on income earned; comparative superannuation or equivalent entitlements; promotional programmes and schemes to assist workers while in the country; costs and barriers to entry;
· Regulatory imposts on employers;
· Exploitation of and protections for vulnerable workers, including evaluation of illegal labour hire practices and non-compliance with laws and regulations;
· Capacity to match employers with available workers, including regulatory arrangements in relation to the role of labour hire companies;
· Changes to the use of volunteer or unpaid labour (for instance Willing Workers on Organic Farms, or ‘Woofers’);
· Australia’s exposure to changes in exchange rates, economic growth and employment rates in source nations which may affect Australia attracting seasonal and temporary labour;
· Short-term and long-term agricultural and tourism labour needs;
· Policies to attract unemployed Australians, including young Australians, into work in agriculture and tourism;
· Opportunities to expand supply of seasonal and temporary foreign workers for the agricultural sector; and
· Consistent tax treatment between different classes of temporary work Visa holders.