Australian backpack tax set at 15% after 18 months of uncertainty

by Ray Clancy on December 12, 2016

in Jobs in Australia

Young people spending a year in Australia who want to work will pay 15% tax on their earnings from January 2017, it has been confirmed.

The backpacker tax, as it is known, is highly controversial and originally the Government had proposed a rate of 32.5% for people with 471 and 462 visas, usually young people travelling around Australia for a fixed time on a working holiday visa.

studentbackpackersBut that was reduced to 19% after a number of organisations, including those in tourism and farming that employ a lot of backpackers in seasonal jobs, told the Government that such a high rate of tax would put young people off having a gap year in Australian.

Indeed since the tax was first muted earlier this year there has been a fall in the number of people applying for these kind of visas and the Government has come up against opposition in trying to get the tax approved by parliament.

Now the Government has reached agreement to secure the support of the Australian Greens for the new tax but in doing do has had to reduce it to 15%, which makes it consistent with the rate applicable to visa holders under the seasonal workers programme.

The agreement will also see the tax paid on leaving Australia, known as the Departing Australia Superannuation Payment (DASP) being set at 65% for 417 and 462 visa holders from 01 July 2017.

In its negotiations with the Greens the Government also agreed to provide a one-off additional funding commitment of $100 million to the Landcare programme which supports farmers

‘These new arrangements will ensure that the Australian agriculture, horticulture, tourism and hospitality sectors, as well as other industries in regional areas, can have a competitive tax rate for Working Holiday Makers that does not compromise other important visa classes such as those under the Seasonal Workers Programme, said Government Treasurer Scott Morrison.

Farmers, while welcoming that an agreement has been reached, hit out at the way the Government has conducted its policy making on tax for working holiday makers. Pauline Simson, president of the National Farmers’ Federation (NFF), said it has amounted to ’18 months of tortuous debate, discussion and deliberation’ but finally common sense had prevailed.

Horticulture body AUSVEG said it hopes that more backpackers will now be encouraged to spent time in Australia. ‘This outcome means that after 18 months of confusion and uncertainty, Australian growers can now finally move forward with certainty about the future of the working holiday maker program,’ said AUSVEG chief executive officer Simon Bolles.

But not everyone is convinced that the new arrangements will bring back the backpackers with numbers said to have fallen as much as 20% to 25% since the tax was first muted 18 months ago.

Stuart Rosewarne, a political economics expert from the University of Sydney, pointed out that the cost of a working holidaymaker visa is substantially higher in Australia than comparable visas in other destination countries so income tax of 15% could still be a disincentive when previously it was zero. ‘This is especially so when backpackers confront the fact that they are not afforded the same access to the safety nets of social security and medical services that the citizens and permanent residents working alongside them have,’ he said.

Tourism Australia is now working on a major marketing strategy with millions in funding from the Government to try to get working holiday makers to return to the country. But it will be a hard ask, according to Margy Osmond, chief executive officer of the Tourism and Transport Forum. She pointed out that while the 15% ensures Australia remains competitive with other countries, the tourism industry would have preferred the tax to remain at zero.

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