Australia dumps ‘backpacker tax’ over farm, export concerns

Sydney | Reuters — Australia on Wednesday walked back from a planned tax hike on foreign travellers who work in the country, following concerns from farmers that their supply of “backpacker labour” at harvest times may dry up and undermine Australia’s ambitions of being Asia’s delicatessen.

Australian fruit exports are set to hit a record A$2.27 billion (C$2.26 billion) next season, up 10 per cent from the previous 2014-15 season, and backpackers on working holiday visas make up the bulk of fruit pickers during harvests.

Under the policy, foreign travellers on working holiday visas would have been required to pay tax of 32.5 per cent on every dollar earned, when previously they paid no tax on income up to A$18,000, the same as locals.

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“Concerns have been raised about the impact of the 2015 budget measure on tax arrangements for Working Holiday Makers, particularly our global competitiveness as a backpacker destination,” Tourism Minister Richard Colbeck said in a statement.

“We have therefore decided that the proposed tax arrangements require further discussions to ensure Australia does not lose market share in backpacker visitation.”

Australia faces a ballooning budget deficit of about A$40 billion this year and the planned increase in tax for working travellers was estimated to net A$540 million between 2016 and 2020.

The government has encouraged backpackers to work on farms with special visas allowing them to stay for a second year if they do three months work in rural Australia.

But horticulture producers are already struggling to find enough labour, and farmers have argued that the potential additional labour shortfall caused by the tax would cause fruit to simply drop off trees and rot, making it unusable.

Australia’s A$34.8 billion international tourism industry was also threatened by the higher tax, with young travellers potentially deciding not to stay as long.

In total backpackers spend A$4.3 billion a year, worth about 12 per cent of all international tourist spending.

“It is essential we continue to put in place the right policy settings that support the super growth sectors of tourism and agriculture as the economy transitions from the construction phase of the mining industry,” Colbeck said.

Matt Siegel is Reuters’ senior political correspondent in Sydney, Australia.

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