Australia / Analyst Insights
The backpacker tax bill set to reduce visiting workforce numbers

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by Nathan Cloutman
Feb 21 2017

In late 2016, the Federal Government’s backpacker tax bill was passed in the Senate. The bill directly affects working holiday visa holders and is expected to reduce the number of backpackers entering Australia under this visa over the next five years. The bill will likely affect numerous downstream industries, particularly in the agricultural sector.

As at 1 January 2017, workers under working holiday visas will be classed as non-residents for tax purposes. Backpackers working in Australia are now subject to a tax of 15 cents for every dollar of income earned. In addition, working holiday visa holders’ superannuation funds are to be taxed at 65% from 1 July 2017, up from 38%. In January 2013, a price rise for the working holiday visa discouraged many overseas travellers from working in Australia through the working holiday visa. While backpacker numbers have increased over the past five years, the average length of stay has decreased. Many backpackers are now only visiting Australia for a brief period and working in other countries, particularly New Zealand, South Africa and Canada.

A tax on all income earned on working holiday visas will likely discourage backpackers looking to work during their stay in Australia, causing average backpacker visitor nights to decline over the next five years. This trend will primarily affect the Holiday Houses, Flats and Hostels industry. Overseas backpackers are the primary users of hostels in both urban and rural areas. As a result, the decline in backpacker visitor nights is expected to hurt demand for hostel operators, particularly those located in rural areas that rely on backpackers working in agricultural industries.

The bill is likely to affect several agricultural industries over the next five years, including the Citrus, Banana and Other Fruit Growing industry. Many fruit and vegetable growing farms rely on cheap labour sourced from overseas backpackers, particularly as many backpackers work on agricultural farms to stay in Australia for an additional year. Many smaller farms rely on a mix of backpackers and seasonal workers from countries in the Pacific to pick fruit and vegetables. A decline in the pool of available backpackers is expected to put pressure on farmers over the next five years as many Australians are reluctant to do farm work. This pressure may cause farmers to reduce production, which could lead to declines in farm profitability. Many farms will likely find it hard to fill job vacancies without a cheap and casual visiting workforce.

The backpacker tax bill may be a financial boon for the government. However, the tax gains from the bill may not offset its profound effect on Australia’s tourism and agricultural industries.

Related industries:

Citrus, Banana and Other Fruit Growing

Holiday Houses, Flats and Hostels