Australia to increase taxes on foreign travelers who work in the country

Australia is set to increase taxes on foreign travelers who work in the country, raising 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$2.27bn (€1.48bn) next season, up 10% from the previous 2014-15 season, and backpackers on working holiday visas make up the bulk of fruit pickers during harvests.

“We could have a situation where we don’t have enough labour to harvest our produce,” said Tim Reid, one of Australia’s largest cherry producers and exporters in Tasmania.

“During the harvest, backpackers make up about 70% of our labour, without them we wouldn’t have a business.”

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

Under the new policy, foreigners on working holiday visas will pay tax of 32.5% on every dollar earned, when previously they paid no tax on income up to A$18,000 dollars, the same as locals.

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.

However, backpackers such as Matt Bradley from Britain say that, faced with the higher tax, they will simply decide not to work.

“An increase to 32.5% tax will mean I can’t survive so I’ll have to leave,” said Mr Bradley.

Australia aims to supply premium agricultural products to Asia’s growing affluent middle-class to become the region’s delicatessen.

Horticulture producers are already struggling to find labour, according to the National Farmers Federation, and farmers say that without enough labour, fruit will simply drop off trees and rot.

“The real challenge for Australia’s delicatessen strategy is its input cost. Without backpackers, labour — the biggest driver of costs — will grow,” said one analyst.

Australia’s A$34.8bn international tourism industry could also be hit by the higher tax, with young travellers deciding not to stay as long.

Mr Bradley is one of about 591,000 people a year that travel to Australia on a working holiday.

While the daily spend by these young travellers is small, the total spend is substantial. In total, backpackers spend A$4.3bn a year, 12% of all international tourist spending.

“If we want a strong tourism sector contributing to our nation’s economy we should be encouraging more overseas visitors to undertake working holidays through our beautiful country,” said Margy Osmon, CEO of Tourism and Transport Forum Australia.

The Australian government is set to pass the tax legislation this week, imposing the new tax from July 1.