Backpacker Tax

Senate Enquiry Submission

Preface

This submission has been created by Fruit Picking Jobs & Working Holiday Jobs for the Senate Enquiry into the backpacker tax and subsequent reforms to the following legislation, Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, the Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016, the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016 and the Passenger Movement Charge Amendment Bill 2016.

www.fruitpickingjobs.com.au

Established in 2011 Fruit Picking Jobs is a platform that connects employers and harvest workers all over Australia. With the incentive to undertake regional work and obtain the second year visa 85% of our members are on a working holiday visa.

Basic Numbers: Lifetime Members: 142,000 New Members: 800 per week on average Facebook Fans: 61,000

www.workingholidayjobs.com.au

Established in 2013 Working Holiday Jobs is a platform that connects employers and recruiters all over the country with working holiday makers. Employment opportunities exist across all industries, predominantly featuring hospitality, laboring, admin, temping and regional work.

Basic Numbers: Lifetime Members: 52,000 New Members: 200 per week on average Facebook Fans: 40,000

Fruit Picking Jobs & Working Holiday Jobs Position

This submission unequivocally rejects the notion of a backpacker tax. We support the retention of the status quo, where working holiday makers will pay some tax (either as a resident OR a non-resident for tax purposes) and then proceed to spend their earnings as they disperse widely through regional Australia, filling vital horticulture and agriculture labour needs along their way. Working Holiday Maker (WHM) have already dropped 21% over 3 years.1

This Submission supports the following,

• Repeal the decision to change the tax-free threshold rules for working holiday maker visa holders. That is, scrap the backpacker tax;

• Apply current tax free threshold rules, including allowing WHMs to meet the residency test;

• Raise the age threshold for working holiday maker visas to 35

• Deliver “work rights” information to WHMs in their own language either prior to or on arrival / create a public job register for employers that wish to employ WHM.

• Roll out a targeted global youth campaign (Tourism Australia) to address the negative sentiment about the “backpacker tax”;

• Raise the current caps applying to source nations for 462 visas where the allocations are exhausted (for example , and );

• Conduct an in-depth study into Working Holiday Makers travelling in Australia building on the National Institute of Labour Studies research report published in 2009.

• Develop / invest in technology to deliver ‘matching’ between WHM and employer; Better promote and encourage second year visa options;

• At a minimum, freeze visa fees. Consider adjusting the WHM visa fee down in the next budget forecasts to be more competitive globally, particularly with ;

Australia must focus on growth strategies rather than taxation measures to supplement government revenue, simultaneously injecting economic stimuli into national and regional economies.

Maintaining a revenue neutral stance on legislation that was created without Industry consultation or proof of financial modelling is not good fiscal policy.

If this tax goes ahead we will hurt regional communities, create a WHM job black market “cash economy” and tarnish the Australian image, losing brand ambassadors and millions of

1 Working Holiday Holiday Maker Visa Program Report

dollars in tourism spend along the way. We are trying to strengthen our relationships with partner WHM countries not break them.

Evidence of Decline

The Updated Tax Proposal is effectively a 25.27%2, factoring in the superannuation tax in the updated proposal. Analyzing research based on a 32.5% tax the evidence is clear that the updated backpacker tax will still have a negative on the Australian economy.

We believe these findings are still extremely relevant.

Monash University Survey 3

The study conducted by Jeff Jarvis at Monash University found that,

• 60% of the sample would not have come to Australia if the tax was 32.5 percent. • 57% of WHMs also said that they would spend less time travelling in Australia if the tax changes were to take effect. • 69% saying they would spend less on tours. • 70% said they would look for cash-in-hand jobs to avoid it.

Working Holiday Jobs Survey 4

5,000 working holiday makers responded to a survey by Working Holiday Jobs, with the majority leaving comments for the minister. (These are available on request) Finding bel

• 89% would consider doing a working holiday elsewhere if they knew about the backpacker tax before coming to Australia • 90% would be deterred from doing fruit picking / harvest / 2nd year visa work if they were taxed 32.5% • 89% would be deterred from working in Australia if taxed 32.5% • 95% thought this tax will deter future working holiday makers from visiting Australia

2 19% income tax + super tax (95% v 38% = 6.27% of wage) = 19+6.27 = 25.27%

3 Dr Jeff Jarvis, “The motivations of working holiday makers”, Monash University, 2016

4 Working Holiday Jobs Backpacker Tax Survey

Flawed Financial Modelling

The fundamental issue with Treasury’s projections is that they are based on flawed financial modelling. There has been no empirical study done which provides the basis for the projections. Furthermore, with the WHM grant rate in decline, an incentive for cash payments, a strong disincentive to work at all and more attractive work conditions in other destinations, the government will, without a doubt, see its revenue from WHMs across the board contract: including income tax revenue.

Revenue Neutral

The whole concept that the solution needs to be revenue neutral is ridiculous. Industry has seen no evidence supporting the governments estimation of the “$540 million dollars in revenue”. Given that this is for fourth review into the “backpacker tax” we urge to the senate enquiry to recommend the solution solve the problem, not having to be revenue neutral.

Working Holiday Makers Currently Struggle

Anecdotally speaking working holiday makers struggle to get by with the current tax situation. In a survey undertaken by working holiday jobs there were over 3,000 messages to the government from Working Holiday Makers about their thoughts on “backpacker tax proposal at 32.5%”. As mentioned previously these can be forwarded to the senate enquiry.

Some comments from WHM’s have been included at the end of this submission.

Losing Brand Ambassadors

The working holiday maker program was introduced in 1975 with the main purpose to "promote international understanding by enabling young people to experience the culture of another country." Since then, the scheme has grown from 2,000 participants to 226,812 in 2014/15. In an industry fueled by word of mouth and social media the introduction of a “backpacker tax” would have serious affect on working holiday maker numbers.

These working holiday makers are our brand ambassadors all over the world, to introduce a backpacker tax would mean passing them on to and NZ.

Cash Economy

With a 95% super tax and a 19% income tax there is exceptional motivation for the employer and employee engage in a cash in hand payment arrangement.

As cash in hand work does not count towards the 2nd Year Visa the tax will decrease WHM appetite to work in regional areas. Meaning less rural workers and money flowing through those rural economies and less revenue income and super tax revenue raised. More cash in hand work leans itself to a higher chance of worker exploitation.

Paying Tax

• WHM contribute $260 million in GST annually5 • Many WHM are still non residents for tax purposes and are subject to the 32.5% non resident tax. • WHM that are residents for tax purposes and earn over $18,200 pay income tax • WHM currently pay 38% Superannuation tax on exit. • The exit levy will affect all and travelers leaving Australia. • The average working holiday maker pays $1,291.98 per annum income and super tax6

With incentive for both the employer and employee to participate in a cash economy their will be a decrease in the revenue raised from income tax and superannuation. The tax will deter WHM from visiting Australia also decreasing GST revenue and stimulus into the economy.

Super Growth Sector

Tourism and Agriculture are super growth sectors, Australia must focus on growth and stimulus rather than taxation measures to raise revenue. Introducing measures such as the backpacker tax will only hinder the success of these sectors.

Mobile Workface

Working Holiday Makers can relocate anywhere around Australia on a days notice. This is why they are so effective meeting labour shortages in the unpredictable and weather affected agricultural industry. As WHMs travel to these remote towns they stimulate regional many communities along the way.

Can an Australian afford to pay rent both at home and near the farm while being paid an award agricultural wage? WHMs are a vital part of the Australian economy and if we fail to acknowledge that their will be long term ramifications.

Job Register

We completely support the concept of a job register and education of WHMs and their working rights. We believe this is an important aspect to stopping exploitation of WHMs and ensuring a safer and more pleasant experience in Australia.

5 2009 Department of Immigration and Citizenship study 6 Taxback.com average WHM tax contribution

Working Holiday Maker Numbers

Working Holiday Maker numbers have dropped off 21% in three years7, 249,231 in 2012/13 to 195,673 in 2015/16. (53,558 less WHM’s) in line with a 50% increase to the cost of the WHV. ($280 to $420) NZ received a corresponding increase in applicants over time, New Zealand’s visa fee remained constant.

The average WHM spends $15,4968 (annualized to todays spend) analyzing 2015/16 based on 2012/13 visa numbers we find that,

- $829,934,768 less dollars would be contributed to the economy by WHM - $75,448,615 less GST revenue raised from WHM - $69,567,021 less income and super tax revenue9 from WHM

If a “backpacker tax’ is introduced numbers will continue to rapidly decline and we will see more drops is GST, income and super tax revenue as well stimulus into the Australian economy. We need to scrap the backpacker tax and support industry and our regional communities.

Hear From Working Holiday Makers

Below is a collection of messages from Working Holiday Makers to parliament responding to the introduction of a backpacker tax. For the full list of messages please contact Working Holiday Jobs.

“Don't make it harder for backpackers to live off the pennies they get from farmers! Focus on making more farms available and safer jobs for us”

Ryan Mitchel Working Holiday Maker

“This is a subject I feel very strong about I didn't know about this until I entered into Australia and was told by another backpacker, I would of reconsidered coming here if I had known. The Australian government hasn't thought about this decision as not only will this stop thousands yet millions of backpackers from coming here it will loose Australia a lot of money.

I am myself a backpacker and like all backpackers we do all the crappy jobs here which the Australians don't want to do we spent a lot of money in Australia, for example look at the east coast that is mostly funded by backpackers that's how everyone at Airle beach makes a living through backpackers. I love this country and would like to remain here and get my

7 Working Holiday Holiday Maker Visa Program Report 8 2009 Department of Immigration and Citizenship study 9 Taxback.com average WHM tax contribution

second year visa but the way it is at the moment I don't think I'll be doing that and that goes for the same as other backpackers. Australia your going to loose out big time if this goes ahead!”

Abbey Elvin Working Holiday Maker

“I have been in Australia for a year and I don't know a single backpacker who plans to work once the new tax rules come in. Why would they, when they can work back home, earn more and then travel somewhere else for cheaper. Australia is expensive but is worth it when on an Australian wage. The amount the country gains in tax will not make up for the amount lost on tourism or the labour backpackers are willing to do.”

Samantha King Working Holiday Maker

“As a working holiday traveller at the minute, all of my money goes directly into the Australian economy. Most travellers tend to want to support local farmers and markets as well as opposed to big chains such as Wollys and Coles. The more money I get to keep the more I will directly spend in my surrounding areas. Why should my minimum wage be taxed more heavily then the minimum wage of someone who was fortunate enough to be born in Australia? Tax should be by income level not where you come from on the map.”

Alexi Greenwood Working Holiday Maker

“After working hard for my second year visa, so I can stay, travel and work in Australia, I am now considering a working holiday visa in New Zealand. So the regional work that I have completed will be unnecessary since I cannot afford to travel and spend for another year if any job I take will be taxed so much.”

Anonymous Working Holiday Maker

“This is the worst thing that could happen! It will put thousands of people off coming to australia and working through the correct and legal channels! Backpackers are only working to fund their travels in australia, all the money we earn here, we spend here! You're cutting your nose off despite your face to try and exploit those who visit and travel in this country.”

Gabrielle Watson Working Holiday Maker

“Please repeal this tax. Many working holiday makers already struggle to find steady employment that pays above minimum wage. This tax will only make backpackers struggle more and will hurt the industries that rely on employing backpackers.”

Kyle Laughlin

“I am, as a UK traveller, considering not completing my working holiday visa due to this new tax law!”

Rachel Mcmurray Working Holiday Maker

“Backpackers work hard for little money but we do it to see this great country. Without the chance of getting tax back it will no longer be a place for many to come. Most of the money made here is spent here and a lot of it is spent in small rural town. It's not just the backpackers that this will affect. There will be a drop in income to the shops in the small towns and also the tourist industry over Australia. Farmers already rely on backpackers and if we won't be able to claim tax back this is only going to lead to a bigger shortage of workers.”

Martin Grant

“If the tax system does change, it will be more beneficial for me to work back in England and I won't bother with the regional farm work.”

Joe C Working Holiday Maker

“Keeping a threshold of earnings that you can save tax on will enable more backpackers to save and spend across Australia - in turn putting money back into the economy. I believe increasing the tax on those who wish to travel and work in Australia may decrease those numbers which are already declining rapidly. Unfortunately, there are a number of deterrents already arising for those wishing to enter Australia in a WHV and adding increase in tax (especially without being able to claim that back) may only fuel the fire.

Please bear in mind that those saving to enter Australia on WHV are not 'well- off' citizens in their home countries and often have had to save for months even years to be able to enjoy the beauty and culture of this country. Deducting large amount of tax from the wage that they can earn in short amounts of time will only reduce what people can experience and in turn reduce the tourism factor for Australia.”

Anonymous

“I had planned to come to work in Australia later in the year for my second year visa.. I wanted to work for a year then travel Australia with the money I saved this new tax means I wouldn't be able to save enough money to enjoy myself or travel. I also wanted to do some kind if farm/fruit picking work again (did 3 months previously in order to gain my second year visa) to save money but the money I would now get means it would not be worth it.

I have now decided to go to Canada instead. I would only come to work in Australia if this new backpacker tax is dropped.”

Kristy White Working Holiday Maker

“I think this new tax will not only deter people from applying for working holiday visa, but also it will increase the percentage of working haliday visa holders who work in cash in hand jobs without paying any tax, thus decreasing the percentage of tax paying workers”

Marco Scheidegger Working Holiday Maker

Petition

On Friday the 14th of October Fruit Picking Jobs created a petition for our members to sign, we currently have 1,500 signatures within a week. Here you can read additional comments from Working Holiday makers and Australians in regards to the backpacker tax in its current form.

Petition Link: https://www.change.org/p/scrap-the-backpacker-tax

Summary

We petition the Senate Enquiry to recommend against a backpacker tax and support Australian tourism, agricultural sectors and regional communities. This tax has been a mess since it’s proposal, we now have 3 separate taxes, an income tax, a superannuation tax and departure tax.

Analyzing 2015/16 based on 2012/13 number we find that,

- $829,934,768 less dollars were contributed to the economy by WHM - $75,448,615 less GST revenue raised by WHM - $69,567,021 less income and super tax revenue10 by WHM

Since the introduction of increased visa fees and the proposal of a backpacker tax the Australian economy has been suffering in regards to revenue obtained from WHM.

Make Australia competitive again, scrap the backpacker tax, freeze or decrease visa fees and open the WHM age up to 18-35.

10 Taxback.com average WHM tax contribution