SYDNEY, Australia (Reuters) — Australia has walked back from a planned tax hike on foreign travellers who work in the country.
The move follows concerns from farmers that their supply of “backpacker labour” at harvest time may dry up and undermine Australia’s ambitions of being Asia’s delicatessen.
Australian fruit exports are set to hit a record $2.25 billion next season, up 10 percent from 2014-15 season. Backpackers on working holiday visas make up the bulk of fruit pickers during harvest.
The proposed policy would have required foreign travellers on working holiday visas to pay tax of 32.5 percent on every dollar earned, when previously they paid no tax on income up to $18,000 dollars, which was 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,” said tourism minister Richard Colbeck.
“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 $40 billion this year, and the planned increase in tax for working travellers was estimated to net $535 million from 2016-20.
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, 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$34.5 billion international tourism industry was also threatened by the higher tax, with young travellers potentially deciding not to stay as long.
Backpackers spend $4.3 billion a year, which is 12 percent 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.
