Backpacker tax will put brakes on affected sectors, says industry researcher

The controversial backpacker tax bill, passed in late 2016, is predicted to reduce the number of working holiday visa holders over the next five years. Backpacker tax will put brakes on affected sectors

A recent report from industry-based research house IBISWorld indicates that the tax will negatively affect operators in downstream industries, particularly agricultural industries that use backpackers to supplement their labour requirements, and hostels that predominately house backpackers.

As of January 1 this year, workers under working holiday visas have been 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 up to $37,000, with foreign resident tax rates applying from $37,001. In addition, working holiday visa holders’ superannuation funds are to be taxed at 65% from July 1, 2017 upon departure from Australia, up from 38%.

IBISWorld’s senior industry analyst, Nathan Cloutman, says: “In January 2013, a price rise for the working holiday visa discouraged many overseas travellers from working in Australia through the working holiday visa.” He says that since then backpacker numbers have increased, but 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,” says Cloutman. “IBISWorld also anticipates avoidance schemes and cash jobs will become more prevalent under the new rules.”

IBISWorld says it finds that overseas backpackers are the primary users of hostels in both urban and rural areas. As a result, it says 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,” Cloutman says. “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.”

IBISWorld expects that a decline in the pool of available backpackers will put pressure on farmers over the next five years. This pressure may cause farmers to reduce production, which could lead to profitability declines. “Many farms will likely find it hard to fill job vacancies without a cheap and casual visiting workforce.”