Business community relieved over backpacker tax but angered by chaos of vote

A funding pledge of $100 million for Landcare has played a key role in securing the revised backpacker tax, as the small business community and fruit and vegetable growers welcome certainty after a complicated week of negotiations on the tax.

As a result of a deal with the Australian Greens, the federal government has passed its legislation for working holidaymakers which will involve workers paying 15 cents tax from the first dollar they earn, and having superannuation taxed at 65% on their exit from the country.

Compromises on the tax were announced multiple times during this last sitting week of parliament before the bill was voted through the senate 43-19 on Thursday.

How did we get here?

The changes to tax rules for working holidaymakers were first proposed in the May 2015 budget, to come into effect in July 2016. At the time, the proposal involved those on working holiday visas, including 417 visas, paying 32.5c in the dollar from their first pay cheque in Australia. The policy was wildly unpopular with growers and small businesses in regional areas, who feared interest from backpackers to come to Australia for seasonal work would evaporate with the changes.

In September 2016 Treasurer Scott Morrison confirmed the policy would be revised to a rate of 19.5c in the dollar, and the business community received the news with cautious optimism.

“There’s no denying the speculation over the tax acted as a disincentive for working holiday makers to come to Australia; I’ve heard from a number of fruit and vegetable growers concerned they would simply not be able to process their produce due to a lack of workers this year,” Australian Small Business and Family Enterprise Ombudsman Kate Carnell said at the time.

However, the revision to the policy was just the start of negotiations. The Senate needed to pass legislation for the change before the final sitting day of the year, or the 32.5% tax rate would come into effect on January 1, 2017.

What happened next

Senator Jacqui Lambie was not satisfied with a 19.5% tax rate and initially called on members of the One Nation party to support her proposed alternative rate of 10.5%. The government rejected this amendment in the House of Representatives, leaving them to negotiate another number with One Nation.

The government’s proposed compromise was a 15% rate, which at the start of the week seemed like a compromise that had the support of One Nation, crossbencher Derryn Hinch and three Nick Xenophon team senators.

While the deal looked done, an eleventh hour change of heart from One Nation Senator Rod Culleton and Senator Hinch threw things into chaos. They chose to side with Senator Lambie on a proposed compromise of 13%, which Labor also agreed with, instead of the 15% Hinch and Culleton were expected to vote for.

Without the numbers to get a resolution, the Coalition entered negotiations with Greens senators for their votes. While the party had previously opposed the backpacker tax package, it agreed to vote for the 15% rate provided there was an amendment to the rate at which superannuation was taxed. This was voted through at 65% of a visa holder’s superannuation balance, instead of the original proposal of 95%.

“The Greens were not willing to stand by and risk the tax rate for backpackers jumping to 32%; that would have been a disaster not just for farmers, but for entire rural communities and the tourism industry as a whole,” Australian Greens leader Senator Richard di Natale said in a statement on the vote.

“The agreement on super is an especially good outcome for rural economies. This is money that will be spent in rural communities, providing a much-needed boost for rural economies.”

The deal was done through securing $100 million in federal funding for the Landcare program.

Businesses “won’t forget”

The chaos of the vote has caused tensions within minor parties in the Senate, but for the business community the uncertainty has taken both an economic and strategic toll.

Before yesterday’s vote, horticulture body Growcom said Australian produce growers will never forget the inability of politicians to come to a compromise on the deal, calling the last few hours before a resolution was eventually found a “disgrace”.

“Politicians are quibbling about a few percentage points either way when the horticultural industry has accepted 15 percent and while the spectre of 32.5 percent looms over the horticultural industry from 1 January,” Growcom chief advocate Rachael Mackenzie said yesterday.

This morning Mackenzie thanked the Greens for providing certainty to growers.

“Growers can breathe a sigh of relief that sanity has finally been restored in the form of a competitive rate of tax agreed to by the industry, which is equivalent to that paid by workers under the Seasonal Worker Programme,” she said in a statement.

The National Farmer’s Federation, which has welcomed a final resolution, was also angered by the process by which the legislation was reviewed. Over the past three months many local growers have spoken out about the stress of uncertainty just weeks before peak picking season.

“Our members will not be bullied on this issue and today’s antics in the Senate show contempt for farmers and growers in desperate need of a resolution,” the federation said in statement on Wednesday, outlining its support for a 15% tax rate as a fair amount.

Tourism bodies and state business groups have also pointed to the positive impact this final resolution will have on courting a larger number of young holidaymakers to the country’s biggest attractions.

“It will be a relief to tourism businesses who service the backpacker sector that this matter has finally been resolved, but it is frustrating that it has taken so long,” Victorian Tourism Industry Council acting chief executive Kristina Burke says.

The backpacker saga played out as Tourism Australia launched a $10 million campaign to boost the number of young workers from the EU and Britain considering Australia as a working holiday destination.

In October Tourism Minister Steven Ciobo popped up at an “indoor beach” in a London tube station to promote Australia as a top destination for workers in a post-Brexit world.

On social media, Australian businesses in regional areas reacted to the passing of legislation with relief but were angered by the roller coaster of deal-making.

“They are doing work Australians won’t do and the people – [Malcolm Turnbull] is hurting here are AUSTRALIAN FARMERS,” said one Facebook user.

The new tax rates will come into effect on January 1, 2017.