The Australian agricultural industry has become very concerned with legislation that is due to take effect in at the beginning of July. This legislation will have those who hold a Working Holiday Visa (WHM) being taxed at 32.5 cents in the dollar from the first dollar they earn.
The Working Holiday Visa is a scheme that allows young 18-30 year olds from a select group of countries (mostly OECD) to work in Australia for a year. The Immigration Department promotes this as an opportunity to “foster closer ties and cultural exchange between Australia and partner countries.”
In 2006 the visa scheme was expanded to allow visa holders to obtain a second year-long visa if they spent 88 days working rural areas within the agriculture, mining or construction industries.
Which is why the agricultural industry have found this change in taxation laws to be so disturbing, as 92% of WHM visa holders who took this opportunity to procure a second visa worked in agriculture. The fruit picking workforce is especially dominated by foreign backpackers. These are low-wage, high-activity jobs that young Australians are not interested in, and older people could not perform effectively.
For the period of 2014-15 there were over 41,000 second WHM visas granted to those having concluded the 88 days of rural work. This indicates a large seasonal workforce that many regional areas cannot afford to have subside.
The changes implemented to the WHM scheme in 2006 were (successfully) designed to push visa holders towards the rural areas with significant labor shortages. The new taxation arrangements counter this design. Furthermore, the agricultural industry believes that changes to the taxation rate will not only reduce the incentive to work, but it will also reduce the incentive to work legally.
It is highly likely that employers will offer WHM holders the opportunity to work off the books, with both parties knowing that a lower hourly rate in cash will be greater than the rate they will now receive after tax for a formal employment contact.
Previously, WHM visa holders were taxed as locals. With no tax payable up to $18,200, and a tax rate of 19% for each dollar over $18,201 up to $37,000. These are the tax brackets the vast majority of seasonal agricultural workers would fall into (as well as the large number of WHM visa holders who work in urban hospitality).
In 2015 the Australian Broadcasting Corporation’s Four Corners current affairs program exposed a number of cases of exploitation of WHM holders within the agricultural industry. The show demonstrated that workers were subjected to “brutal working hours, degrading living conditions and the massive underpayment of wages.”
These new taxation arrangements that will push visa holders towards black market practices may increase these incidences of exploitation.
However, its negative effects will not just be limited to Australia’s vital agricultural industry.
One of the great modern games between countries, and especially between cities, is to try and attract the young and educated from across the world. The WHM scheme is a major weapon in Australia’s arsenal within this game. Australia’s prominent lifestyle factors make it a highly attractive destination for the young and adventurous, both prior to, or having concluded tertiary education. Yet onerous taxation will undoubtedly trump its appeal.
The Prime Minister, Malcolm Turnbull has frequently spruiked the concepts of “innovation” and an “ideas boom” to shift Australia’s economy away from the reliance on natural resources. Yet inhibiting the flow of a diverse, educated, ambitious and globally connected range of youngsters may undermine a significant factor in his vision.
While the WHM visa is only a temporary visa, many of the young people who take it up do transition to more permanent skilled employment visas in their field of expertise, or to visas that recognise a de facto relationships, or marriage.
This is a significant component of Australia’s grassroots global understanding and integration. And while the WHM visa was traditionally aimed at the wealthy northern European countries, the refocusing of the visa towards young people from Japan, South Korea, Taiwan and Hong Kong is essential for Australia’s relationship with Asia.
During the 2014-15 period there was a 5.4% reduction in the number of visa holders. This can be attributed to more favourable economic conditions in countries such as France and Ireland that diminished the “push factors” for their youth of previous years. However, it would be a fair assumption to make that these proposed changes in the tax status of WHM visa holders will reduce this number further. Potentially dramatically.
The 2015 Mapping the World’s Prices survey by Deutsche Bank placed Australia as the world’s most expensive country. This would make a tax rate of 32.5% on the first dollar earned an unsustainable burden for young people yet to develop the skills to be paid a wage deserving of that tax rate.
The WHM visa scheme has been targeted by the government under a current mantra of “revenue raising”. Yet this short-sighted perspective has failed to investigate the behavioural effects of the legislation, as well as the broader knock-on effects.
Of course, were both significant black market activity to occur, and the number of visa holders significantly decrease, the legislation would fail to achieve its basic premise, with less revenue raised than under the previous taxation arrangements.
But a wider damage will be done to Australia’s long-term interests. It must remain in the forefront of the minds of politicians and bureaucrats that the wealth of a nation is not the amount of money that exists within the government coffers, but the capabilities and opportunities that are afforded to civil society. Knee-capping a such positive scheme that directly and intimately expands Australia’s global knowledge and capacities damages the prospects of native Australians individually, and the country as a whole.
Due to lobbying by the agricultural industry the government has decided to review the legislation. However, with Parliament no longer sitting, and an election to be held on the July 2, the legislation will come into effect on July 1. Any repeal with have to jostle for position within the new government’s order of business.
This piece originally appeared in the May 2016 issue of The Diplomat Magazine