Why does common sense sometimes elude our rulers? A recent example is the federal government’s brand-new tax which will target hard-working backpackers in a most discriminatory way. You see, it’s unlikely to bring in much revenue. That’s because the backpackers will be tempted to go to other countries where the politicians don’t see them as little more than plump geese which have laid an abundance of golden eggs.
This new tax is sadly only the latest burden our politicians, federal and state, have inflicted on our farmers. (Not without justification, Jai Martinkovits and I named a chapter in a recent book, ”Why do they hate our farmers?”)
The new tax is part of a pincer movement which defies all common sense.
The first arm of the pincer is the politicians’ own creation: a generous welfare state made up of “clients”, as the welfare-industrial complex likes to call them, they anticipate will vote for them in gratitude. This involves endowing what I call the dronocracy, the healthy yet work-resistant class, a life of leisure from cradle to grave. Being part of the dronocracy has become so enticing that the status is frequently inherited, like some aristocratic title. All this is funded by a diminishing class: those unfortunate Australians who are net taxpayers. How long can this go on?
Notwithstanding the opposition of most of the commentariat, the maligned 2014 Abbott-Hockey budget went in the right direction. One key example was the important lesson it would have given school leavers tempted to join the dronocracy. This was that the dole is not a lifetime alternative to work, and certainly not to be immediately and easily accessible on leaving school . Unfortunately, the out-of-touch majority in the Senate decided that it would not allow such realism.
The result is that the politicians have trained the work-averse to expect that their lifestyles will be funded by the taxpayer, and that they should be permitted to determine that they are above doing the sort of work which was once done by university students in their long vacation. After all, picking fruit is hard.
So instead of disbanding the dronocracy , which is their moral duty, the politicians have had to licence young foreigners, about 40,000 of them, to work on our farms, as well as in the nation’s hotels, restaurants and cafes. They are a significant segment of the 240,000 backpackers who spend about $3.5 billion here every year.
Despite reported high youth unemployment rates ( up to 17% in Western Sydney), our backpackers have no difficulty in finding work.
At $130 a day, the minimum rate for picking fruit, is not to be sniffed at, except among the dronocracy. Even more is offered on some farms. The average yearly income of a working backpacker is around $15,000, of which $13,500 is spent in the country. Under current tax law, no tax at all is payable on income up to $18,200. Then its 19 cents in the dollar. When a taxpayer earns $37,000 per annum, the tax rises to 32.5cents in the dollar. So although tax is taken out of their income by their employer while they work, backpackers normally receive a full refund on leaving Australia, as they should.
Backpackers do not receive any special privileges; they are being treated the same way as Australians. These young people are crucial to our farmers’ ability to produce both exports and food for the supermarkets. But as of July 1, backpackers will be taxed on everything they earn. Worse, this will be a special rate, one which nobody else pays until they are earning income over $37,000 per annum, and then only on the excess . The punitive rate will be 32.5c on every dollar earned here — almost one-third of their income. The Treasury has calculated this will produce $100 million in the 2016-17 financial year and $220 million a year thereafter. This is no doubt calculated to help to pay for the young and healthy leisured class who refuse to work, the dronocracy.
But it seems the politicians have shot themselves in their collective foot, as they are unlikely to recoup these vast sums. Even the dimmest backpacker is far too smart to fall for this. Social media has been full of warnings and advice that countries such as the US, Canada and New Zealand will soon be far more attractive than Australia. They will pay tax in those jurisdictions, true, but nothing like Australia’s punitive gouging. We may also lose some of the other backpackers who do not intend to work here but who like to be among the backpacking communities as they roam the world.
The result will be that we will run the risk of leaving our farms and tourist sectors with fewer workers just when they are needed. The fruit may well rot on the vines and the trees. Alternatively, pay could be increased to attract workers but this would make exports too expensive and probably encourage imports which would tend to underprice Australian produce.
The government claims that it is now listening. The Tourism Minister, Richard Colbeck, has announced that Malcolm Turnbull and Scott Morrison have allowed him to review the proposal in time for the Budget, but on one condition. The condition is that the government will still recoup the amount planned by the change. Any new proposal must be “revenue neutral”. This means that the government still plans to fleece the young backpackers of one third of their hard earned income.
According to The Australian‘s Sue Neales, the National Farmers Federation has come up with a suggested compromise. This involves imposing a 19% tax on all income consistent with the special six-months pieces given to Pacific Island seasonal workers employed on farms. But that is still more than the tax payable in comparable countries.
So why doesn’t Canberra treat the backpackers like everybody else, as any fair and sensible government should do, and tax them according to the general law? In other words, no tax unless and until they earn more than $18,200.
Common sense would tell anyone that is the most sensible and also the most fair thing to do.