Trouble for Australia’s Working Holiday

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 tax all holders of a Working Holiday Visa (WHM) 32.5 cents on the dollar from the first dollar they earn.

The Working Holiday Visa is a scheme that allows 18 to 30-year-olds from a select group of countries (mostly from the 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 in rural areas within the agriculture, mining, and construction industries.

For this reason, the agricultural industry has found the change in taxation laws to be so disturbing, as 92 percent of WHM visa holders who took the 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 cannot 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 toward 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 will also reduce the incentive to work legally.

It is 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 percent 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 toward black market practices may also increase 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. 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 dampen its appeal.

Prime Minister Malcolm Turnbull has frequently promoted 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 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 recognize 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 toward 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 percent reduction in the number of WHM visa holders over the previous season. This can be attributed to more favorable economic conditions in countries such as France and Ireland, which diminished the “push factors” that had sent their youth abroad. However, it would be a fair assumption to make that these proposed changes in the tax status of WHM visa holders will further reduce the number of WHM visa holders. 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 percent on the first dollar earned an unsustainable burden for young people in low-wage jobs.

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 behavioral 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 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 society. Kneecapping such positive schemes, like the WHM visa program, which 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 scheduled for July 2, the legislation will invariably come into effect on July 1. Any repeal with have to jostle for position within the new government’s order of business.