May 17, 2016 / 1:37 AM / 2 years ago

Australia defers backpacker tax hike after rural opposition

SYDNEY (Reuters) - Australia will review a planned tax hike for foreign travelers who work in the country, following complaints from farmers in the lead up to a federal election that their supply of “backpacker labor” at harvest times may dry up.

A pedestrian walks near a foreign backpacker as he carries his belongings past a bus stop in central Sydney, Australia, May 17, 2016. REUTERS/David Gray

The ruling conservative government, which is counting on the support of rural voters in the July 2 poll, will defer the tax increase and hold a review of labor force issues in rural and regional communities, Assistant Treasurer Kelly O‘Dwyer said.

Under the proposal, foreign travelers on working holiday visas would have paid tax of 32.5 percent on every dollar earned from July 1, when previously they paid no tax on income up to A$18,000 ($13,100), the same as locals.

Farmers said the change would discourage holiday workers who make up the bulk of fruit pickers at harvest times, threatening the country’s fruit industry, which is set for record exports of A$2.27 billion ($1.66 billion) next season.

Australia has encouraged backpackers to work on farms with special visas allowing them to stay for a second year if they do three months work in rural Australia.

But overseas workers had been targeted as an area to raise revenue as Australia looks to rein in ballooning budget deficits.

“[The review] is looking at much broader issues around labor force, particularly in rural and regional communities and how it affects our farmers but also our tourism sector as well,” O‘Dwyer said.

Australia’s A$34.8 billion international tourism industry was also threatened by the higher tax, with young travelers potentially deciding not to stay as long.

In total backpackers spend A$4.3 billion a year, worth about 12 percent of all international tourist spending.

Reporting by Colin Packham; Editing by Richard Pullin

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