Massive tax increases for backpackers in Australian budget

Tax-free allowance to be abolished and income tax rate to rise from 19% to 32.5%

Australia’s treasurer, Joe Hockey. From July 1st, 2016, those on working-holiday visas will be taxed at 32.5 per cent from the first dollar they earn. Photograph: Lukas coch/EPA

Australia’s treasurer, Joe Hockey. From July 1st, 2016, those on working-holiday visas will be taxed at 32.5 per cent from the first dollar they earn. Photograph: Lukas coch/EPA

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Australia, which has been steadily falling in popularity as a destination for young Irish people since 2012, might just have taxed itself out of the backpacker business.

With the improvement in Ireland’s economy and Canada becoming a more viable and closer destination of choice, the number of Irish people going to Australia on a working holiday (“backpacker”) visa fell by 53.5 per cent between 2012 and 2014, from 25,827 to 11,996.

But with a deficit of 35.1 billion Australian dollars (€24.88 billion), backpackers were the last thing on treasurer Joe Hockey’s mind in announcing the federal budget. Backpackers can’t vote and are therefore an easy target.

They might, however, start voting with their feet by trying other countries from next year as paying rent is going to seem a lot more expensive.

From July 1st, 2016, backpackers will be taxed at 32.5 per cent from the first dollar they earn.

Even for people on very modest incomes, this will be a massive blow to take-home pay. Currently, foreigners on working holidays pay no tax on their first 20,000 Australian dollars in income and a 19 per cent rate on earnings up to 37,000 dollars.

The tax increase is also likely to prove unpopular with Australia’s agricultural sector, which relies heavily on casual workers, most of them backpackers, to carry out seasonal work such as fruit-picking.

Sharp drop

In order to get a second year working holiday visa, backpackers have to spend three months working in rural or regional Australia. As well as a sharp drop in first year backpacker visas, there are also fewer Irish people staying on in Australia for a second year visa, with applications for the extension down by more than a quarter last year to 5,233.

With poorly paidwork paying even less, many seeking adventure will instead be looking to New Zealand, where backpackers pay tax at 19.5 per cent up to 38,000 New Zealand dollars (€24,882).

An Australian department of immigration report said the reduction in visa grants for Ireland and other countries “may signal a natural tapering of the exponential growth seen in these caseloads over a number of years”.

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