Thursday, 24 November 2016
Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016, Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016; In Committee
Last evening, as a result of some rearrangements in speaking orders and some confusion over quorums and so forth, I failed to deliver my contribution to the second reading debate on this package of bills. Before getting into amendments, I would like to deliver my speech in order to have it on the record.
The bills before us today propose to introduce a new tax regime for backpackers, whereby they are taxed at 19 per cent from the first dollar they earn. This begs the question, how are these backpackers taxed under current law? And how would they be taxed if the bills fail to pass?
That depends on what you read, who you listen to, and when. Suppose you listened to the government in 2015 when they first announced special backpacker tax arrangements. In its budget of that year, the government said it was changing:
the tax residency rules to treat most people who are temporarily in Australia for a working holiday as non-residents … Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency rules, typically that they are in Australia for more than six months. … This measure is estimated to have a gain to revenue of $540.0 million over the forward estimates period.
From this, you would think that a lot of backpackers are treated as residents and enjoy a tax-free threshold like other residents, paying zero tax until they reach the threshold. After all, the government thought it would raise $540 million over the three years to June 2019 by changing tax law to treat most backpackers as non-residents. This would not be possible if they were already non-residents.
This estimate was not just a guess from the Treasurer. It was produced by Treasury in intimate consultation with the Australian Taxation Office, which regularly deals with these backpackers. If you want to know how backpackers are taxed under current law, you could also read the Treasurer's media release in September this year, when he watered down the government's proposal to tax at 32.5 per cent from the first dollar. He announced instead that a 19 per cent tax from the first dollar earned would apply where the employer is registered to employ backpackers and a 32.5 per cent tax on the first dollar earned would apply where the employer is not registered. The media release indicated that this watering down would reduce the expected revenue gain in the three years to June 2019 by $200 million, so the Treasurer still expects his special backpacker tax arrangements to raise $340 million in extra revenue over the three years to June 2019. Again, such a boost to revenue is only possible if a lot of backpackers are currently treated as residents and enjoy a tax-free threshold.
If you want to know how backpackers are taxed under current law, you could also read the tax office's statement on its website in September after the Treasurer watered down the government's proposal. In that statement the tax office said working holiday-makers 'will no longer be entitled to claim the tax-free threshold.' That sounds a lot like the tax office suggesting that working holiday-makers are currently entitled to claim the tax-free threshold.
All of this suggests that the bills before us today represent a substantial tax increase. The funny thing is that, once Labor signalled that they would not wave through these bills, crossbenchers being wooed to vote for the bills started being told that the bills actually represent a tax reduction. We were told that, if the bills before us today did not pass, from January 2017 the tax office would treat backpackers as non-residents even though the age-old definition of 'resident' in tax law remains untouched. Lo and behold, the tax office put out a media release in November offering the view that most working holiday-makers are non-residents.
This threat to treat backpackers as non-residents under the current law seems flimsy. It is true that the Administrative Appeals Tribunal decided last year that three particular backpackers should be considered to be non-residents, but these three backpackers are in no way representative of most backpackers that come to Australia, so there is no basis for the tax office to say now that all or even most backpackers are non-residents. The law says you are a resident if you meet just one of four criteria, but each of the three backpackers agreed they had no claim to residency under three of the four criteria. Each claimed residency solely on the basis of being present in Australia for six months and not having a usual place of abode in a particular place overseas. But each of them lived in their parents' houses before and after coming to Australia. They only stayed in Australia for between six and 10 months, in line with their prior intentions. Each had minimal assets in Australia. They spent no more than half their time in Australia in employment. They each seemed to have stayed in 20 or more places while in Australia. One even claimed to be a non-resident in correspondence with the tax office, and the other two used their parents' address for at least some correspondence. Because of all this, each of the three backpackers was found to have a usual place of abode in a particular place overseas: their parents' home.
In contrast, many and perhaps most backpackers will not so clearly have a usual place of abode in a particular place overseas, or they will claim residency under one of the other criteria. Given the unrepresentative nature of the three backpackers deemed to be non-residents by the Administrative Appeals Tribunal and given that the government is banking on its bill significantly increasing revenue, it seems clear that many and perhaps most backpackers are residents for tax purposes and will pay considerably more tax if the bills before us today pass.
This would not necessarily mean I would vote against the bills. It may come as a surprise, but I do not mind the imposition of extra taxes on foreigners. After all, the Liberal Democrats' immigration policy is to limit immigration by imposing tariffs on migrants who meet our character, criminal and health requirements. This will allow us to do away with bureaucratic quotas and selection criteria under the family reunion and skilled programs. No tariff would be imposed on refugees, for whom a generous tariff would remain.
What I do mind is imposing extra taxes on foreigners to such an extent that it ends up hurting Australians. I am concerned that a 19 per cent tax from the first dollar may encourage backpackers to take their working holidays in lower-taxing jurisdictions like New Zealand. This will be bad because Australians are better off when backpackers come here. More work gets done, and backpackers impose a negligible cost on taxpayers because they do not have access to services like public schools and hospitals.
The government argues that increasing tax on backpackers will not discourage them because the jobs on offer in Australia pay a high wage. The problem is that there are not enough jobs. Our minimum wage laws mean that, yes, our employers are forced to offer high wages for menial tasks, but they respond to this by not offering many jobs. If this parliament can resist the temptation to increase tax on backpackers, and if we also reduced our minimum wage, then we would see more backpackers come to Australia to work in menial tasks for the benefit of Australians. If we combined a reduction in our minimum wage with a reduction in the availability of welfare, we could see many currently unemployed Australians take up these menial tasks as well. In summary, I believe that the bills before us today are likely to discourage backpackers from coming here for our benefit, particularly if we are able to constrain our minimum wage. As such, I will oppose these bills.
There are other reasons why I oppose these bills. These bills also increase the tax on the superannuation of backpackers to a whopping 95 per cent. They increase the passenger movement charge, giving us one of the highest, most anti-tourist departure taxes in the world. And they do the bidding of unions. The bills deliberately set out to make the hiring of backpackers markedly harder than the hiring of locals. If a farmer wants to hire a backpacker he or she will have to demonstrate a genuine business requirement to hire backpackers. They will have to promise to examine the visas of backpackers and confirm that the visa allows the work to be done. They and any associates will have to pass a vague fit-and-proper-person test. If the farmer fails to navigate this bureaucracy, he faces a fine of up to $10,800. Unsurprisingly, the government admits that this may disincentivise the employment of working holiday-makers.
What is worse, the bills set the unions on any farmer brave enough to hire backpackers. The bills mean the government will publicly disclose the name and location of any farmer who has successfully navigated the bureaucracy and intends to hire backpackers. These details will appear on the Australian Business Register. The government says that this will make it easy for working holiday-makers and others to check the registration status of a potential employer. Given that backpackers are not known to regularly peruse the Australian Business Register, this outing of farmers who plan to hire backpackers will mainly help the Australian Workers Union to wage a campaign of harassment and intimidation. Some farmers support these pro-union the provisions. Rather than continue to resist union harassment and intimidation, they now just want to make sure that their competitors face union harassment too. In effect, the farmers who support these provisions are happy to see fruit go to rot as long as everyone else is in the same boat.
Why the Liberal and National parties are instigating such pro-union provisions is anyone's guess. Perhaps they think the farmers who support them are representative. Perhaps they have fallen for the Labor claims that when backpackers work hard at agreed rates they are being exploited instead of offering a shining example for others. Or perhaps the Liberal and National parties are asleep at the wheel and letting the red-tape-loving bureaucrats draw up laws without oversight.
But perhaps the strangest pro-union provision in these backpacker tax bills has nothing to do with backpackers at all. For the first time in Australia's history, these bills will authorise the tax office to divulge the private financial details of employers who are fully compliant with the tax laws to the Fair Work Ombudsman, so that she can enforce government decrees on wages, including minimum wages, award wages and penalty rates. It is well known that government wage setting is ignored by a number of employers and employees. This is a good thing because it gets more people into jobs and benefits the economy. But now this new provision will ensure government wage setting is enforced with an iron fist, with terrible consequences for employment.
That the tax office coercively extracts the financial information of taxpayers is a concern, but at least it has always kept this information secret. Divulging the information to more and more tentacles of government is a huge breach of trust that will substantially undermine taxpayer cooperation with the tax office. With their backpacker tax bills, the Liberal and National parties are raising revenue, discouraging backpackers to the detriment of Australians and doing the bidding of the unions. Accordingly, I oppose each of these bills and I hope the government's efforts to pass them into law fail miserably.