Australia to hike tax on backpacker workers, may hit Asian exports

By Colin Packham

SYDNEY (Reuters) - Australia is set to increase taxes on foreign travelers who work in the country, raising concerns from farmers that their supply of "backpacker labor" at harvest times may dry up and undermine Australia's ambitions of being Asia's delicatessen.

Australian fruit exports are set to hit a record A$2.27 billion ($1.63 billion) next season, up 10 percent from the previous 2014/15 season, and backpackers on working holiday visas make up the bulk of fruit pickers during harvests.

"We could have a situation where we don't have enough labor to harvest our produce," said Tim Reid, one of Australia's largest cherry producers and exporters in Tasmania.

"During the harvest, backpackers make up about 70 percent of our labor, without them we wouldn't have a business."

Australia faces a ballooning budget deficit of about A$40 billion this year and the pla nned increase in tax for working travelers is estimated to net A$540 million between 2016 and 2020.

Under the new tax policy, foreign travelers on working holiday visas will pay tax of 32.5 percent on every dollar earned, when previously they paid no tax on income up to A$18,000 dollars, the same as locals.

The government 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 backpackers like Matt Bradley from Britain say that faced with the higher tax they will simply decide not to work.

"An increase to 32.5 percent tax will mean I can't survive so I'll have to leave," said Bradley.

Australia aims to supply premium agricultural products to Asia's growing affluent middle-class to become the region's delicatessen.

Horticulture producers are already struggling to fin d enough labor, according to a recent study by the National Farmers Federation, and farmers say that without enough labor, fruit will simply drop off trees and rot, making it unusable.

"The real challenge for Australia's delicatessen strategy is its input cost. Without backpackers, labor - the biggest driver of costs - will grow," said one agribusiness analyst.

Australia's A$34.8 billion international tourism industry could also be hit by the higher tax with young travelers deciding not to stay as long.

Bradley is one of about 591,000 people a year that travel to Australia on a working holiday, traveling for up to a year.

While the daily spend by these often young travelers is small, the total spend during their year of visiting is substantial. In total backpackers spend A$4.3 billion a year, worth about 12 percent of all international tourist spending.

"If we want a strong tourism se ctor contributing to our nation's economy we should be encouraging more overseas visitors to undertake working holidays through our beautiful country," said Margy Osmon, CEO of Tourism and Transport Forum Australia.

The Australian government is set to pass the tax legislation this week, imposing the new tax from July 1.

(Reporting by Colin Packham; Editing by Michael Perry)

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