Coalition rift on backpacker tax

The tax changes announced in last year’s federal budget have angered farming groups who fear it will damage the fragile 417-visa seasonal workforce; especially horticulture and harvesting time-sensitive crops.

The National Farmers Federation (NFF) has launched an online petition which had gained more than 27,000 signatures by Tuesday in publicly demanding the tax rate be dropped to 19pc leading into the May budget, with the tax-free threshold deactivated.

Yesterday at the Coalition’s Backbench Agricultural Committee meeting in Canberra, NSW Liberal Senator Bill Heffernan warned Small Business Minister Kelly O’Dwyer he would launch a ferocious and potentially unhinged public assault against the government’s planned tax increases, if changes weren’t considered.

Senator Heffernan declined to comment on what his exact words of warning were to Minister O’Dwyer - but sources say the retiring Senator threatened a “dramatic” public campaign opposing the government’s current position.

However, Senator Hefferan told Fairfax Media he and other Committee members informed the minister about their concerns with the tax increase and its impact on agricultural workers “in the strongest terms possible”.

He said he was “disturbed” the tax change was announced in the last federal budget but wasn’t referred to the backbench Committee for consultation; despite having negative implications on farm and abattoir workers.

“I never sighted it – we weren’t consulted,” he said.

“But if they impose a 32.5pc tax, which is what’s legislated, it will have a devastating effect on the fragile labour availability for country regions; for everything from fruit picking to abattoirs.

“In my view we need to put forward a proposal that ensures the viability of the labour force - it may be 15pc - but it would be a total disaster, and an uneducated decision by government, if they were to implement the 32.5pc.”

Senator Heffernan said Minister O’Dwyer expressed a willingness to re-work and consider any Committee proposal to soften the backpacker tax - but Finance Minister Mathias Cormann and Treasurer Scott Morrison had the final say.

“I will be making a big fuss over this because it was a decision taken at the last budget without consulting the people affected and there was no explanation,” he said.

The Committee has investigated various options to soften the government’s stance including by WA Liberal MP and sheep and grain farmer Rick Wilson to retain the 32.5pc rate but give backpackers their superannuation in a cash in-hand payment; representing an effective tax rate of about 24pc.

Victorian National Party MP Andrew Broad has also urged the government’s senior cabinet ministers to consider a variation of that proposal calling for a 28.5pc tax on gross wage with backpackers then paid their 9.5pc superannuation guarantee.

Mr Broad’s plan says an effective 19pc tax rate would help to avoid driving working holiday-makers out of Australia.

Both MPs believe their changes would have the added benefit of reducing paperwork for employers when dealing with superannuation and increase local spending, while retaining incentives for agricultural workers.

Mr Wilson has flagged his plan with Prime Minister Malcolm Turnbull saying it provides the government with a “win-win” option to help maintain seasonal workers, cut red tape for employers and increase taxable spending in local communities.

But Mr Broad’s proposal warns leaving the backpacker tax at 32.5pc would limit the nation’s capacity to exploit opportunities arising from trade deals with China, Korea and Japan and the Trans Pacific Partnership which would also impact tax revenue in other sectors of the economy.

It claims the difference between the scheduled increase rate of 32.5pc and the lower 28.5pc rate would be just under $94 million over four years in the budget forward estimates.

NFF President Brent Finlay said the government may be set to raise $540m in the forward estimates through implementation of the 32.5pc.

But he said softening the tax rate to 19pc would still earn $315.7m directly and generate hundreds of millions more through the ongoing success of farming operations, tourism and regional spending.

“We urge government to reconsider and to make what we see as a simple and common sense decision to help build, grow and strengthen agriculture and regional economies,” he said of the NFF’s pre-budget campaign.