Last week, mainly due to complaints from rural employers and their communities as well as from the tourism industry, Federal Government abandoned its plan to tax backpackers at 32.5% and replaced it with a new proposal.

This was an idiotic tax-grab idea by the Government from the beginning. They should have been aware of the dire seasonal labour shortages that backpackers fill in rural regions and consequently should have foreseen that it would be strongly opposed by farming communities (particularly so since the coalition consists of a party that is meant to represent rural concerns).

But this brings to the fore of why do we have such labour shortages? This question is especially relevant in rural regions with higher than average youth unemployment.
The main answer is simple: The work is low paid thus there is not enough monetary incentive for locals to do the physical work.

Thus follows the other important question: Why do farmers find backpackers more willing to work than Australians?
The reason is because: backpackers aren't working for the money alone, but also for the 2nd year visa extension which they qualify for after about 90days of work. Once they have worked their quota most backpackers leave soon after.

So I propose a new system:
Firstly, abandon the work for a second visa scheme and just have backpackers pay a lot more for their second year visa extension.
Secondly, now reduce the minimum wage in rural areas a bit but also reduce the tax paid by more than the wage reduction.
So overall, the farmer is paying less and the worker is earning more after tax. In other words, the government sells 2nd year extensions in order to lower the minimum wage paid and to effectively subsidize the wage so that the worker receives more than now.

(Benefits of scheme to be continued in comments: I have a bit more to say)

(contined from initial post- hit 350 word barrier)

The benefits of this new scheme are not only experienced by the farmer and worker but potentially also by the backpacker. Because now the backpacker can work wherever they like in any industry they like. Many backpackers have just finished trades or tertiary education- they can now get paid skilled employee income instead of minimum (or illegal below minimum) wages. Having a skilled person work in a job beneath their skill set is a terrible mis-allocation of resources that the current situation encourages; this proposal corrects this.

So how much extra should a backpacker pay for their 2nd year visa. Well using the current opportunity cost they pay as a guide: currently farm workers get about $16/hr after tax (when paid legal wages), a person labouring in the city (eg: building site labour) gets about $20/hr after tax and a trades person or professional $30+. So let's say a backpacker is losing on average at least of $7/hr working on a farm. Over the 90days this gives: 90days*8hr/day*$7/hr approx $5000.

In addition, for extra bonus, we should remove the requirements for backpackers to create superannuation accounts and for employers to pay into them. Instead we could require that half of their employer's super contributions are pay directly to them and the other half to subsidize rural wages. Currently there is a fortune of backpacker super sitting in abandon accounts because they don't know how or can't be bothered (due the paper work involved) to claim it when they leave. The current scheme just promotes a lot of red tape and paperwork for employers and backpackers. If you paid a proportion of it directly to them they would most likely they spend it here locally in the place where they're staying or elsewhere in Australia on their travels. Spending it in local businesses in Australia is a lot better then having them taking it back home when leaving (if they actually claim it) or leaving it in a forgotten account to let the Government eventually seize it.

The main reason for choosing backpackers is that they are already itinerant. To expect unemployed Australians to trek around the countryside following the harvest is somewhat harsh and unrealistic.
There are not enough "locals" anymore to fill short term, high volume harvest jobs. All our country towns have been decimated over the years.

Also backpackers are used to and accepting of staying in backpacker style accommodation. Should unemployed Australians have to sleep in dormitorys with no privacy just to work for farmers. The other option is expensive motels, caravan parks which will take most of what you earn. In most cases farmers no longer allow workers to stay on farm due to antisocial behavior and other problems experienced in the past.

Backpackers picking fruit etc helps both parties get their needs met and normally works well for everyone. They should be taxed the same as every other worker in Australia. I like the superannuation idea to top their wages up a bit. Provided they are overseas backpackers and that the farmers dont just keep it themselves. Maybe still make them pay it but automatically refund it to them when they leave.

Anyone earning money in Australia should be paying tax. If Australian bludgers were kicked of their backsides into fruit picking and paying their own way, and tax, there would be no no need for backpackers; forget them - get lazy Australians to work.

This is all a load of crap.

If they work for three months, which is what the normal Visa is, then leave they get all their Tax back.

JayB: You are very wrong and obviously have no idea what you're talking about.

Currently, generally people on working holiday visa get taxed the same as any other person (there are some exceptions regarding if they cannot claim to be resident for tax purposes- in which case they get taxed at a high rate, something like 50%). They do not get any tax back/tax reductions that aren't available to standard tax paying Australians.
However, there used to be (I don't know if it still exists) a special optional fruit picking/itinerant worker tax rate at 15% available to Australians and any others (not sure on exact rate but I think is was 15%). This was/is? because since the work is not steady but in bursts it averages out for the times when not working. BUT, this didn't change the overall marginal tax due at the year of the tax year! If you earned too much so you didn't pay enough tax over the whole year then you are hit with a tax bill at the end of the year.

Regarding a working holiday visa: the majority are initially 12 months and the holder can work anywhere in Australia during these 12 months for as long or as little as they want with the condition that they can't work for the same employer more than six months. However, they have the option to extend to 24months if they do about 90days working in regional/rural areas- they can do these 90days anyway they like within the initial 12 months (eg: starting 2 weeks after arrival, 1month in Shepperton, then 20weeks later 2months in Bowen). Within the extra 12 months they can go working anywhere they want similar to the initial 12 months.

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-- continued from above --

What you may be thinking of and confused about is super. They are eligible to get ALL their employer's super payments back on LEAVING the country. However, a lot of them don't this for various reasons (such as they don't know how to) and we now have millions and millions and millions of dollars in abandoned backpacker super accounts. It makes more sense to not have to pay the super into a fund account in the first place but rather give it directly to them!
Especially because if we give it directly to them then they can spend it here instead of potentially taking out of Australia overseas. It also saves a lot of paper work for the backpacker and the employer.

Slight correction to what I wrote above:
The non-resident tax rate is about 30%, I confused it with the no tax file number given rate of about 50%.

Thinkabit: JayB: You are very wrong and obviously have no idea what you're talking about.

You are probably right. I have been out of the Workforce for 16 years so I'm not up with the latest. I was only going on my experience of working outside the Country for half the year. Each time I had only worked not quite 6 months in Australia before leaving for overseas I always applied for & got my Paid Taxes refunded in full when I left the Country. Come to think of it, my brothers worked in the Cane Fields & Fishing Industry for about 5 months of the year & then did odd jobs here & there for the rest of the year & they always got a full refund.

The Rules may have changed since then. I don't know.

Hey, if some people on working visas are "currently taxed ... blah blah", why are fruit lickers not taxed now?