With the 2016-17 Budget handed down and the federal election campaign in full swing, there has never been a better time to observe the impact of tax policy on Australian politics.
Winning the greatest number votes is undoubtedly at the heart of every party's election strategy, and is a grounding principle of democracy. So it is understandable that the Liberal government's strategy has been to provide tax benefits to a critical mass of people, in hope that voters will return the favour by casting their votes. These voters include people who do not like paying taxes, as well as people who don't want essential services compromised as a result of tax cuts. This is where the conservative and the progressive clash in their different visions for how the country should be run.
The so-called 'Backpacker Tax' became an election issue in a different way. The new tax rules for working holiday makers (so-called 'backpackers') were proposed in the Budget last year to remove the $18,200 tax-free threshold for working holiday makers and tax them 32.5 cents from the first dollar earned. The tax is back in the headlines again this week, thanks to the Federal Government's announcement yesterday that it will delay the introduction of the tax instead of scrapping it.
The proposal -- which would see almost a third of income tax collected from low-income young foreign workers -- was problematic on multiple fronts. A projected $540 million tax revenue by 2019 was questioned by farmers groups such as Growcom and policy researchers. Concerns that the new tax rules would boost the growth of the irregular employment market were backed by the evidence of cash-in-hand jobs that are prevalent in the industries where holiday makers usually work, as observed by the recent Senate Inquiry.
Advocates also worried that the measure could exacerbate exploitation of working holiday makers, particularly in the agriculture sector, which Four Corners described as akin to 'slavery'. Undoubtedly, the tax would have a substantially negative impact on the wellbeing of working holiday makers. Their national minimum wages would have effectively become $11.67 per hour after taxes, with no prospect of tax returns or deductions. Additionally, there is the possibility that cash-in-hand jobs could grow, which would make it more difficult for regulators to detect exploitative job conditions and illegal employment practices.
However, this potential negative impact on working holiday makers is not the reason that the backpacker tax became an election issue. After all, working holiday makers cannot vote.
It became an election issue because of the fear the tax rule would deter working holiday makers from coming to Australia. These people stay in Australia for a long time, spend large sums of money -- particularly in our tourism industry -- and work in sectors that experience labour shortages.
A 2008 study commissioned by the government estimated that working holiday makers spend approximately $1.8 billion during their stay, and that the arrival of five working holiday makers creates one full time job equivalence.
The National Farmers Federation has said backpackers comprise 25 percent of the workforce in agriculture across Australia. For this reason, there has been fierce opposition to the tax from the tourism and the agricultural industries.
A review committee headed by Minister for Tourism Richard Colbeck has sought to provide a "revenue-neutral solution" to the proposed changed tax rules for working holiday makers. This aims to enable the government to collect $540 million in revenue over the next three years without making conditions aversive to working holiday makers -- so that Australia won't lose these people to competitors such as New Zealand or Canada.
The goal was to collect the same sum of money from the backpackers, but in a way that the working holiday makers would not notice, or at least not stop them from coming. Increasing taxes for the Departing Australia Superannuation Payment (DASP), which is already high at 35 percent, to 60 percent and even 100 percent was also discussed.
But it's not just a tax issue -- there are important questions that need to be asked about how proposed changes might impact the future of democracy in Australia.
Australia has a growing proportion of temporary residents who eventually become permanent residents, and eventually Australians. Peter Mares, a researcher at the Swinburne University, writes in a paper presented in the Senate that a significant proportion of temporary migrants do not leave when their visas expire, but change their status. The majority of permanent skilled migration visas are issued onshore. He worries that Australia has a growing population of long-term temporary residents who are stuck in "a kind of limbo".
This has a substantial implication on a future of Australia's employment market. A study conducted in Canada reported that temporary visa workers often end up in precarious work situations with long-lasting effects. These workers reported continuation of precarious work conditions after they were granted a permanent status.
The temporary residents work in your favourite restaurants. They grow and harvest food you eat on daily basis. They clean the buildings where you work and shop. They live in your neighbourhood, and your job may have been created by them. They could become your neighbours and co-workers in the long run. Is it then morally justifiable to treat them differently because they cannot vote?
Globalisation has opened the door for easier flow of capital, as well as movement of people. The recent Panama Papers scandal has revealed that businesses we think of as 'Australian companies' may not in fact be Australian at all. What we think of as an 'Australian' product may, in fact, be registered to a paper company in the Pacific island.
The extent to which the tax system is complicit in this conduct is striking. Many of the paper companies are run legally, and both parties have made no commitment to regulate evasion of millions of dollars in taxes. An easier target, it seems, is collecting one-third of earnings from low-income working holiday makers.
A challenge is to detect who Australia is in the age of globalisation -- where people, corporations and politicians swear allegiance to economic interests. In the meantime, the reality is this -- it is more politically viable to collect $5000 from the $15,000 income-earners (which working holiday makers are reported to make on average) and to provide tax cuts to those earning more than $80,000, while keeping multi-million dollar tax evasions through tax havens untouched. And this is a deeply disturbing reality.
What does that leave for a democratic tax system?