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Compromise sought on 'backpacker tax' as working holiday-makers threaten to leave Australia -

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MATT WORDSWORTH, PRESENTER: Moves are underway within the Federal Coalition to find a compromise for the controversial 32.5 per cent backpacker tax, slated to take effect in July.

Federal Treasurer Scott Morrison is standing by his budget measure, despite disquiet among some rural MPs and lobbying by farmers, who say the $500 million tax grab threatens a horticulture industry worth 20 times that.

More from national rural and regional correspondent Dominique Schwartz:

DOMINIQUE SCHWARTZ, REPORTER: This is the engine that keeps Australian horticulture ticking over.

On this farm, near Stanthorpe in south-eastern Queensland, one tractor-load of backpackers in the morning converts to 10 tonnes of apples by afternoon.

JEFF MCMAHON, ORGANIC FARMER: Labour's absolutely essential to horticultural operations like this. Without backpackers, we wouldn't be farming today.

DOMINIQUE SCHWARTZ: Jeff McMahon is a third-generation farmer. His family is one of the largest organic fruit and vegetable producers in Queensland. He supplies farmers' markets and one of Australia's big supermarket chains.

JEFF MCMAHON: Oh, how's it going, Lars? Is the fruit looking pretty good?

LARS, BACKPACKER PICKER: Yeah, it's perfect.

JEFF MCMAHON: Backpacker labour is good quality. We find that the backpackers that come to our farm over the last 20 years - and I've used about 3,000 of them - actually care about the job they do. And this makes a tremendous difference in our quality and that means we can be competitive.

SIMON TALBOT, NATIONAL FARMERS' FEDERATION: Backpackers are vitally important. Last year 40,000 backpackers came to Australia to work in agriculture. And they pick a lot of our food: around 50 per cent of horticulture.

DOMINIQUE SCHWARTZ: Most pickers are foreigners who are in Australia on working holiday visas. German Kristel Reiche has spent the last year working her way around country Victoria, New South Wales and Queensland.

KRISTEL REICHE, GERMAN BACKPACKER: Travelling is so expensive in Australia. And you have to work, that you can make a lot of travel and see the nice places in Australia.

DOMINIQUE SCHWARTZ: Danish social worker Liv Pearla came to Australia on the basis she'd be earning $18,200 before paying any tax.

But that's set to change.

From July, foreign backpackers will have to pay the Federal Government 32.5 cents of every dollar they make.

LIV PEARLA, DANISH BACKPACKER: I wouldn't stay here as long as planned, because I think the tax is too high. So I would be travelling further to other countries.

DOMINIQUE SCHWARTZ: Whereabouts?

LIV PEARLA: Like New Zealand, Fiji and Indonesia because it's way cheaper.

JEFF MCMAHON: It's like shooting the goose that laid the golden egg. Like, you know, you can't tax people unless they come to the country. And then if you've got less backpackers, we're going to suffer economically and there's less revenue to the Government.

And then talk to the hospitality industry and then talk to the tourist industry. There's no sane reason for it.

SIMON TALBOT: Horticulture is worth around $10 billion to the Australian economy. It's growing very, very fast. By 2030 horticulture will be worth $30 billion.

But not having the backpackers and available labour will actually stifle and bottleneck the growth of horticulture.

DOMINIQUE SCHWARTZ: But Federal Treasurer Scott Morrison is standing firm.

SCOTT MORRISON, TREASURER: But they're coming here for a holiday, not a tax holiday. And where they get the opportunity to come and work and spend the money here, that's fantastic. But people should pay their fair share of tax in Australia.

DOMINIQUE SCHWARTZ: The Treasurer estimates the backpacker tax will harvest $540 million over the next three years. But even some within Government question that.

SHARMAN STONE, DR., FEDERAL LIBERAL MP: If we have fewer backpackers arriving, then that tax take actually is a lot less than calculated.

DOMINIQUE SCHWARTZ: Victorian Liberal Dr Sharman Stone says backpacker labour is vital in her electorate of Murray.

SHARMAN STONE: I would say it was critical. We have, indeed, about 27 per cent youth unemployment. But at the same time, we depend on backpacker labour for our abattoirs, our fruit picking, working in a lot of our dairies.

DOMINIQUE SCHWARTZ: Dr Stone also chairs the Coalition's agriculture policy committee. She's looking at whether changes to backpacker superannuation could soften the tax blow.

SHARMAN STONE: So we've been encouraged by the Minister to look at a package which might make it less a case of the backpacker seeing a third or so of their salary going.

DOMINIQUE SCHWARTZ: The Minister referred to is Barnaby Joyce, the Agriculture Minister and newly minted Deputy Prime Minister.

Publicly, though, he's toeing the party line.

BARNABY JOYCE, AGRICULTURE MINISTER: It became quite clear and apparent, after the tax came in, there were major changes, major changes. Then we are of course willing to consult and consider and see what we need to do then.

DOMINIQUE SCHWARTZ: He says seasonal workers from Pacific Islands will help address farmer concerns, but stopped short of saying they would plug any labour gap caused by the backpacker tax.

BARNABY JOYCE: I'm confident the seasonal worker program is well supported and people want to be part of it. We're expanding it and that helps our relationships with our Pacific Islands, as well as helping people in regional areas get their crop off.

DOMINIQUE SCHWARTZ: In the packing sheds and orchards around Stanthorpe, farmers say seasonal workers are no substitute for backpackers.

ANDREW FINLAY, CHAIR, SUMMERFRUIT AUSTRALIA: We need a workforce that is highly mobile and flexible - and that's what backpackers bring for us. Seasonal work program: yeah, it can certainly provide a core for us. But we need that mobile population that can come and fill in, in the peaks when we have those peaks. It's a long, long way to bring someone from Pacific Islands for four days' work.

DOMINIQUE SCHWARTZ: The Farmers' Federation is proposing a backpacker tax of 19 cents in the dollar.

Samuel Bassett from Wales believes that's fair. He says a 32.5 per cent tax would cut his hourly earnings to just $14.

SAMUEL BASSETT, WELSH BACKPACKER: I want to go out to the communities. I want to go and see the communities and travel around Australia. But with this new tax change, I'm not going to do that. It's that simple.

SIMON TALBOT: Average backpacker makes around $15,000. They contribute back into hotels, accommodation, food; but more importantly, take the message of Australia back to their home country and become a tourism ambassador.

DOMINIQUE SCHWARTZ: In a perfect world, he says, they'd take home only good memories and leave their hard-earned cash in local communities around Australia.

MATT WORDSWORTH: Dominique Schwartz reporting.