More than 40,000 Pacific Islanders working in Australia are being unfairly taxed on superannuation contributions – enforced savings payments that they are already unlikely to ever claim when they return home.

Under the Pacific Australia Labour Mobility (PALM) scheme, which aims to fill labour gaps in regional Australia with Pacific workers, over a four year visa term Pacific Islanders are collectively paying at least half a billion dollars in superannuation – a total which is more than Australia’s annual bilateral aid to Papua New Guinea.

This whopping superannuation total is calculated using just the minimum wage and hours worked across nine months in each of the maximum four years of a PALM-associate visa. Given the average PALM worker is working and earning a lot more than that, the actual figure will be higher.

The government hasn’t revealed exactly how much superannuation is being collected from PALM workers in Australia and, more importantly, how much is claimed after the worker returns home.

Workers returning to rural villages or far-flung islands without reliable internet and the help of Australian officials are poorly placed to navigate the mounds of paperwork necessary to claim back this portion of their hard-earned wages. To complicate matters, workers can only claim their superannuation once they leave Australia. Applicants need certified copies of identity papers, a $55 Certification of Immigration Status if they have paid more than $5,000 in superannuation, a home address, and usually an open Australian bank account – big demands on PALM workers back in the Pacific.

Claimants can also be charged a fee by the superannuation company when opting for an Australian bank deposit rather than an Australian dollar cheque, which can’t easily be banked in the Pacific. The Pacific worker must then transfer their superannuation balance from an Australian bank account to the Pacific, through one of the most expensive remitting corridors in the world.

But that’s not the only charge. The Australian Taxation Office (ATO) then takes its slice. Between 35 to 45 per cent of Pacific workers’ total superannuation.

We can’t be sure exactly how much money from Pacific workers is left stranded in their superannuation funds until the government provides data. But on an estimate of the taxes paid for those who do successfully manage to return their money home, an average PALM worker in the horticulture industry would lose nearly $10,000 of their superannuation to the ATO, without benefiting from access to key services such as Medicare.

These taxes are small fry for federal revenue but are a huge loss to the Pacific’s development. Taxing PALM workers at the rate of more than a third of their superannuation means less food on tables for the Pacific’s poorest. Every dollar counts in the Pacific.

If Australia wants to demonstrate its close-relationship credentials with the region, it must reform the superannuation element of the PALM scheme. By doing so the government will help to make great strides in lessening regional aid dependency – an aspiration shared by Pacific leaders.

Reform could involve portable superannuation schemes with Pacific nations, much like Australia has with New Zealand, so that PALM workers can regularly send their money home to a providence fund, alongside remittances, at low cost. It would mean no tax rate applied to the removal of superannuation from Australia to the Pacific for PALM workers – following the lead of New Zealand.

Putting the legislation in place would take work considering the differences in regulatory standards across the region. But this hasn’t stopped New Zealand, which has set up its own portability relationships with Pacific nations.

Another option is to remove the requirement for PALM workers to pay superannuation. Australia already gives this visa cohort a special tax rate of 15 per cent.

Failing this, the government could consider a central government bank account into which all PALM workers request their superannuation be deposited. Much like it already does for monthly pensions paid into overseas accounts, the Reserve Bank of Australia could then remit individual superannuation lump sums into nominated bank accounts in the region once visas expire. Again, the early withdrawal tax could be removed for PALM workers accessing their superannuation via this mechanism.

Any PALM superannuation reform must be targeted, so there will be no right of precedent claim for the remaining two-and-a-half million temporary visa holders currently in Australia that don’t share the same development situation, and strong historical and regional ties.

But by changing the superannuation arrangements for the Pacific, Canberra will demonstrate to the tens of thousands of PALM workers currently in Australia, and their families back home, that Australia supports a united Pacific family and a strong and economically resilient region.

This article was first published on Lowy Institute’s blog site, The Interpreter. Dr Jessica Collins is a Research Fellow in the Pacific Islands Program at the Lowy Institute. The Program focuses on contemporary challenges facing the region, including geostrategic competition, governance and leadership, sustainable economic development and Australia’s relationship with Pacific countries and organisations.