The tech industry says the decision to scrap the living-away-from-home allowance will make it harder to attract overseas talent, as firms become increasingly reliant on skilled foreign workers.

Late last year, Treasurer Wayne Swan announced the tax concession would be scrapped as part of Labor’s efforts to pull the Federal budget back into surplus.

It’s been revealed LAFHA payments have blown out from $161 million in 2005 to $740 million last year amid reports of widespread rorting.

According to Swan, the allowance is being rorted by “highly paid executives and foreign workers”. Swan said the crackdown is expected to save $683.3 million over the next four years.

But technology industry leaders are concerned the move will damage their ability to attract overseas talent and could accelerate the trend for work to be sent offshore.

The Australian Computer Society has estimated than an additional 35,000 technology professionals will be needed during the next three years.

According to ACS chief executive Alan Patterson, demand for information and communication technology is increasing, but not enough students are studying the subject to meet demand.

He says the cancellation of living-away-from-home benefits will make it more difficult to attract much-needed skills from overseas.

“Our high taxes and high cost of living don’t help in attracting the world’s best and brightest ICT workers, and these changes will further dissuade them from choosing Australia,” Patterson says.

“[This will reduce] the competitiveness of our digital economy.”

According to Andy Cross, managing director of specialist recruitment company Ambition Technology, the impact of scrapping LAFHA could be huge.

“There’s a lot of chatter about what this means that wouldn’t be happening if the government had gone to market with a proper evaluation of the impact,” he told The Australian Financial Review.

“Some people have rorted the system, so I can understand why these changes have been mandated, but a lot of genuine people are going to get hurt by this.”

Ambition Technology sources a lot of talent from Britain and Ireland as well as some from the United States, Europe and South Africa.

Cross said the government’s decision has attracted attention overseas, with professionals considering the move to Australia being warned about the removal of the tax break and the high cost of living.

“Employers will need to increase rates but are caught between a rock and a hard place given the state of the economy at the moment,” he said.

“That might lead to a resurgence in performance-based pay or long-term incentives. Companies might also have to revisit relocation packages to attract top talent.”