LAFHA reforms’ impact on the industry
How will the implemented reforms to Living Away From Home Allowances (LAFHA) impact the built and natural environment industry and the Australian economy? JONATHAN RUSSELL from Consult Australia believes that it will take a huge hit. He shares his thoughts.
The government has ignored reason and pushed ahead with the rapid implementation of its reforms to Living Away From Home Allowances (LAFHA). The Australian economy will take a huge hit, together with employees who are the other big losers from the reforms.
Tax Laws Amendment (2012 Measures No. 4) bill 2012 passed both houses of Parliament on 19 September 2012. It means that from 1 October most workers in Australia on the employer-sponsored 457 visa will lose the tax benefits of LAFHA.
The LAFHA benefit has been around for more than half a century. In essence, it is a tax advantage that compensates workers that are required to live away from home for work purposes and thus incur extra living costs.
Migrant workers have made the decision to relocate to Australia based on the existence of LAFHA and relied on it to make the move financially viable. The dollar impact of the reforms on individuals is significant. For example, an engineer earning $85,000 per year is likely to lose about $12,000 annually.
For industry, the sudden implementation of the LAFHA reforms will mean that highly skilled professionals will leave Australia and will create vacancies that are hard to fill, thus harming companies’ abilities to deliver projects on time. The cost to employers from ‘filling the income gap’ left by the rapid removal of LAFHA benefits will drive up employment costs and widespread wage inflation will occur because the level of wages sufficient to attract skilled migrants will increase markedly.
If the reforms were phased in these problems could have been managed. Specifically, Consult Australia argued for the reforms to be phased in over two years to allow companies and individuals to form long-term plans to cope with the very significant changes.
The reforms to LAFHA will have an immense impact on consulting firms in the built and natural environment who are essential to the valuable resources sector and for bringing government infrastructure plans to fruition. The sector includes some 48,600 firms employing about 240,000 people and generating revenues of around $41 billion a year.
A major challenge to their success and that of the projects they deliver is the chronic scarcity of the engineers and related professionals needed to get the job done. The industry, therefore, has a strong reliance on the services of temporary skilled migrants.
This reliance is illustrated by the experiences of Consult Australia member firms. Some report that they need to recruit about 15 percent of their workforces from overseas. One large member firm with over 4000 employees reports that over 8 percent of its workforce is employed with a visa subclass 457.
Jonathan Russell is a senior policy advisor at Consult Australia. Russell joined Consult Australia in August 2010 with responsibility for the workforce diversity and skills portfolios, and has portfolio responsibility for smaller and regional firm business issues. He has seven years of experience in policy and advocacy roles in the third sector and for government in both Australia and Britain. Russell has a degree in politics, postgraduate qualifications in public policy and a Masters degree in legal studies from the University of New South Wales.