Companies and governments are “no longer comfortable” about storing their data in Australia as a result of the encryption legislation, Microsoft has warned.

On Wednesday the company’s president and chief legal officer, Brad Smith, said customers were asking it to build data centres elsewhere as a result of the changes, and the industry needed greater protection against the creation of “systemic weaknesses” in their products.

This week the Australian tech industry renewed calls for further amendments to controversial encryption-cracking legislation at an industry forum in Sydney.

Also on Wednesday, Labor’s spokesman on the digital economy, Ed Husic, told the StartupAus forum in Sydney he wished he could “turn back time”, expressing regret for Labor’s role in passing the bill and explaining the opposition feared it would be blamed for a terrorist attack over Christmas if it refused.

In Canberra, Smith told the Committee for the Economic Development of Australia the law had not yet changed Microsoft’s operations in Australia, but the company was worried about the law’s “potential consequences”.

Smith said the law was not written with the intent to create backdoors in technology, but the safeguard that companies would not have to create “systemic weaknesses” was “not defined”. After a deal between the Coalition and Labor a definition was added, but the industry has said it is still unclear.

Smith said Australia had “emerged as a country where companies and governments were comfortable” with storing data, a boon to the tech sector and the economy.

“But when I travel to other countries I hear companies and governments say ‘we are no longer comfortable putting our data in Australia’.

“So they are asking us to build more data centres in other countries, and we’ll have to sort through those issues.”

The Australian Signals Directorate director general, Mike Burgess, has labelled it a “myth” that the reputation of Australian tech companies would suffer as a result of the encryption bill, which the Coalition passed with Labor support on the final parliamentary sitting day of 2018.

At the Sydney forum, that claim was rubbished by industry participants. Eddie Sheehy, a tech investor and former chief executive of the cybersecurity vendor Nuix, said on that point Burgess “doesn’t know what he’s saying”.

He said in response to a later question the law had the “capacity to turn many Australian companies into Huawei” in that they might become “untouchable in many places”.

Nicola Nye, the chief of staff at FastMail, said some customers were no longer using her service as a result of the law, and others had expressed concerns through submissions to the parliamentary joint committee on intelligence and security. The committee is examining proposed amendments and will report next week.

Husic acknowledged that the tech industry was upset, explaining that Labor had passed the bill because national security agencies had said it was urgent.

He said the opposition could not rule out an “attempt by the other side of politics to blame us if, God forbid, something should happen over that period of time”.

Labor has accused the Coalition of reneging on a deal to support amendments consistent with a bipartisan security committee report. Labor’s amendments better define “systemic weakness” and require a fresh warrant before ordering tech companies to assist or build a new capability to access electronic communications.

Husic told the forum that Labor would push for those changes “in this current parliament or the next”, regardless of whether it won or lost the May election.

Faced with an angry questioner from the Science party, Husic said he could not change the fact the bill had passed. “I wish I could go back in time and alter things: I can’t.”