Singapore tightened curbs on foreign
labor for a fourth straight year and unveiled measures that will
raise wage costs for companies through 2015, as the government
steps up efforts to increase productivity among businesses.
Companies must pay higher levies for lower-skilled foreign
employees over the next two years and cut the proportion of
overseas workers in some industries, Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday.
“This is really killing a lot of businesses, many
companies are dying,” said Max Lee, managing director of Plasma
Precision Technology Pte., which makes and repairs equipment
used by offshore marine companies. His wage costs have risen 15
percent in the past year. “We are losing competitiveness and
productivity.”
After years of letting firms bring in thousands to work at
hotels, shipyards and restaurants, the push by Prime Minister
Lee Hsien Loong’s government to reduce dependence on imported
labor has forced some companies to delay expansion plans. The
clampdown, in part because of voter unhappiness over the influx
of foreigners, has led the government to warn that such curbs
will hurt growth in Southeast Asia’s only advanced economy.
“This is a Darwinian budget for businesses in Singapore,”
said Adrian Ball, head of tax services at Ernst Young
Solutions LLP. “Survival of the fittest!”
Population Surge
The Singapore dollar was little changed at S$1.2395 against
its U.S. counterpart as of 5:46 p.m. in Singapore. The benchmark
Straits Times Index (FSSTI) of stocks fell 1.1 percent, the biggest
decline in more than three months.
The number of people in Singapore has jumped by more than
1.1 million to 5.3 million since mid-2004 as the government used
immigration to make up for a low birth rate. There are 3.3
million citizens and 2 million foreigners on the island smaller
in size than New York City. Foreign workers made up 33.6 percent
of the total workforce, the finance minister said yesterday.
The increase in foreign-worker levies and higher salary
thresholds for some skilled employees will have an immediate
impact on business costs, the Singapore Manufacturing
Federation, which has more than 3,000 companies among its
membership, said in a statement yesterday.
“We cannot cut off the flow of foreign workers abruptly,
but we have to slow its growth,” Shanmugaratnam said. “We are
therefore making these further adjustments, and we have to do so
in full knowledge of the difficulties they will pose for many of
our companies.”
Productivity Target
Yesterday’s announcements were the latest in a series of
measures by the government since 2010 to restructure the way
companies operate and make productivity a cornerstone of the
economic blueprint for this decade. Officials blamed some
industries’ use of cheaper, low-skilled foreign labor as a
reason for low productivity in the last decade.
The Economic Strategies Committee in 2010 said the city
state must double its productivity rate by 2020 to between 2
percent and 3 percent annually.
“I worry about the longer-term trend of companies moving
out,” said Tan Su Shan, a non-elected member of Parliament and
managing director of wealth management at DBS Group Holdings
Ltd. “You can throw all you want at productivity schemes, but
if all your customers are moving out, what good is it?
Productivity has not only not improved, it’s deteriorating.”
In the 2010 budget, the government said it will impose
higher levies on foreign workers in industries from
manufacturing to services in phases over three years. In his
2011 budget speech, Shanmugaratnam announced such increases will
also take place in 2013. Last year, he said the maximum
proportion of foreign workers to local ones that companies can
hire will be reduced.
Manpower Strains
An Association of Small and Medium Enterprises survey last
year showed more than eight in 10 firms faced labor strains. In
a white paper published last month and endorsed by Parliament,
the government predicted total workforce growth will ease to 1
percent to 2 percent annually through 2020, compared with an
average rate of 3.3 percent per annum in the last three decades.
“Businesses have to respond in new ways to the tight labor
market,” Shanmugaratnam said. “We cannot carry on in the same
way. If we pause now and postpone the restructuring of these
industries, we will face the same problems of low productivity,
low wages and low profitability in the future,” he said,
referring to businesses including those in the construction and
marine industries.
SMRT Corp. (MRT), the island’s biggest subway operator, said in
January that its profitability in the next 12 months will
deteriorate in part as staff costs “significantly increase.”
Dozens of SMRT’s bus drivers from China held Singapore’s first
strike in 26 years in November over a wage dispute.
Tax Rebates
Unit labor costs rose 4.1 percent last year, and the
central bank said in October they may climb as much as 4 percent
in 2013. The Singapore economy grew 1.3 percent in 2012, the
slowest pace in three years.
The government will implement a S$3.6 billion ($2.9
billion) wage credit program to help companies cope with rising
salaries, and give about S$1.3 billion in corporate tax rebates
over three years, Shanmugaratnam said yesterday. Standard
Poor’s said today Singapore’s expenditure on various support
programs will have a limited structural impact on its budgetary
position, supporting its AAA credit rating.
“There will be some loss of cost competitiveness and for
companies that cannot adjust to this new cost structure, they
will consolidate and some of them may even relocate overseas,”
said Kit Wei Zheng, a Singapore-based economist at Citigroup
Inc. “To be fair, there has been quite a bit of effort to
minimize the transition cost.”
At Plasma Precision, where 40 percent of workers are
foreigners, Lee said productivity is being compromised as
trained workers are repatriated and local replacements remain
scarce.
“Our job is to develop the business,” Lee said. “But we
are fighting fires every day.”
To contact the reporters on this story:
Shamim Adam in Singapore at
sadam2@bloomberg.net;
Sharon Chen in Singapore at
schen462@bloomberg.net
To contact the editor responsible for this story:
Stephanie Phang at
sphang@bloomberg.net
Singapore"s Darwinian Budget Sparks Employer Ire: Southeast Asia
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