By Wong Chun Han
Raising the foreign worker levy will not reduce Singapore’s dependence on foreign labour or raise productivity, but will increase the financial burden on workers and employers, social workers and analysts say.
The levy hike – part of the government’s plan to raise productivity and control the influx of foreign labour – will not work, critics argue, as employers will pass on the additional costs to their foreign workers, thereby diminishing any incentive to switch to hiring Singaporeans.
“In the past, whenever foreign worker levies were increased, a lot of employers simply just passed on the increases to their workers, either by cutting their pay or reducing their benefits,” said financial analyst Leong Sze Hian.
Wages for locals working or seeking jobs in foreigner-dominated sectors would fall correspondingly, leaving unsolved a fundamental social problem – stagnating salaries for low-income Singaporeans.
This in turn hinders any attempt to raise labour productivity, he said. “If you’re struggling to make ends meet, how could you be motivated to raise your productivity?”
Companies hiring foreign workers are required to pay levies at rates dependent upon their industry type, the workers’ skill levels, and the number employed as a proportion of the company’s total workforce.
Changes to the levy, which includes raising rates and adjusting the tier system, were announced Monday by Finance Minister Tharman Shanmugaratnam during his budget statement in Parliament.
They will be introduced over five phases over the next three years, starting 1 July this year.
The government meanwhile has downplayed potential negatives. Manpower Minister Gan Kim Yong told MediaCorp on Wednesday that the levy hike’s impact on businesses would be “minimal”, as long as employers tap into schemes designed to support their productivity drives.
Concerns over the hike’s effectiveness were first raised earlier this month, after it was proposed by the Economic Strategies Committee in a report.
“Unless it was a massive increase, a rise in the levy would be unlikely to discourage employment of foreign workers,” wrote John Gee, president of social service organisation Transient Workers Count Too, in a letter to the Straits Times dated 5 February.
The levy “would just be an increased tax on foreign labour employment”, which “is likely to increase burdens on employers and workers without achieving its stated goal,” he added.
Foreign workers – many of whom work in very low paid jobs in construction, marine, manufacturing and service industries – would suffer the most as a result. The levy hike “will very likely lead to a rise in cases of employers attempting to deduct money from workers’ salaries on dubious pretexts,” Gee said.
Despite laws forbidding such practices, dishonest employers often cut costs by taking money, or ‘kickbacks’, from workers’ salaries. These ‘kickbacks’ are disguised on pay slips as authorised deductions, such as utility bills, food expenses and loans.
“Employers passing on business costs to their foreign workers is something that is pretty common in Singapore,” said Jolovan Wham, a social worker at the Humanitarian Organisation for Migration Economics.
This is because employers are savvy enough to not leave any paper trail or substantial evidence that can lead to prosecution, he explained.
Rather than raising the foreign worker levy, the government’s aims – helping low-income Singaporeans and mitigating exploitation of foreign workers – may be better served by the introduction of a minimum wage.
Setting minimum wage conditions would make workers “feel more fairly rewarded and salary levels in some sectors might start to look a little more appealing to locals,” Gee wrote.
Wham believes that a minimum wage policy would be more effective in reducing labour exploitation.
“I’ve seen a worker who was given a basic monthly salary of $330 only,” he said. “The point of legislating one is to provide legal remedies for unscrupulous employers who grossly exploit low wage workers with little bargaining power.”
“The minimum wage can be pegged at a level that is affordable to the majority of employers, and be subject to periodic review by the National Wages Council,” Wham suggested.
However, he conceded that it is a move the government is unlikely to make, due to concerns over its negative impact on labour costs and investor sentiment.
“The minimum wage is a very blunt instrument,” said Leong, who is president of the Society of Financial Service Professionals. “You don’t give any flexibility to companies and sectors to remain competitive.”
An alternative is to direct some of the levy receipts into the Workfare Income Supplement (WIS) scheme, he said.
Leong estimates that current government receipts from the foreign worker levy to be over $1 billion annually, which could rise over $3 billion once all the scheduled changes to the levy system come through by July 2012.
He suggested that WIS payouts, 71 per cent of which are funneled directly into workers’ Central Provident Fund accounts, could instead be made entirely in cash. This would directly improve salaries for many low-income Singaporeans, provide greater incentives to raise productivity.
“It’s not that people don’t want to take on certain jobs, but that the pay is simply too low and they can’t survive on them,” Leong said.
The changes to the foreign worker levies
Starting 1 July, levies will be raised for most Work Permit holders from between $10 to $30.
The tiered levy system will also be tightened – in manufacturing for instance, the lowest tier for firms employing up to 40 per cent foreigners will be reduced to 35 per cent, with the middle tier adjusted accordingly to range from 35 per cent to 55 per cent. The highest tier for the manufacturing sector remains at 55 per cent to 65 per cent.
Manufacturing and service companies can expect a total levy increase of about $100 per foreign worker on average, while the construction industry will see higher hikes, the Ministry of Finance said in a statement.
The graduated hikes and adjustments to the levy tiers will be phased in every six months until July 2012.
Employers will also have to fork out more for S Pass workers – mid-level skilled foreigners drawing fixed monthly salaries of at least $1,800.
The system will be expanded to comprise two tiers effective 1 July. The S Pass worker levy will become $100 and $120, rising from the current single rate of $50.
The rates will be raised every six months thereafter, until they reach $150 and $250 by July 2012.
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How do you ensure that “kickbacks” will not occur under a minimum wage scheme?
Far from enough. The levy should make a foreign worker, at all levels, cost as much as a local worker! Then we’ll see whether companies really hire foreigners because they are ‘hard-driving’.
The levy system won’t work. It’s at best for show. If the real intention was to cut foreign workers, the policy won’t come as a vague and impotent just for the news tatic as we have heard.
Too many cars on the road? You pay more money
Too few HDB flats? You pay more money
Too many foreign workers? You pay more money
So.. when do we pay less money?
Higher productivity = higher salary? Just wait & see…
you think levy will solve the problem? It’s just a way for garment to earn more money. Why don’t they introduce minimum wage law instead? bunch of hypocrites acting like they care.
the solution to all S’pore’s of problem?
Pay & Pay.
they must have tried so hard to think out of the box to re-package this age old “solution”. lol…
Are Singaporeans being discriminated as a worker in their own country? Let’s do a simple cost calculation:- What’s the total wage cost employer has to pay for employing a Singapore worker compared to a foreign worker on Employment Pass with monthly salary of $3000?
Singapore Worker Total Wage Cost = $3000 + 3000×0.145 (Employer CPF contribution) = $3435 whereas Foreign Worker Total Wage Cost = $3000. The difference is Singapore worker cost $435 more, mutiply this with 100, it becomes 435×100=$43,500 monthly savings if employer employed all workers under EP. Who don’t want to complain loudly they cannot find Singapore worker.
In order for Singapore workers not to be discriminated in their own country, there should be some form of CPF Employment Foreign Workers Levy equivalent to current employer CPF contribution.
This should be implemented as soon as possible. It does not do the government any good with Singapore workers not being employed in the long run. The PAP government will have to bear hefy political costs if more and more Singapore workers are out of work for long time.
hmmm, maybe with employment situation as it is now, many who find themselves priced out by foreigners do not wish to see their kids facing the same fate in future?
How can employers prove their claim that they cannot find singaporeans with skills for the job ?
What mechanism is in place to prevent opportunist employers from using this excuse to hire foreigners if they actually lied about it?
I like to hear who in singapore knows how to solve this problem.
To assume that there are no takers for job that require certain skills and that only some foreigner from a third-wrold country would be able to fill up that is not only fallacious but fraught with lies.
Singapore is supposedly a first-world country and to think that we have to import so-called Fts from third-world countries (excepting the few genuine foreign professionals) to fill up is simply incredulous or one has to only conclude that Singaporeans are not talented.
Has anyone heard of a country whereby the PM or the ruling govt allows foreigners in so much so that their own citizens lose out by lost of jobs and yet have to compete?
It seems more like politics and money was the only reason(s) and no amount of hogwash explanations is going to undo the repercussions that is impacting Singaporeans.
Fifty years of PAP rule and now this is the state of the country. Wow, some achievement lar.
As long there is this: lack of transparency, accountability and responsibility from the incumbent govt – we are simply going to be given the run around and the usual propaganda in the local print and broadcast media.
Employers can easily circumvent this. More levy but less pay for their foreign workers. Those foreign workers will still accept it because it is still way a hell lot better that whatever they can earn back home. How does that help locals in terms of better job opportunity?
And don’t forget. It just means more money for the government.
Make any foreigners as expensive as locals then we will see how how many of those employers still sing the foreign workers are better tune.
Are there anymore crafted policies, perhaps by the other political parties, that could alleviate the foreign employment issue?
Personally, I do not believe in enforcing minimum wage. I agree that it is a blunt tool, and its implementation should be thought through carefully. Moreover, if the employer wants to hire a foreigner, I believe there will always be ways to go around the obstacle. For example, in Australia, there are cases where restaurants hire foreigners and pay them below the minimum wage. Of course it is illegal, but both parties are happy, and neither will rat on each other.
The mindset has to be changed. How can we persuade these companies that they should hire Singaporeans instead of foreigners? How can we persuade Singaporeans that jobs, such as cleaning, serving, are not “low class” and “dirty”? It can be seen from the way some Singaporeans treat the service staff or the cleaning aunties and uncles, that they do not respect these folks.
A mindset change is certainly not easy at all. For the pursuit of financial gain, many employers have lost their compassion.
In addition, there should be a greater effort on the part of the trade unions, or the worker’s unions, to negotiate for a better pay or salary. The provisions released by these unions are merely much fanfare and noise to most employers.
Just my two cents worth (:
First, they flood in all the FW to screwed our jobs. Now, they starting to screw the employers. It’s time those affected employers do something about it before the entire nation is being run only by govt linked companies. We, singaporeans got everything to lose from the way the ruling party govern the nation.
Increasing foreign workers levy is just another means of collecting more money for the government. Est $1 billion a year of levy goes to GIC or T?
Singaporeans are not against FW like construction workers or rubbish collectors etc. They are doing jobs Singaporeans shun.
Neither are we against top CEO’s, investors and genuine professionals. They bring in investments, expertise and knowledge etc which we need.
The main complain is about work permit holders, S-pass workers and the foreign middle level PMET. These groups directly target jobs of the majority of Singaporeans. The government must closely monitor any abuse before any S-pass or employment pass is issued. Foreign managers working in Singapore are known to hire their own kind or relatives from their own country. It is in their culture and system to do this. That is why clusters of nationalities are found in banking, IT, hospitality etc.
Example: Most bank CEO’s are non Singaporean. Since it is so easy to hire from abroad, why even consider Singaporeans? The top and many senior management of the local bank in Shenton Way where I have my money for 30 years, are not Singaporeans anymore. These foreigners are gambling with my money. Win, they get a big bonus. Lose, they move on and leave the country.
Yes, correct Just kick out all untalented Indonesian, Myanmarnese, Singaporean, Malaysian and whoever untalented…
Only keep those who the Singaporeans think are talented.
Just wait and see who will work better and improve the situation much better.
Compare BSc(3000$ graduated from 3rd world) to BSc(3000$ NUS,NTU)