Wednesday, February 3, 2010 16:59
Raising the foreign worker levy is a blunt move
In Commentaries, Main Stories, Ng E Jay, Politics • 519 views • 21 Comments
How will raising the foreign worker levy improve the lot of locals who are faced with stagnant wages and rising costs?
By Ng E-Jay
The Economic Strategies Committee (ESC) has suggested raising the foreign worker levy to discourage businesses from importing too many low-skilled foreign workers and motivate them to invest more in productivity.
Speaking to the Straits Times a day after the ESC had released its recommendations for overhauling the Singapore economy, Manpower Minister Gan Kim Yong said that companies that cannot raise productivity might have to go out of business or leave Singapore, and that the rate of import of foreign workers has to be moderated in light of “social constraints”. [1]
However, it is not clear how raising the foreign worker levy, which is a blunt instrument that merely increases business costs for companies hiring foreign workers, would help very much in achieving the intended objective of raising productivity or of raising the overall standard of living of our workforce.
Some economic analysts seem to have accepted the notion that penalizing companies for hiring foreign workers would magically make them think about investing in new technologies or improving the efficiency of their business operations.
This could be unrealistic in many situations, for example, in the case of a construction company that is already operating on a tight schedule, or in the case of a wholesaler that is constrained more by cost factors rather than lack of technological investment. For such companies, merely increasing their cost of hiring foreign workers would only hurt their bottom lines, but would do nothing to spur higher productivity.
A higher foreign worker levy may also not be effective in making businesses look upon local workers more favourably. Businesses do not have to make CPF contributions on behalf of foreign workers. Hence, even with an increased foreign worker levy, they may still find it cheaper to employ unskilled foreigners who are prepared to accept very low wages because they don’t have to finance an expensive mortgage or raise their families in high-cost Singapore.
Certainly, merely increasing the foreign worker levy will not in itself do anything to raise overall wages and improve living standards if Government policies still favour foreigners over locals.
Ultimately, the decision to hire or fire is also influenced by many other factors such as overall business costs which include rental and cost of raw materials, as well as the ability to compete effectively in our small domestic market. For instance, small businesses who feel crowded out by the growing entrenchment of Government-Linked Corporations would not be able to expand their workforce to include more locals because they would be more worried about operating as a going concern.
The Government has to make fundamental changes to its policies, such as controlling the overall rate of import of foreign workers from the top down, fine-tuning the criteria for awarding various employment passes, and paying more attention to attracting quality foreigners rather than indiscriminately importing unskilled foreigners.
To make the domestic economy more competitive, the Government also has to keep a lid on escalating costs which are hurting small and medium enterprises. It also has to reduce the entrenchment of Government-Linked Corporations in the economy, which might be an unpalatable move to the establishment, but necessary if we are to revitalize our economy.
Despite the Manpower Minister denying that the increase in foreign worker levy is politically motivated, it is hard to deny that the Government is pulling out all stops in assuring Singaporeans that their interests are being taken care of.
However in this case, raising the foreign worker levy is a blunt move that is will likely only penalize businesses that hire foreign workers but will not improve the lot of low income Singapore workers whose wages have remained stagnant for the past decade.
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References:
[1] Straits Times, “Unproductive firms may just have to quit“, 03 Feb 2010.
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21 Comments
CJ
whoincharge
what leekuanyew is tryin to say is
when we the minister increased the worker levies
your employer will employed local to avoid payin high gangster taxes
leehsienhloong his son says
in order for companies to be efficient and profit makin
we the minister raised more erp gangtry poles to prevent you the workers not to eat snakes and goes home to sleep too many times
and last but not least laugoh says
if you all still have problems
try not to quit
looked far far ahead
we surely can achieved our dream in the year 2010 guranteed a space in world cup speakin french..
ok maybe not swiss franc..parisian morgue de rue also can lark…
even my belove daughter already in england choopin a place for me to retire..but i have to be here in singapore to ensure you peasants will support me in poton pasir with or without the abalone dishes
as a matter of fact we the 3 ministyers guranteed our voices..
don’t believed?
asked nanthan the prata man….
he our KEY man…………
Ajax
All these bureaucrats…they can’t think out of the box. Always used tried-and-testes formulas.
We need someone independent to chart a new course for our economy. We need a “Albert Winsemius”.
fpc
Yeah, the levy is a blunt tool.
Those employers who are using female FT like the KTV lounge manager caught naked, would still have to pay and employ these FT.
They have no choice.
The customers of that kind of service will have to pay higher charges like the GST.
So, there would be no change to the situation. Just that the woman and the customer had to work harder that’s all.
Couldn’t MOM train its staff to do proper checks?
Maybe Gan thinks he couldn’t train his staff?
Then there is no leadership by example.
wakemeupearly
Restoring CPF contribution for those on employment pass and work permits is the best solution. Also setting a minimum wage in line with inflation. 2 major bugbears that our PAP will not make a committment to becos their aim is NOT to serve us the Spore citizens of the HDB heartlands. PAP’s main mission is to serve the business leaders of both Spore citizenship & foreign nationalities, those in charge of MNCs etc.
PAP runs itself like a profit/loss company. Its not a cost center. Of course, when its GLCs lose money like Temasek & GIC, PAP looks the other way, shrugs & life moves on. Hear no evil, see no evil, speak no evil.
As some wags put it now, PAP is no longer Peoples Action Party but Foreigners Action Party. Well said.
fpc
Recently, a lot of focus is on the Geylang hawker case.
I seem to be astonished how come all the arrow is pointing at the hawker.
This guy got a C grade (or B) and passed.
Despite passing, his stall is now found to have an insecticide smell and germs of all kind on his utensils.
How did he pass in the first place?
How come it is always after the fact?
Where is the leadership?
Ok ok ok, I am kidding. I should not expect any leadership from these pigs.
They depend on people to tell them what to do.
Ah Siao
ESC? Press the ESCAPE KEY now
famie
Simply by raising the levy on hiring foreign workers will not help. Employers will pass the additional cost to the foreign workers by making them pay more on “kick-backs”, a norm practised by all employers of foreign workers. The amount of ‘kick-backs’ employers collect from each of their foreign workers now ranges between S$5000 and S$10000. This is the reason for employers insistence on the need for more foreign workers. That locals are difficult to hire andf less hardworking is just an excuse Moreover, the kick-backs are paid upfront, thereby, providing employers with a source of cheap capital to operate their business. This practice is particularly rampant amongst town council cleaning contractors where many bangladeshis paid between S$7000 and S$10000 to their employers to be employed.
The MOM must investigate into this matter urgently since kikck-backs are illegal.
Strategist
Increase the foreign worker levies will increase Government revenue collection which is good if that revenue could be put to good use. However, It is more effective to adjust the quota of foreign workers in different industry sectors. The companies will have no choice but to hire more expensive local workers. The companies will have to look into improving the productivity so as to maintain their costs with a higher percentage of local workers. Of course this will need to be done overtime otherwise it will speed up the move by the companies to lower cost countries.
RW
I didn”t really understand what the author mean when he propose ” reduce the entrenchment of Government-Linked Corporations in the economy” as a solution to falling productivity.
His second idea to control costs for SMEs assumes that once costs are lower, SMEs will employ locals. But in reality, that may not be the case. If SMEs have reduced costs, why will they spend the savings on hiring more expensive locals? They can always keep the extra as profit.
I agree with famie & strategist- levies have loopholes especially with kickbacks system that is going on.
sometimes, the employers even make a profit from workers! Quotas may have its own problems in terms of ‘phantom workers’ but it is still relatively effective. the best will be to mix the two.
fpc
//RW
because locals are more productive
start low
While it is a blunt tool, it is the best approach as it will gradually equilibrate the cost of employing a foreign worker or to employ a local.
The levy can start low so that it does not appear too sudden & be slowly adjusted upward until employers wean themselves out from too much reliance on foreign workers. Hey, we want locals to be employed and they are now trying to do something.
RW
@fpc
what does GLC have to do with?
if anything, it is local right? ;)
GLOW
I support the use of a higher foreign worker levy..
in itsel,f the levy is a blunt tool.. but it can be made sharp..
my idea would be $1000 min starting point and graded upwards for very specialised jobs.
grading the type of workers and applying a graduated scale on the levy will help with effecting, at worst, a minimum wage (de-facto) and at best, a competitive rate for wages among singaporeans..
working on such a scale the policy can be furthur improved by adding into it work experience, age, etc…. all with the view of enabling citizens to have a decent pay for their effort..
the focus is to allow citizens to be able to compete on a equal playing field.. at the moment the locals are all disadvantaged by the exorbitant cost of calling singapore home.. while foreigners have the luxury of “escaping” when their work is done..
………………
fpc
//RW
What GLC?
Did I write anything on GLC?
fpc
There is no system to check on the qualifications of these workers and maybe their health etc.
Just putting in a levy is like our system of governance of simply passing monies to GIC and allow it to invest without revealing its system of assessment and risk control rules.
That’s how GIC invested in citibank and UBS and is still bleeding from the investment.
Had the investment being only 10 million, there wouldn’t be so much complaint.
unfortunately, it was more than 10 billion.
fpc
There is no doubt that housing policies changes and immigrant rules changes in the year 2005-2009 were all targeted to make immigration easier (much easier).
All the governmental statements until last December were in support of it.
GLC being a government owned enterprise will have to follow heed and employ FT as well.
All the more so, when a lot of its work is not that sophisticated.
To think otherwise if naive.
As if it the govt want GLC to employ exclusively Singaporeans and NOT PR, or FT, our GLC cannot do so/ would not follow suit.
Especially when Singaporeans are more productive.
Andrew Michael Teo
Hi all,
I had just visited the Jobstreet Singapore website. And this is what I found – - – - jobs that are suitable for our local PMETs being offered to foreigners…and there are plenty of them from Direct Employers to Recruitment Agencies:
Do visit this site:
GLOW
the more I read into the ESC report I gather that ther is actually NO change to the situation..
levy or not.. there will be lots of foreigners in Singapore doing work that citizens can and will do if the pay is better..
the panel is just a smoke screen..
PAP dirty tricks again..
biscuit
I think they should be increasing the working levy for the p, q, s-passes, for r-passes(work permit) they shouldn’t be increasing. i beileve that a lot of work that s-passes can do, singaporeans can do. while for working permits there are jobs like construction, labour intensive trade industries, drivers. That have to do long hours, night shift duties with a lot of manual labour needed is where 90+% of singaporean shun such work. Not just singaporeans a lot of other nationality would shun such work.
small hum
It is quite typical of PAP to regulate by enriching themselves hor?
They are forever LAME in the things they do…
It is so obvious to everyone that GE Desperado-ism is making them do all the ‘Too Little Too Late’ things in issues that have been voiced many years ago… why only now?
Forget it lah… the PAP has back-slide so far – they should just sit back & watch more seats get lost and the percentages fall in every elections till there’s NO REASONS left to stay in power… FO lah