Pritam Singh
The points raised with regard to the foreign worker levy hike in the Economic Strategies Committee (ESC) Report released in February 2010, and Prime Minister Lee Hsien Loong’s announcement of the arrival of 100,000 more foreigners into Singapore’s workforce this year make for a curious contrast. In view of the PM’s announcement, a thoughtful employer ought to ask, was there really a need to raise the foreign worker levy in the first place since the PAP government appears to have the means to regulate and moderate the supply of foreign workers?
The PAP has argued that it prefers to control foreign worker supply through a “price mechanism”. On the other hand, the ESC Report has stated that it plans to reduce Singapore’s reliance on foreign workers to one-third of the total workforce. By committing to limit Singapore’s exposure to foreign workers, the PAP government has effectively introduced a supply control mechanism, a system whose workings, like many government initiatives, is not generally visible to the pubic. Teo Siong Seng, the President of the Chinese Chamber of Commerce and Industry hit the nail on the head when he said, “A more controlled inflow of foreign workers will benefit the country.” Who controls this inflow? Clearly, the PAP government seems to have the means to do so.
On the back of the Prime Minister’s announcement, PAP MP Josephine Teo was quoted as saying that in spite of the upcoming spike of 100,000 workers, the “labour movement” will redouble its efforts to improve productivity. How this is to be done was something the good MP did not see necessary to elaborate upon in any significant detail. In fact, the PAP’s rah-rah over productivity is causing many employers and employees to scratch their heads and wonder what they must do to increase productivity or in some cases, how they are to make sense of Minister Lim Swee Say’s “cheaper, better, faster” rhapsody.
At the 5th Singapore Indian Chamber of Commerce (SICCI) Champions of Industry dialogue in early July, PAP MP Inderjit Singh implored SME leaders to improve not just their staff, but themselves as well. He quoted the example of Muthu’s Curry restaurant (interestingly, the same corporate example used in the Feb 2010 ESC Report) but not before making the point that “a productive company focuses on increasing the value of its goods and services through quality and service excellence and not just through mere volume.” The hollow “cheaper, better, faster” call by Lim aside, it is clear the PAP expects employers to make financial investments in their attempts to raise productivity. Where is this money for this going to come from.
With employers already facing an impending one percentage point increase in their contribution rate to the Central Provident Fund, the foreign worker levy hike is looking increasingly like a calculated attempt by the PAP government of having its cake and eating it as well. If the PAP was sincere about raising productivity, it could have retained the foreign worker levy at the long-standing rate, or it could have alleviated employers’ burden by transferring any levy hike back to employers in the form of a productivity credit.
In truth, the ESC Report is a rather visionary document. Unfortunately, it under-estimated the reaction from employers and did not take into account how overly reliant employers had become on foreign workers, and how difficult it was going to be to wean the Singapore economy off foreign workers. In the aftermath of the ESC Report, many employers grumbled about the impending levy hike, for good reason too. It does appear as if the negative feedback from employers lead the Prime Minister to change tack for short-term benefit.
With an election due in the next few months, the last thing PM Lee needed was a hitherto reliable vote-bank of employers turning against the PAP, especially with high bonuses due to be announced to the public sector and civil service at the end of the year, on the back of 13-15% growth for 2010.
It is apparent that Singapore’s employers and the nation as a whole requires some foreign workers to keep the economy buzzing. It is also clear that employers who take the effort to groom Singaporeans and reduce their dependence on foreign workers deserve to be rewarded.
In raising the foreign worker levy when the purpose boasted about in the ESC report – “to encourage investment in productivity improvement” – looks increasingly questionable, employers are not wholly incorrect if they conclude that the foreign worker levy hike is simply a PAP attempt to raise taxes. Worst-hit will be SMEs who are likely to have no choice but to pass on the levy hike to Singaporeans, with the ambitious productivity objectives put forward by the Economic Strategies Committee looking increasingly aspirational, much like our national pledge.
Pritam Singh is the founder of OpinionAsia (www.opinionasia.com). He is currently a Juris Doctor candidate at the Singapore Management University and a member of the Workers’ Party. The views expressed here are his own.
Very confusing… Hmm…
The govt frequency contridicts itself in recent months. They say one thing but act otherwise. Perhaps they thought we all have short memory span and they can get away with ‘explaining’ it away.
In CSJ’s words “where is the money”.
Looks like just a tax hike, rather then an effort to decrease foriegn workers.
What happened to productivity. Only Lim Swee Say can say.
Do they know what they are doing?
Do they have proper plans?
Looks like FW are there to depress wages and make the GDP numbers look grand.
Employers are not a homogeneous lot. With the levy, those employers who are more dependant on foreign labour will pay the levy, while those who can wean themselves off their dependence will stop employing more foreign workers. This works better than a straight up quota system, though a quota system based on the COE may work just as well.
But this rise in levy will not change things much because it comes at the same time as the 1% rise in CPF. This means that cost for both resident workers and foreign workers are rising at the same time, so there is little reason for employers to switch away from foreign workers.
Not surprising at all. If our Singapore pledge is just an aspirations, productivity is nothing more than just that too. Continue to raise levies as they must because GIC & Temasek, combined, has already lost a substantial portions of our tax monies. There is an urgency to raise it coffers (be it productivity or GDP or whatever fancies they deemed suitable as cover-up), someone will end up taking the bigger cake and leave behind crumbs and than tell us it is unavoidable again.
productivity credit is there for employers to use as required.
same when job credit is taken off.
the island is faithed to die a slow death, because this gov has set a precedent, high pay at all cost for itself, what can change, nothing, where is the money to pay them coming from, when the world is going into a tailspin.
yes all this while..it is the employer who must pay the levies..who else?
imagined this scenerio..the poor filipino maids come here to work..if she is lucky she earned $400..maid levies is aroun $350 or whatever..MOM expect the maids to pay their levies?
The sooner we rid them – the safer our future as well as our Son’s n Daughter’s future -die, burn to death !
just shift operation overseas then no need to pay any levy. ask all your relatives also move overseas but remember to take all money away and live happily everafter
With respect, I beg to differ.
If anything, there is a case for an even higher FW Levy. It is much better to use market (ie pricing) mechanisms to control an essentially economic issue than to do so by fiat (direct controls or quotas) for reasons that will become clear below.
In the case of vehicle COEs, the government is indeed open to the charge that it has profited enormously from the levy over the years without actually addressing the underlying issue it was meant to address ie to keep traffic in Singapore “free-flowing”. The government has made billions while the traffic situation has become progressively worse. If the objectives of the original committee that recommended the introduction of COEs (headed by Dr Hong Hai) were to have been achieved, COEs should have been very much higher over the past 20 years or so. (It has been a long stated objective of the government that the cost of vehicle ownership in Singapore would be high).
Likewise with regard to the congestion at the causeway. I find it incredible that the government has not used pricing to control the congestion, although it has long professed to use market mechanisms to bring about changes in behaviour. A much higher toll fee at the Singapore end (eg S$10.00 for motor vehicles) would appreciably reduce congestion at the causeway and divert traffic to the second link.
In an election year, when foreign workers and immigration are likely to become the biggest issues, the government is belatedly trying to take steps to appease the electorate (although at the same time, it is hedging its bets by saying more FW s will be allowed in to also appease employers). Nevertheless, better late than never.
Why do I say it is better to use market mechanisms to control FW s rather than quotas? Two reasons:
- Firstly, if our island is not to become impossibly crowded (same logic as for vehicle COEs), then labour-intensive industries will have to be progressively dis-incentivised. It sounds harsh but its a choice that the government and ultimately the people (through exercise of the ballot) will have to make
- Secondly and much more importantly, unless the cost of employing a FW goes up, there is no chance for the wages of the bottom 20% of the local workforce to move up in any meaningful way. Yes, productivity gains of a few percentage points will help but not in any significant way so long as there is a ceiling on wages brought about by cheap imported labour.
Hence my view that the cost of FWs must go up if the bottom-end of Singapore workers are to benefit. The way to do it is through much higher FW levies.
Hi Rajiv,
Thank you for putting your thoughts down. I think my point was to call the PAP’s “hedging” strategy you speak of.
I think your logic is not unsound. Increasing the cost of FWs must be the solution to improve the lot of Singapore’s bottom 20%. In theory this sounds great, but do you think the PAP has the political will to do it? So far they have increased the levy upto an average of $100. Employers are largely able to afford this I would reckon, especially the big-time corporates and government-linked-companies. Increasing the levy would punish SMEs most severely. What foreign levy figure would disincentivise employers?
Pritam,
Thanks.
I don’t think any government, PAP or otherwise, can afford ‘shock treatment’. That will only drive away investors and capital.
Any strategy has to be carefully thought out, properly signaled and introduced in stages over a period of time, say over a 3 to 5 year period. This will give manufacturers time to adjust. Those who are not able to cope with the higher costs will move to lower wage locations.
I have been saying for sometime that the government needs to change tack. It is not easy for a leviathan charging at full speed to change course in mid-stream. But change course it must or face the consequences, social, economic or political.
As Lou Gerstner discovered at IBM, the biggest problem when trying to introduce change is cultural. In Singapore, the idea that we must continually grow or perish is so deeply ingrained that changing this mind-set is the greatest challenge. Where is that spark of creativity?
As to how high the levy should be, its hard to pluck a figure out of thin air. Suffice is to know that in developed economies such as in the Scandinavian countries, top managerial salaries are about three times those of the bottom line workers or new-hires. As Singapore aspires to developed-economy status, this is a goal well worth reaching out to.
Thanks for your response Rajiv.
Perhaps I can venture to say alot more public information on this issue and higher standard of reportage / coverage from the mainstream media is welcome.
The number 1 problem in Singapore is our political culture. Unbeknown to many, there is a certain cynicism that has been brewing below the surface against PAP policies. We are slowly becoming a rather bifurcated polity, and that is the larger problem I would think.
Your Scandinavian statistics made for an interesting read. I am not sure the PAP’s hyper-capitalism can accommodate such equity.
Pritam, that is not the problem, it is the good news :)