Budget 2012 Commentary: Tough Love

Grace Chew

— March 8th, 2012, 11.22pm

Budget 2012 Commentary: Tough Love

A foreign worker cleaning up at Geylang Serai. In this year’s Budget, the government has announced curbs on foreign labor – it must not exceed more than a third of the total workforce. It has also placed tighter criteria on employment passes. Photo: Grace Chew

So the cliché goes, “No pain, no gain”.

It is clear that Budget 2012 has prescribed some bitter medicine for the business community to swallow, placing curbs on excessive foreign labor.

It is also clear that this is a point of no return.

The Dependency Ratio Ceilings (DRCs) – specifying the maximum proportion of foreign workers that companies can hire – will be reduced in the manufacturing and services sectors from 1 July this year. Graphic: Grace Chew, Figures: Ministry of Manpower

Given the current situation, an unlimited flow of foreign workers will test the limits of space and infrastructure, and even affect the Singaporean character of our society.

Just look at how many parodies there are reflecting Singaporeans’ unhappiness about foreign workers, such as Terry in The Noose.

If foreign labor continues to be easily available, this will reduce business incentives to upgrade, design better jobs and raise productivity.

Singaporeans could be rubbing their hands in glee now, as there will be fewer foreigners snatching their rice bowls.

And I personally applaud the new measures to curb foreign workers, and alleviate the coming pains that companies might face.

The foreign workforce has risen over the years. Picture: www.foreignworkeragency.com.sg. Graphic: Grace Chew. Figures: Ministry of Manpower.

But worries abound.

Such measures could actually inflate labor costs in the short run, thereby raising business costs and decreasing competitiveness.

With Singapore’s jobless rate at a 14-year low of 2 per cent last year, small and medium-sized enterprises (SMEs) may find it tough to raise their productivity in the short term so as to cut their dependence on foreign workers or offset cost rises.

Employers will have to pay significantly more to attract Singaporeans to take up these jobs.

But even if employers want to pay them more, it does not mean that companies will be able to find people who are willing to work in labor-intensive manufacturing industries such as food and beverage.

Who would want to have shift work, extended working hours and rigorous physical activity when they can have a 9-to-5 desk job, with the air-conditioner turned on at full blast?

Policy accused of a Populist Approach

In addition, critics such as Dr Vincent Wijeyshinga have slammed the government for a populist approach.

Yes, the budget addresses concerns from a population that has griped about the growing number of foreign workers.

But in my opinion, the measures proposed were neither populist nor designed to reward an electorate for returning the government to power after a watershed election last year.

In fact, these measures have already been put in place and are simply running their course, such as the new Productivity Innovation Credit (PIC), which provides tax benefits for business investments.

But Singapore has an ageing society, and the pool of readily available labor will shrink with time.

If businesses think that the labor market is tight now, imagine what it will be like in 10 or 20 years’ time.

Change of Company Attitudes

Companies therefore have to change their processes and attitudes now.

They not only have to learn how to increase productivity and make do with fewer workers, but also get used to having older workers among the rank and file.

Hiring more older workers could save costs for businesses. The enhanced Special Employment Credit (SEC), for one, would provide the company with wage subsidies to hire older workers. It will also save on the higher foreign worker levies.

Seen in that light, the stance on foreign workers is really tough love.

So, too, are the measures announced to help SMEs – instead of taking the easy option of handing out goodies, the Finance Minister has put his money into grants and schemes that have a longer-lasting effect.

The rationale behind it?

It is all for the long-term. As the Singapore Chinese Chamber of Commerce puts it: “The outlook is very overcast even if we are not expecting a tsunami to take place.”

The economic growth rate will suffer a little with the labor dependency being reduced gradually.

But this is pain that has to be endured until efficiency gains come through, and a small price to pay if companies are to make quantitative leaps in incomes, productivity and lifestyles.


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  1. OldSingaporean


    March 9th, 2012 at 1.15pm

    Tough love??? More like self-preservation. The present policies were measures to address problems that arose from past policies. In other words, the government is trying to clear up the mess that it itself created.