Dissecting Budget 2013: Part 1

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam unveiled Budget 2013 on Monday, 25 February 2013.

In this article, we will take a broad look at the initiatives unveiled and whether they had adequately met the needs of businesses and the people in Singapore.

Before I proceed, you can see in the chart below a broad summary of what I believe and have been championing that the government needs to do for Singapore, in the previous articles. Later on, we will do a comparison between Budget 2013 and what the government would need to do.

What the Singapore Government Needs to Do

Chart 1: What the Singapore Government Needs to Do

In this article, I will move beyond any rhetoric and focus on whether the government has “got it right”. Along the way, I will also look into what the real intentions of the government were in unveiling the initiatives, and what their overall planning objectives were.

You would notice that in his speech, Mr Shanmugaratnam had actually mentioned the word, “quality growth”, at least 7 times and the word, “inclusive”, at least 8 times. Let’s take a look at how “inclusive” this budget is, and how it aims to achieve “quality growth”.

The government has also broadly framed the announcements of the initiatives of Budget 2013 under two broad categories: for businesses (Restructuring for Quality Growth) and for the people (Building a More Inclusive Society).

I will frame the discussion of Budget 2013 in the following manner. I will list out the sections outlined in Budget 2013 and use the outline below for discussion.

Section
Initiatives:

  • I will provide a summary of the initiatives unveiled under this section.
What will actually happen:

  • I will discuss the actual impact of these initiatives.
What needs to be done to make sure initiative(s) work:

  • I will discuss how the initiatives can be made to work better for their intended purpose.
Are these good initiatives? What are better initiatives?

  • I will discuss if these initiatives are good, and whether they can be improved, if so.
Why did the government plan these initiatives in this way?

  • I will discuss discuss what the government’s real intention for these initiatives is.

(A) Economic Performance

Before I proceed, I will discuss briefly about Singapore’s economic outlook and performance as outlined by Mr Shanmugaratnam.

Mr Shanmugaratnam had shared that the government had underestimated the budget for FY2012, and that the actual budget surplus was actually 3 times more, at $3.9 billion. As Mr Leong Sze Hian had mentioned, “This seems to be the same repeat story that budget surpluses invariably always end up to be much higher than estimates, such that we have huge surpluses in about nine out of every 10 years.”

What we need to know is this – of the revenue that the government collects every year, not all this money is spent. Last year, $50.11 billion was spent, out of the $55.18 that was collected. On top of this, the government also collects CPF monies from us. Some people have commented that the CPF belongs to the people, and thus shouldn’t be counted as revenue. Rightfully, yes, but the government borrows our CPF money, which is eventually invested in Temasek Holdings and GIC, where they earn 17% and 6.8% interest rate. However, as I have mentioned, not only is the majority of the interest earned not returned to us, we have been withdrawing lesser and lesser of our CPF monies out, from 2001, even as there should be more people who would need to withdraw their CPF. So, to be clear, the CPF is also used by the government as a form of “revenue”, but where the earning of this “revenue” is not channeled fully back to the people.

In 2011, CPF had assets of $210 billion, which would have increased in 2012. In 2012, government revenue was $55 billion, which means that the CPF assets are almost 4 times larger than the government revenue. Basically, what this means is the government has more than enough money to provide for the social welfare spending needs of the people, even without increasing taxes, which had thus led Mr Leong to ask, “why is there a need to raise taxes, like property and vehicle taxes?” Of course, the government might take a long term approach towards accumulating the reserves of Singapore, but let’s take a further look into Budget 2013 to see how this actually works out.

(A.1) Economic Outlook and Performance

Mr Shanmugaratnam had mentioned that, “Rising costs remain a concern for both businesses and households.” However, what he did not mention was that, for many businesses, the top costs that businesses would like the government to reduce are rents and transport costs, both of which are within the government’s domain of control.

It was interesting that Mr Shanmugaratnam had said that, “Household incomes have risen, in 2012 and over the last five years. Adjusted for inflation, the median Singaporean household saw income per member grow by 14% over the last five years, cumulatively,” because if you look at the annual change in real total wages from 2008 to 2011, real wages actually fell by 0.6%. So, I am not quite sure where Mr Shanmugaratnam had obtained this data from.

Mr Shanmugaratnam is right to say that, “many Singaporeans who work in jobs at the lower rungs of the income ladder, especially cleaners, waiters, and security guards, have not fared as well.” Indeed, there are 300,000 Singaporeans who earn less than $1,000 every month and 450,000 Singaporeans who earn less than $1,500 every month. Not only that, according to the Ministry of Manpower, “wages of plant & machine operators and cleaners, labourers & related workers were largely flat for younger workers before declining for those in their mid forties onwards,” which means that for low wage workers, not only do they see their real wages decline over the years due to inflation, their real wages are also declining due to age. Importantly, our older workers are also over-represented in the low wage occupations. For example, among cleaners, labourers and related workers, 66% of them are aged 50 and above. Among plant and machine operators and assemblers, 56% of them are older workers. The problem that the low wage workers face are also faced by our older workers, who have been paid low wages on a chronic basis, such that they do not have enough to use in their old age.

(B) On “Restructuring for Quality Growth”

In this article, we will look at how the initiatives to tighten foreign worker curbs, such as implementing higher foreign worker levies and the intended higher wages for Singaporean workers, through the Wage Credit Scheme, will interact, to achieve a restructured labour market, or not.

(B.1) Foreign Worker Strategy

Foreign Worker Strategy
Initiatives:

  • Tighten foreign worker curbs in the Construction, Process and Marine sectors, as well as the Services sector
  • Raise Foreign Worker Levies across the board in July 2014 and July 2015. Increases will be most significant in sectors where productivity growth is weak and the growth of the foreign workforce is significant. All additional levies collected back to help businesses upgrade and share productivity gains with their workers. Revised levies range from $315 to $1,050 (see link for breakdown)
  • From 1 July 2013, minimum S Pass qualifying monthly salary raised from $2,000 to $2,200.
  • MOM will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices.
What will actually happen:

  • These initiatives cannot be seen on their standalone. These initiatives to tighten foreign worker curbs need to be seen in complementary light with initiatives to increase the wages of Singaporean workers through the Wage Credit Scheme, the boosting of productivity, through investments in innovation and reduction in costs, and through tax rebates.
  • Even though the levies for foreign workers are raised, for Singaporeans, the government has implemented the Wage Credit Scheme (which is supposed to theoretically raise the wages of Singaporeans) and increased the employer’s CPF contribution for the Singaporean low-wage worker. After taking into account the supposed wage increase and increase in CPF contribution of the Singaporean worker, will it still be cheaper to hire a foreigner?
  • After July 2015, if you look at the levy for the S Pass holder, the lowest levy is $350. If we compare this to the Singaporean worker, where the employer has to make a CPF contribution of $350, or 16% of the employee’s salary, this means that the employee earns $2,062.50, which is lower than the $2,200 that the employer should pay for the foreign worker. This means that the foreign worker will be $137.50 more expensive than the Singaporean worker. Will $137.50 be a deterrent to hiring a foreign worker? On top of that, if you hire a worker at higher wages, the Singaporean worker will increasingly become more expensive. If the employer were to hire a worker at $2,500, the employer would have to pay only $350 for the foreign worker but $400 for the Singaporean worker’s employer CPF contribution. This means that the Singaporean worker is more expensive than hiring a foreign worker. According to the Ministry of Manpower, “The Foreign Worker Levy, commonly known as ‘levy’ is a pricing mechanism to regulate the number of foreign manpower in Singapore.” Clearly, this is not the case. It is still cheaper to hire foreign workers, at certain levy tiers.
  • On top of that, employers have been known to work around the policy by declaring the wages of the S Pass holder as the minimum amount ($2,200) but paying the foreign worker a lower wage. This means that due to the lack of tight regulation, the foreign worker levies’ most useful effect is to increase the revenue of the government, but will not achieve the said effect of reducing Singapore’s reliance on foreign workers.
  • What if we were to look at the highest foreign worker levy in the construction industry? In June 2012, there were 104,500 Singaporeans working in the construction industry, of which, 38.8%, or 40,546 were in the category of production and transport operators, cleaners and labourers. In comparison, there were 293,400 work permit holders in the construction industry. There are 7 times more foreign workers than Singaporeans in the “lower-skilled” areas of the construction industry. Is the foreign worker levy here used to “regulate the number of foreign manpower in Singapore”? In 2012, based on the number of work permit holders in the construction industry, the government would have collected a revenue of a maximum of $147 million, just from the construction industry itself. Instead of collecting this $147 million as foreign worker levy, what if some of it is channelled back into investment in productivity growth? And this is not yet accounting for the 1,268,300 foreigners in Singapore, at the end of 2012.
  • Realistically, at this point, it is difficult to attract Singaporeans to work in the “low-skilled areas” of the construction industry, and which is why the government raised the levies significantly, knowing that since it would be difficult to hire Singaporeans and businesses would still need to hire foreign workers anyway, the government can continue to earn even more from these businesses. But how will businesses feel, as this will add to their increasing costs, which they have no control over. On the surface, the foreign worker curbs might be aimed at reducing Singapore’s reliance on foreign workers but based on how the curbs are also implemented in industries where there is already a shortage of Singaporean workers and a necessary huge reliance on foreign workers, this will further add onto the cost pressures of businesses in these industries. The aim of the initiatives, in totality, is to reduce their reliance on foreign workers but will the initiatives be over-taxing?
  • Seen in its totality, the foreign worker levies do not achieve their said objective of regulation the number of foreign manpower into Singapore. The levies are simply intended to generate revenue.
What needs to be done to make sure initiative(s) work:

  • The government will need to communicate its timeline clearly to businesses as to how the government foresees that the tightening of foreign worker curbs, investments in innovation to boost productivity and tax rebates will work hand-in-hand to assist businesses to restructure their working model. Businesses will need support in this area, for their planning. The government has plans to pair SMEs with research institutions to assist them in restructuring, but a clear timeline as to how these different initiatives interact will be beneficial and reassuring for businesses.
  • MOM “will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices.” Before this framework is finalized, MOM will need to consult Singaporeans for our review of the framework, so that we can ensure that the framework would adequately protect Singaporeans. Also, this framework needs to be passed as a law for it to have teeth. Otherwise, if it is only a guideline, it will still be bypassed by employers.
  • MOM has been known to be lax on employers and have allowed employers to, on many occasions, to bypass the policies. MOM and NTUC need to take their roles seriously. They will need to set up a dedicated arm to work with employers to inculcate best practices, as well as to strenuously police employers and ensure that they are taken to task, if they do not abide by the law.
  • They key issues here are two-fold: (1) What will be done to ensure that businesses will continue to employ Singaporeans and pay them a fair wage, and not allow them to make use of the loopholes to hire a foreigner, if the Singaporean is equally qualified? (2) How will MOM and NTUC strengthen and tighten their policing framework to ensure that errant businesses are taken to task for poor employment practices? Finally, how will MOM and NTUC hold themselves accountable to ensure that they will work in the interests of Singaporeans, as well as the workers?
Are these good initiatives? What are better initiatives?

  • Theoretically, the raising of the minimum S Pass qualifying monthly salary is a good move because essentially, the government is saying that if businesses want to employ a worker who will be paid the same wage, businesses should be more likely to employ a Singaporean over a foreigner, with the same wage. However, as can be seen, in reality, this will not occur. A better initiative would be to tier the foreign worker levies according to the salary range or to increase the foreign worker levies proportionately by each higher salary range, so that at each salary range, the foreign worker will continue to be more expensive than the Singaporean worker, so that Singaporeans will continue to be employed if they are equally qualified. Also, the foreign worker levies implemented to industries with a high reliance on foreign workers shouldn’t be so high that it heavily increases the costs of operation for the businesses.
  • Also, what have not been taken into account are the educational qualification and other requirements for the job. In real life, for a job where a Singaporean might request to be paid $2,500, the employer might be able to employ a foreign worker for the same job at $2,200, which would still disadvantage the Singaporean. Thus in the new framework that MOM is developing, it would need to take into account the qualifications and requirements of the job, as well as the expected wage range for this job, to protect Singaporeans from discriminatory practices.
  • Even as the government increases foreign worker levies, foreign worker levies do not protect Singaporeans from unfair employment practices. The levies only benefit the government. Levies thus have the effect of increasing government revenue but will not encourage businesses to hire responsibly, as it is still cheaper to hire a foreigner at higher wage ranges. Businesses would still be able to work around the system by under-paying the worker. With increased levies, this is even more likely to happen.
  • A better policy would be to also implement a minimum wage law, so that businesses will not undercut the wages of the workers, and will be required to pay a fair wage that is commensurate to the cost of living in Singapore.
Why did the government plan these initiatives in this way?

  • The government has implemented foreign worker curbs because it needs to, on the surface, appease Singaporeans. If the government has its way, it would want to take another 5 to 8 years to slow down the inflow of foreigners, or until 2030. However, the government only has 3 years before the next general election, and thus it had needed to compress the timescale to for the tightening of foreign worker inflow to within 3 years. However, the government has known that they would have needed to restructure the economy a few years back. These initiatives are long overdue and the government should take responsibility for their inaction a few years ago to address the current problem.
  • Yet, while doing so, the increase in foreign worker levies would not have the said effect of regulating the number of foreign workers, and yet, businesses are expected to pay even higher costs in industries where they have no choice but to rely on foreign workers. Will the government’s intended aim to increase the revenue through the foreign worker levy be unwise?
  • However, because the government did not act on this a few years ago and had compressed the timeline into 3 years for economic restructuring (or 5 years, if you include the past 2 years since the initial curbs were implemented), this means that businesses are also forced to react on a tighter timeline, because of the government’s delayed planning. Yet, because the government had initially opened the floodgates to foreign workers in 2005 until 2011 and so businesses have allowed themselves to operate in a labour-intensive manner, to expect businesses to scale down on manpower suddenly within 2 to 3 years can be taxing to businesses. And thus the government had rolled out several other initiatives in this budget to ramp up innovation and productivity growth. We have 3 years to see if these initiatives will be effective.
  • Finally, as mentioned, the real beneficiary of levies is the government. The levies boost the government’s coffers. They are not an effective measure to reduce reliance on foreign workers, and were not intended to be, in practice. Levies have been in place over the past few years, but there has been no slow down in the number of foreign workers, until curbs in the actual numbers were enforced. The real initiatives that will reduce foreign worker inflow are the enforced curbs, and the new MOM framework on fair hiring practices, if implemented properly. On top of that, the levies can impede on the hiring of Singaporean workers because at higher wage ranges, the levies are not high enough to dissuade businesses from hiring foreign workers. Yet, if the levies are too high and businesses hire Singaporean workers, the government wouldn’t be able to earn from the levies. The government has thus planned to continue to keep the foreign worker levies at an amount that is not too high (though higher for industries which need to have a high reliance on foreign workers), so that businesses will still employ foreign workers, and pay levies, but this is contrary to their said support to hire Singaporean workers. As such, the levies are counterproductive towards protecting Singaporeans.

(B.2) Wage Credit Scheme

3-Year Transition Support Package (1)
Initiatives:

  • Wage Credit Scheme: Government will co-fund 40% of wage increases for Singaporean employees over the next 3 years, for Singaporean employees earning up to a gross monthly wage of $4,000. The Wage Credits will be automatically paid out to employers annually. The WCS will cost the Government about $3.6 billion over 3 years.
What will actually happen:

  • According to Annex A-3 the Budget 2013 Documents, “At the end of 3 years, the employee (who receives an annual increase of $200 every year) will receive a total of $14,400 more in wages, of which the Government would have co-funded $5,760.” “The Wage Credit Scheme is estimated to cost the government about $3.6 billion over 3 years,” which means that if every worker has an increase of $200, 625,000 Singaporean workers would have benefited. There are about 380,000 to 400,000 Singaporeans earning less than $4,000, which means that some Singaporeans would be able to obtain an increment of more than $200 every year. The question is, would businesses bite?
  • Businesses will not be looking at the Wage Credit Scheme just in terms of the wages of their employees. They will look at this scheme as part of a cost-reduction measure in Budget 2013. Businesses will now be doing their calculations to see if the other cost reduction measures will have a significant impact on their costs, and whether there would be cost savings from these measures, even if they were to increase the wages of employees, beyond the intended increase. Otherwise, there will be little impact on wage increases, even with this scheme.
  • Also, the wage increases are dependent on the company’s discretion. What this means is that for businesses, what is there for them to increase the wages of low-wage workers significantly? Businesses might continue to increase the wages of low wage workers by a few dollars and those nearer to the $4,000 wage ceiling with several hundred dollars. The side-effect to this scheme is that income disparity will still be maintained, and income inequality might even rise.
  • Theoretically, businesses might take advantage of the government’s co-funding of the wage increases to further increase the wages for Singaporean employees. However, in reality, because of the high operational costs, businesses might, in effect, continue to pay employees the same wage increase that was planned for, and absorb the 40% government co-funding as savings. Otherwise, they might only make incremental increases, and still be able to earn from the co-funding. For example, the government might have presupposed that if an employer were to plan to increase the wage of an employee by $100, given the co-funding, the employer might then increase the employee’s wage by $166, so that the employer continues to pay its 60% of $100, and the government forks out another 40% to pay the additional $66. In reality, the employer might continue to increase the wage by $100, but claim the 40%, of $40, of this wage increase. Otherwise, the employer might increase by a bit more, say by $120, which means the employer still saves.
  • Also, as compared to the foreign worker, by increasing the wage by more than planned (in the best case scenario), this would make the Singaporean worker more expensive than the foreign worker. As long as there is unequal wage differentiation between the Singaporean and foreign worker, there is little incentive for the employer to pay a significantly higher wage to the Singaporean worker when the employer can pay a lower wage to the foreigner. Also, how would the employer explain the wide wage disparity to the foreign worker if the employer were to pay the Singaporean worker a significantly higher wage?
What needs to be done to make sure initiative(s) work:

  • The problem with this is initiative is first, there isn’t a minimum amount that businesses are expected to increase the employee’s wage up until, and second, that there isn’t a minimum amount or proportion that businesses are expected to increase the wages by. There is simply no incentive for businesses to increase the wages of employees by more than they had planned for, because businesses would want to make as much profits as possible. The government has also not explained to businesses why they are expected to increase wages, so there might be no buy-in from businesses as to why they need to do so.
  • The only way to ensure that businesses pay fair wages is for the government to set a minimum wage that is commensurate to the cost of living in Singapore, and for the government to then subsidise a proportion of this wage increase. However, the government might be unwilling to set a minimum wage for various reasons. First, due to the uncertain global economic outlook, the government might not want to institute a permanent law that will be difficult to undo, if the need arises, say, if the economy sinks into a recession in the next few years. Second, the government might continue to believe that wage adjustments should be left to demand-supply market economics, such that they would provide the wage credit as monetary incentive, for which businesses will then take into account their budgetary planning, and might cater to the increase of wages accordingly. However, as explained, this is quite unlikely.
  • The only way that the Wage Credit Scheme can truly work, therefore, without the implementation of a minimum wage law, is if the government sets the tone by adjusting the wages of the civil service and companies owned by them, directly or indirectly, upwards, by the ‘recommended’ wage increases, so that this will affect the market demand-supply economics externally and due to the trickle-down effects, result in businesses also adjusting wage increases upwards by a similar proportion or to match the wage increase more fairly. But will the government want to do so?
  • Also, to ensure that there are higher wage increases for the lower-wage workers, the government should implement this scheme in a tiered manner, such that there will be a higher proportion of co-funding for businesses which intend to increase the wages of the low-wage earners. However, the government has not included this as part of the scheme. Has the government not thought about this, or does this say something about their perceptions of “low-skilled” workers?
Are these good initiatives? What are better initiatives?

  • The minimum wage credit scheme, on theory, sounds interesting. But it wouldn’t work – not with current business sentiments where costs are high and businesses feel that profit margins are incredibly low, or falling. Businesses will be looking at this scheme, in light of the other initiatives in this budget, such as the increase in foreign worker levies and tax breaks. Even so, businesses will not make any knee-jerk reaction until they understand how the budget will affect them, and this may take another one or two years, for them to calculate and observe the effects. As such, because wages are something that a company has control over, it is unlikely that they would take it as lightly as to increase wages by more than what they had planned for.
  • As mentioned, this scheme will not achieve the objective to increase wages. To really be able to increase wages, an enforced wage growth and minimum wage law needs to be put in place.
Why did the government plan these initiatives in this way?

  • The government has previously proposed that any wage increases should be pegged to productivity gains. However, over the past few years, productivity has either not grown or fallen. Thus the government’s proposal to peg wages to productivity is an ineffective proposal, one which the government knows. Productivity growth has dropped over the past few decades and based on current conditions, productivity growth is unlikely to grow beyond 1% or 1.5%. The government’s proposal of growing our wages by 3% every year, on the wave of 3% productivity gain every year is therefore not possible.
  • Also, the government has been reluctant to set a minimum wage because as mentioned, the global economic outlook might be uncertain and they might not think that it is ‘safe’ to implement a policy which would be difficult to undone. Even so, Hong Kong had implemented minimum wage in 2011 and all the other Asian Tigers, South Korea and Taiwan, and Japan, also have minimum wage laws, and this hasn’t hurt their economies. As also mentioned in previous articles, if the government implements a minimum wage, what would this do to its own profits? Will the government be keen to institute a minimum wage, if it might reduce its revenue?
  • However, it needs to be known that any wage increment is long overdue. Since 2005, when the government opened the floodgates to foreign worker inflow, this has resulted in a depression of the wages of Singaporeans. Over the past few years, real wage growth has remained stagnant or dropped in some years, inflation has shot up and so has housing, car and COE prices. In 2005 itself, the proportion of low-wage workers earning less than $1,000 increased from 15% to 17% and has maintained at that level, and not dropped back to pre-2005 levels. And as mentioned, there are 300,000 Singaporeans earning less than $1,000 and 450,000 earning less than $1,500. The government needs to act to increase wages, which are long overdue, from way back from 2005.  And if the current initiative of the wage credit scheme doesn’t work, this means that wage increases would be long overdue for possibly 10 years or more. Also, the current scheme, if it works, will not uplift wages to be commensurate to the cost of living by today’s standards. It will simply increase the wages to the cost of living of the standards of a few years back, because at this point, we are only recovering part of the wages lost due to the depression of the wages and they won’t even match up to the level that should be concordant at this point.
  • However, the wage credit scheme could be a delay tactic, for political purposes. As mentioned, the wage credit scheme is meant to benefit businesses, and Budget 2013 is really a budget meant for businesses. The general election is still 3 years to come, so there is no urgency for the government to meet all of Singaporeans’ needs at one go. All the Asian Tigers and Japan have minimum wages. It wouldn’t make sense for Singapore not to do so. If indeed the government realizes that a minimum wage law is a necessity, the wage credit scheme is meant only as a stop-gap measure to provide the initial impetus to encourage businesses to kick-start the process of wage increases, before a minimum wage law is proposed, just before the general election. But this is only a hypothesis. The current government is very fixated on wealth protection and revenue diversification, to maximise its revenue gain from all the sources that it can tap on. A minimum wage law will compromise on this strategy, so even as it would be a populist measure to garner votes at the next general election, this government might still not do it. Though, to say that this government wouldn’t bow down to populist pressures would also be incorrect, because the recent curbs of foreign worker inflow and the pace at which the curbs are implemented is a populist measure, aimed at subduing Singaporeans’ unhappiness, but had put undue strain on businesses instead. Though, as explained above, even if the government rolls out populist measures, they are intended to look so on the surface but do not actually benefit Singaporeans.
  • Finally, and most importantly, what has not been taken into account is how the 40% co-funding will work. Of this 40% co-funding, 20% will go back to CPF. Also, of the increased salary, the employer would have to pay another 16% of the employer’s contribution to CPF. If this 40% co-funding doesn’t account for the employer’s contribution to CPF, what this means is that of the 40% of the co-funding, if 20% goes into the employee CPF contribution and 16% goes into the employer’s CPF contribution, the government only needs to fork out 4% of the co-funding, which means that out of the $3.6 billion set aside for this scheme, the government will only need to spend $360 million.
  • All in, the impact of this scheme to increase the wages of Singaporeans is minimal because there isn’t a specific wage increment that businesses need to abide by. They are not held accountable to any fixed increment required, so they might only make use of this scheme, for any cost-savings on their businesses. Thus wages of Singaporeans, and especially for the low-wage workers, shouldn’t be expected to increase significantly, and income inequality might also rise, if higher rises are given to the higher-wage earners. Also, even though the government has set aside $3.6 billion of the budget for this scheme, most of the budget will flow back to the government’s CPF. Since 2001, CPF withdrawals have decreased year after year, so the actual impact of this scheme on the Singaporean worker is very minimal.

In summary, you can see that the government’s said aims to increase foreign worker levies to protect Singaporeans, and to implement the Wage Credit Scheme to increase the wages of Singaporeans, will come to nought for Singaporeans, because first, the Wage Credit Scheme lies in the hands of the businesses and there is no regulation that the businesses are held against, which means that they will look at how the scheme will affect overall business costs and adopt the scheme in that light, rather than to observe the rights of the Singaporean worker. The wages of Singaporeans might therefore not increase by more than the planned increase.

Also, for the initiatives discussed here, the government ultimately benefits because the foreign worker levies are used in tandem with CPF contributions, which the government has carefully calibrated to allow them to earn maximally. By creating a deception that the foreign worker levies are created to protect Singaporeans, the government has increased the levies, which even with slightly fewer foreigners coming in, will still allow them to earn significantly. Together with CPF, where most to the wage increases for the Wage Credit Scheme will be channeled into, the government will continue to earn revenue from all sides, even as they claim to be on Singaporeans’ side.

I will continue the discussion of Budget 2013 in subsequent parts.

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9 comments

  1. Pingback: Dissecting Budget 2013: Part 1 (Key Points) | The Heart Truths
  2. sgthinker

    Your complaints about the Wage Credit Scheme ignores the reality of competition for labor, as it assumes that all businesses will implicitly collude and refuse to raise wages more than they originally intended to. This assumption does not hold true in today’s labor market where unemployment of 2% means that workers now have greater bargaining power.

    So the first business who is willing to use the WCS to offer more pay than it originally planned will be able to offer higher pay than its competitors, and thus attract more workers. Other companies will recognise this strategy and be forced to play along, or die out as a result of insufficient labor.

    • My Right to Love

      Dear sgthinker,

      That is valid as well. Let’s see how this pans out. If you ask me, someone who earns less than $1,000, say $600, should be given at least a $300 to $500 pay increase, or even more – be have a salary that is commensurate to the cost of living.

      Because of the low unemployment, will this person be able to tell the employer that he or she will move to another job which will pay $1,000 or $1,100? Quite unlikely. There is no minimum wage law to protect the worker.

      The Wage Credit Scheme, from my perspective, should be aimed at protecting the low-wage worker. However, companies would most likely not want to increase the wages of low wage workers by more than a few dollars, so the impact for them will be minimal, which thus mean that this scheme won’t help to narrow the income inequality.

      Thanks!

      Roy

      • sgthinker

        Your answer doesn’t make sense. Are you suggesting that workers cannot move jobs to seek better wages when the labor market is tight?

        If there were only two factories in Singapore and both were looking for a security guard, but there was only 1 guard in Singapore, clearly that one guard should be able to use his scarcity value to get the factories to give him a better wage.

        Your answer ignores the Economics 101 laws of supply and demand.

      • My Right to Love

        Dear sgthinker,

        Let me ask you then, say you are an employer and you are currently paying your employee $600, and you had initially wanted to increase your employee’s wage by $15.

        Now, just because of the Wage Credit Scheme, would you then pay your employee another $400, to ensure that your employee is accorded a decent basic standard of living? Would you do that?

        With the Wage Credit Scheme, what the employer will do will be to continue to increase by another $15 or $20, maybe $50, so that the employee won’t jump ship, and still absorb some savings. But when the industry as a whole pays a low wage, do you think any company would pay so much, such that the company will be forced to increase the pay of a worker by $400, or even $300, to give the employee a basic standard of living?

        Numbers, I want numbers. Come out with your numbers.

        Thanks.

        Roy

      • sgthinker

        If I was the hypothetical employer in your situation (which I am not, since I hire IT grads for my company), and I only valued the employee’s wage increment at $15 (e.g. because I know that at a higher increment it will make sense for me to bear the cost of rehiring or to simply forgo the work that has to be done) , then the WCS will only make me pay 40% more (i.e. $21).

        But will I sleep soundly with such a small increment? Yes because I know that the income and corporate tax that my company and I pay will go towards funding that employee’s workfare supplement to ensure that his total wage is able to support a basic standard of living (or at least what the govt believes to be enough for a standard of living).

      • My Right to Love

        Hi sgthinker,

        Thanks for the illustration. I see where you are coming from.

        From my perspective, I do think that it would be more sustainable if a minimum wage is built into a worker’s salary. The Workfare Income Supplement should only be a temporary stopgap measure. Also, even with the additional WIS, I don’t think the worker’s salary will be fully matched to the cost of living, based on what I remember. I will look into it again.

        The long term goal should be for businesses to be able to restructure and to take into account salary increases which should accord the worker a basic standard of living.

        As mentioned, all the Asian Tigers and Japan have minimum wage, except Singapore. In some countries, the supposed “low-skilled” workers are paid salaries several times the workers here, after accounting for inflation and purchasing parity. The problem with looking at workers as low-skilled and not capable of increased productivity will trap them in their state of low-skilled-low-wage state.

        Of course, for productivity to improve, it might take another 5 years or so, and wage increments might follow thereafter. But it should be noted that the depression of wages have been occurring for more than 10 years now and the raising of wage levels is long overdue.

        Understandably, the WIS is a political strategy as well, to let the people see that the government is willing to channel funds back to them to supplement their income, but this shouldn’t be a long term strategy.

        Thanks.

        Roy

  3. Pingback: Dissecting Budget 2013: Part 2 | The Heart Truths

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