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“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." - By Wong Chun Han

Raising foreign worker levy will not solve problems, say critics

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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