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Employers bear brunt of unnecessary foreign worker levy hike

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.