Wage increases for low-income workers cannot be blamed for higher cost of living

Wage increases for low-income workers cannot be blamed for higher cost of living

by Khush Chopra

The Prime Minister’s recent suggestion that wage increases will lead to higher prices implies that labour costs are the main driver of business expenses in Singapore.

The suggestion by the Prime Minister that labour costs are the largest component of the costs of doing business in Singapore is misleading.

While this may well be the case in most Western economies, this might not hold true for land-scarce Singapore.

In Singapore, rental costs—including HDB prices and rentals, private housing costs, and other rentals—contribute significantly to the overall costs of doing business. Additionally, indirect taxes such as GST, ERP, COE, high utility bills, high private hire vehicle (PHV) fees, high taxi, bus, and MRT charges, and foreign worker levies account for a substantial portion of the total cost of goods and services.

Based on this perspective, the estimated breakdown of Singapore’s cost structure for doing business could be argued as follows:

  • Labour Share (Wages): 20%
  • Rental Costs: 40%
  • Indirect Taxes: 40%
    Total: 100%

It is clear, therefore, that the government is a significant contributor to the high cost of doing business in Singapore and a major driver of the high cost of living. Factors such as rental expenses and various indirect taxes play a predominant role, not labour costs.

The ruling party’s economic policies, property prices, rental costs, and indirect taxes are the primary drivers of Singapore’s high cost of living.

Don’t blame the intended wage increases for low-income workers for the high cost of living.

Supporting Points

Let us look at the primary drivers of the cost structure in our economy.

1. Rental Costs:
– High property prices and rental rates significantly impact business expenses. Due to limited land availability, commercial rent in Singapore, especially in prime areas, is among the highest globally, placing substantial financial pressure on businesses.

2. Indirect Taxes:

  • The Goods and Services Tax (GST) affects the cost of all goods and services.
  • Electronic Road Pricing (ERP) and Certificate of Entitlement (COE) fees add to transportation costs, which are then passed on to consumers.
  • High utility bills, public transport costs, and private hire vehicle fees contribute to the overall high cost of living and doing business.

3. Foreign Worker Levies:
– Levies on hiring foreign workers increase labor costs directly, as businesses must pay these fees in addition to wages.

4. Global Economic Factors:

  • Supply Chain Disruptions: Global supply chain issues, such as those experienced during the COVID-19 pandemic, can drive up costs for raw materials and goods, leading to higher prices in Singapore.
  • International Competition: Singaporean businesses often compete globally, and international pricing pressures can influence local prices. Businesses may need to absorb higher costs to remain competitive.
  • Currency Fluctuations: Changes in exchange rates can affect the cost of imports and exports, influencing overall business costs and consumer prices.

While labour costs are a component of the overall cost structure, they are not the predominant factor in Singapore. Instead, high rental costs and various indirect taxes and fees imposed by the government are the primary drivers of the high cost of doing business. Consequently, the government’s policies and regulations significantly impact the cost structure, affecting both businesses and the general cost of living.

Even if labour is a significant factor in pricing, higher wages will not necessarily lead directly to higher prices due to competitive market pressures and price elasticity of demand. The relationship between wages and prices is not linear.

Ultimately, we need comprehensive policy approaches that balance wage growth with cost-of-living concerns.

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