Raising the foreign worker levy is a blunt move

February 5, 2010 by admin
Filed under: Current Affairs 

This article was originally written for The Online Citizen

How will raising the foreign worker levy improve the lot of locals who are faced with stagnant wages and rising costs?

By Ng E-Jay

The Economic Strategies Committee (ESC) has suggested raising the foreign worker levy to discourage businesses from importing too many low-skilled foreign workers and motivate them to invest more in productivity.

Speaking to the Straits Times a day after the ESC had released its recommendations for overhauling the Singapore economy, Manpower Minister Gan Kim Yong said that companies that cannot raise productivity might have to go out of business or leave Singapore, and that the rate of import of foreign workers has to be moderated in light of “social constraints”. [1]

However, it is not clear how raising the foreign worker levy, which is a blunt instrument that merely increases business costs for companies hiring foreign workers, would help very much in achieving the intended objective of raising productivity or of raising the overall standard of living of our workforce.

Some economic analysts seem to have accepted the notion that penalizing companies for hiring foreign workers would magically make them think about investing in new technologies or improving the efficiency of their business operations.

This could be unrealistic in many situations, for example, in the case of a construction company that is already operating on a tight schedule, or in the case of a wholesaler that is constrained more by cost factors rather than lack of technological investment. For such companies, merely increasing their cost of hiring foreign workers would only hurt their bottom lines, but would do nothing to spur higher productivity.

A higher foreign worker levy may also not be effective in making businesses look upon local workers more favourably. Businesses do not have to make CPF contributions on behalf of foreign workers. Hence, even with an increased foreign worker levy, they may still find it cheaper to employ unskilled foreigners who are prepared to accept very low wages because they don’t have to finance an expensive mortgage or raise their families in high-cost Singapore.

Certainly, merely increasing the foreign worker levy will not in itself do anything to raise overall wages and improve living standards if Government policies still favour foreigners over locals.

Ultimately, the decision to hire or fire is also influenced by many other factors such as overall business costs which include rental and cost of raw materials, as well as the ability to compete effectively in our small domestic market. For instance, small businesses who feel crowded out by the growing entrenchment of Government-Linked Corporations would not be able to expand their workforce to include more locals because they would be more worried about operating as a going concern.

The Government has to make fundamental changes to its policies, such as controlling the overall rate of import of foreign workers from the top down, fine-tuning the criteria for awarding various employment passes, and paying more attention to attracting quality foreigners rather than indiscriminately importing unskilled foreigners.

To make the domestic economy more competitive, the Government also has to keep a lid on escalating costs which are hurting small and medium enterprises. It also has to reduce the entrenchment of Government-Linked Corporations in the economy, which might be an unpalatable move to the establishment, but necessary if we are to revitalize our economy.

Despite the Manpower Minister denying that the increase in foreign worker levy is politically motivated, it is hard to deny that the Government is pulling out all stops in assuring Singaporeans that their interests are being taken care of.

However in this case, raising the foreign worker levy is a blunt move that is will likely only penalize businesses that hire foreign workers but will not improve the lot of low income Singapore workers whose wages have remained stagnant for the past decade.

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Comments

4 Comments on Raising the foreign worker levy is a blunt move

  1. Major on Sat, 6th Feb 2010 11:40 pm

    2. Shows that we have a blunt government.

  2. Moe Gan Thai on Mon, 8th Feb 2010 9:27 am

    3. Govt profits from the levy collections. Business will suffer, resulting workers get no or less bonus.

  3. mockingbird.sg on Mon, 8th Feb 2010 11:46 pm

    4. I have to agree with what you are saying. An increased in the foreign levies may not necessarily equate to more locals being hired.

    However what is your take on the tightening of the dependence ratio. Would it not have the desired effect of ensuring that locals are picked up by companies who have not been weened out?

  4. Concerned Lim on Wed, 24th Feb 2010 9:50 pm

    5. The Government basically agree that Singapore needs foreign import to sustain growth. If the Government accepts this fact, acceptable quota should be given to the industry without incresaing the levy and penalize those who import too many should be the way forward. Second increasing the basic tier levy simply imply that business owner will pass-on the cost to consumers. This is already seen in the increased GST. While GST increases a mere percentage points, business owners will increase more resulting in inflation. I hope the public do not view that the Government is taking opportunity to raise revenue. I plead the Government to consider feedbacks from the public so as to keep Singapore competitive.

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