Budget 2013 does not contain any radical measures — fundamental approach to economic management is unchanged
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Written by Ng E-Jay
26 February 2013
After the intense debate on the population white paper, Budget 2013 reads almost like a supplementary paper designed to address key issues arising from the population paper. Certainly, Budget 2013 appeared to touch on all the hot button topics of the day, especially those arising from the earlier population debate.
Budget 2013 is divided into two major sections — the Quality Growth Programme, and Building A More Inclusive Society.
The Quality Growth Program is a $5.9 billion dollar scheme that aims to raise wages and reduce dependency on manpower by tightening foreign worker policies, providing a 3-year Transition Support Package for businesses to adjust, strengthening productivity incentives, and developing capabilities for new growth industries.
On the second major front, Budget 2013 aims to build a more inclusive society by enhancing the quality of education including pre-school education, developing a more progressive taxation system, enhancing benefits to workers such as by improving the Workfare Income Supplement scheme, enhancing social safety nets for the poor and aged, and providing more direct assistance to cope with the cost of living.
This is just a summary of what Budget 2013 contains. The merits or lack thereof of each proposal, as well as all the nitty-gritty details and their positive or negative repercussions will be debated by others in due course.
For now, I will just highlight what I think are features of Budget 2013 that stand out in light of the extremely heated population debate that had taken place earlier.
1. Foreign worker levies will be raised for all sectors. There will be cuts to the Dependency Ratio Ceiling for certain sectors, as well as tighter eligibility requirements for the S-Pass and the Employment Pass.
Clearly, this is a move designed to wean businesses off cheap foreign labour. The government has recognized that the services industry in particular relies too much on foreign manpower.
However, it must be noted that similar measures have already been implemented in some form in previous budgets, but to date, the overall inflow of cheap foreign labour continues unabated. The situation has in fact worsened since 2010 when the government first recognized the rising resentment against its policies and started to put the brakes on foreign influx.
Merely raising foreign worker levies and cutting Dependency Ratio Ceilings alone will not help stem the tide of foreign influx.
The government must also take proactive measures to make hiring Singaporean workers more attractive to employers, and restructure the economy so that businesses focus more on innovation and moving up the value chain, and become less reliant on manpower and brute-force, low value-added business models.
In his Parliamentary address, Finance Minister Tharman Shanmugaratnam correctly observed that the surfeit of cheap labour has been responsible for Singapore’s dismal productivity gains over recent years.
He said that Singapore has to embark on a new phase of transformation to make up for a decade of slow productivity growth, and reduce “wide gaps of efficiency” between different sectors.
Mr Tharman said: “We must therefore press ahead and upgrade technologies, skills and expertise across our economy in this decade, so that we can be a truly advanced economy. If we do not succeed in this new phase of transformation, we will lose ground to emerging cities in Asia which are catching up quickly. We can lose even the good jobs that we want to retain in Singapore.”
The services sector in particular suffers from lack of productivity and efficiency most acutely, and is one of the main targets of these tightening measures. The construction and marine sectors will also bear the brunt of these measures more significantly.
Mr Tharman said: “The basic reality is that these sectors which are most dependent on foreign workers are also the ones furthest behind international standards of productivity, and which account for the lag in productivity in our overall economy. The tightening of foreign worker policies is therefore aimed mainly at reducing reliance on manpower, not merely replacing foreign workers with locals.”
2. Under the Wage Credit Scheme (WCS), the government will co-fund 40% of wage increases for Singaporean employees over the next three years. The scheme will apply to Singaporean employees earning up to a gross monthly wage of $4,000.
This has been touted by the media to be the most significant policy measure in Budget 2013. This is designed to help employers pay higher salaries to Singaporeans, and in so doing, retain them as part of the workforce.
Mr Tharman said in his budget speech that businesses will have to restructure in a tight labour market in the coming years, and wages will have to rise. He said that this scheme will provide support to help businesses raise their employees’ wages, and more importantly, incentivise employers to share productivity gains with their employees.
As I have mentioned in my previous article, although government statistics show that the labour market is tight, the government has not taken into account structural unemployment, which occurs when people are forced to take up work that does not fully utilize their talents and abilities. Structural unemployment is an unhealthy and growing trend in Singapore, especially for those above the age of 40. It is caused by decades of poor government policies that have led to discrimination against older Singaporean workers.
The Wage Credit Scheme will be effective only if employers genuinely feel the need to raise wages to retain their Singaporean employees.
This can only occur if the government imposes strict measures on the hiring of cheap or low-skilled foreign labour, and ensures that foreign PMETs bring much needed skills and expertise rather than merely duplicate what Singaporeans are already able and willing to do.
The Wage Credit Scheme can be effective only when the government overhauls its foreign labour policies, removes discrimination against older Singaporean workers, and succeeds in getting companies to move up the value chain and innovate.
Otherwise, there will be no incentive for employers to pay higher wages to retain local workers, as they will merely fall back on the old ways of growing profits by lowering wage costs and taking advantage of foreign labour.
Budget 2013 contains nothing new. There have been no radical suggestions, no sacred cows slaughtered, and indeed, no fundamental changes made.
It seems that not only must companies be compelled to innovate and think creatively rather than rely on the old ways, but the government must also be pressured to do the same.
I do not think Budget 2013 will be effective in addressing the immediate needs and concerns of Singaporeans or improving the intermediate term economic outlook for Singapore. All its measures have been tried many times in the past, under different guises and at different levels.
But the fundamental approach of the government in managing the economy at the macro level remains stubbornly unchanged. This is why I am not optimistic that Budget 2013 can do much to turn things around.