Budget 2013: Looking beyond wages

Some of the 2013 budget announcements from earlier this week seem to correspond to current expectations, while others will take some time before accomplishing their intended objectives.


Acknowledging Singaporeans’ concerns over wages and rising costs of living, Deputy Prime Minister and Minister for Finance, Mr Tharman Shanmugaratnam, noted that the government must find ways to incentivise employers to “share productivity gains with their employees”.


As such, many of the wage-related measures cover salaries and distribution of wealth:


– fully restoring the employer CPF contribution rate.

– enhancing and broadening the Workfare Income Supplement (WIS) to those earning a monthly wage of up to $1,900 per month.

– raising WIS payments (for workers aged 45 years and older, the maximum payout for a low-income worker earning $1,000 will increase by $700. Those aged between 35 and 45 years will get a smaller increase).

– restructuring the Wage Credit Scheme under a three-year co-funding package.

– co-funding 40% of wage increases to Singaporeans with gross monthly wages of up to S$4,000.

– reducing the concessionary foreign domestic worker levy from $170 to $120 per month.

– granting individual taxpayers below the age of 60 a 30% tax rebate capped at $1,500 for income earned in 2012 (those aged 60 and above will get a rebate of 50% but also capped at $1,500).

– providing an extra one-off GST voucher this year on top of the permanent GST voucher.

– changing the property tax system to place a bigger burden on owners of high-end residential properties (especially the ones speculating on property prices).

– helping older Singaporeans with their healthcare expenses (a $200 top-up to the CPF Medisave Accounts of all Singaporeans aged 45 and above).


While a noble goal, perpetually increasing average salaries is an obvious concern for companies seeking profit and productivity.


Several other factors also contribute to increasing costs and the budget has broader implications for businesses beyond simply raising average salaries.


Oftentimes, the budget measures which have the biggest impact on businesses are those aimed at individuals; the residual impact of policies which affect the standard and cost of living dictate employee focus on salary, but a budget which allows companies to effectively manage labour costs is clearly preferable.


Introducing cooling measures in the residential property market, providing more affordable healthcare, and managing food costs, for instance, are areas that can mitigate the need to increase average salaries.


Supporting employees doesn’t just come in the form of a higher salary. Skills development is a vital part of staff retention.


Employers have positively endorsed the 2012 doubling of government grants for productivity and innovation training – according to Ipcas, 80% agree that the scheme has helped to spur productivity.


However, 66% would like to see the programme tailored for various sectors. Government grants or tax reprieves for specific skills training or technology implementation would also assist employers in providing employees a more holistic package beyond remuneration.


At the same time, such reprieves would be self-fulfilling in that they would help expand the size of the indigenous skilled workforce.


Outside of labour costs, property prices are a growing concern. The cost of residential property has been much reported but land use and property prices have also had a major impact on business operating costs.


With the desire to maintain economic growth, and the government’s accompanying forecast of a rapidly increased population by 2030, demand for land and property will only increase.


Without government intervention rental prices could spiral out of control, directly impacting the ability of many companies to do business.


Beyond increased operating costs, an unchecked property market has potentially graver implications – one has only to look at the example of Ireland where a combination of speculative building and rapidly rising prices led to the collapse of domestic and commercial property prices in 2008.


With a disproportionate volume of the workforce previously concentrated on construction, unemployment has steadily risen. More significantly, the collapse triggered the Irish banking crisis and heavily contributed to EU-wide austerity measures and a drop in the value of the Euro.


While such a dramatic outcome is unlikely in Singapore, a property crash would likely reduce the level of investment from international companies, slow the growth of a skilled and experienced workforce and make it more difficult for local SMEs to operate.


Regarding measures to reduce over-reliance on foreign workers, it’s important to point out that foreign worker still have an important role to play in Singapore.


Ipcas found that almost a quarter of businesses have faced a sever labour crunch in the past 12 months, as a result of new policies, while close to two-thirds believe customised rules for different industries would be beneficial.


The desire to reduce reliance on foreign workers should not be misunderstood and implemented as a removal of foreign workers. Increasing the difficulty of securing EPs doesn’t automatically result in more jobs for local Singaporeans – if employers are unable to source specialist skills and a motivated workforce, then overall level of quality, productivity, and ultimately income will decrease.


Freedom of movement and employment across the European Union provides more flexibility and thus greater efficiency in the labour market, while Barack Obama recently stated that the US economy benefits from harnessing the talents of immigrants.


Similarly, the foreign worker has an important role to play in Singapore.

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