Budget 2013: Thinking like an SME owner

Budget 2013

I find it difficult to accept the arguments put forth by those who assert that the Wage Credit Scheme is a “waste of money” and that it involves the unfair use of taxpayers’ money to “help businesses”. This is far from the truth. The scheme is excellent; when combined with other government policies, it can lead to productivity gains and a reduction in foreign manpower dependency.

In order to see how the scheme can be effective in these twin aims, one must begin to think like an SME owner. My family runs an SME; let me share my thoughts.

With the increase in foreign worker levies, SME owners will look at their workforce and think to themselves:

“Why should I pay so much to keep this foreign worker. Is he really that productive? The levy has gone up and may go up even further in the years to come. Let me look at the rest of my crew. Can they produce the same output without him? (i.e. become more productive). I wonder, what if I were to remove this foreign worker and use the amount which I would have otherwise paid him to raise the salaries of my other workers in return for working harder and being more productive? After all, the government will help pay a part of this increase. Anyway, times are tough and they could use a little extra pay in return for working harder and being more productive.”

Does this make sense to you? It does to me, and is in fact the direction which my family SME is heading towards. As long as there exists capacity for productivity gains, firms will benefit. Sure, the scheme will end in 3 years. However, by then, there would have been enough time to push productivity up even higher to make up for the full wage increase, securing a scenario where SMEs experience productivity gains and at the same time, a reduction in the dependency on foreign labour.

How about the claim that this policy uses taxpayers’ money to help businesses?

First, one must be clear that this money goes first and foremost into the pockets of employees, up to a salary cap of $4000 a month. This is equivalent to the 70th percentile of Singaporean workers. What the government is doing is incentivising businesses to raise wages which they might not have otherwise done so in the first place. In addition, the pay-outs fall straight into the pockets of employees on top of wage increments, bypassing business owners entirely. Far from being an “unfair” initiative, the policy is actually a powerful, progressive tool that will raise salaries, and strengthen the redistribution process.

Second, one may argue that businesses will experience reduced costs. This is not entirely true. While wage increases are subsidised, one must recall the current policy in cutting in foreign manpower growth and the drastic levies and dependency ratio ceilings that come with it. Businesses are experiencing higher costs and may close down or relocate elsewhere without government support. If they do so, what would happen to their Singaporean employees? They may become unemployed. Besides, is it not the desire of the majority of taxpayers to see a fall in foreign manpower growth? In that case, and in light of the trade-offs involved, the support given to businesses may be seen as the ‘price’ to pay.

Finally, businesses are taxpayers too, and so are business owners. In fact, they contribute a far larger share to our tax pool than most Singaporeans. Two facts point to this conclusion. First, only 20% of Singaporeans pay income tax. Second, Singapore’s corporate tax (17%) is almost as high as its highest income tax bracket (20%). Hence, even if businesses do gain something out of these policies, it might not be appropriate to say that they, as significant tax contributors, are not entitled to their fair share of benefits.

So bottom-line: the Wage Credit Scheme, alongside the range of business initiatives in Budget 2013, are both effective and fair. Things look good. Let’s hope they turn out to be so.

The writer is also the founder and editor of the socio-political commentary site The Expository


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