SINGAPORE: Years of easy growth based on foreign labour and low wages will increasingly be a thing of the past if Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam’s move to further rejig the economic and wage structure works out.
A S$5.9 billion quality programme has been introduced with the aim of helping businesses upgrade, create better jobs and raise wages.
The centerpiece of that programme is a government plan to co—fund pay increases for Singaporeans.
Meanwhile, additional steps were taken to further wean companies off foreign workers.
The restructuring of Singapore’s economy started in 2010 and Mr Tharman said restructuring efforts need to be intensified in order to achieve quality growth.
Singapore, he said, 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 difference 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. Several Chinese coastal cities, for example, are catching up in industrial robotics, so as to compete with German and Japanese manufacturers."
Among the measures announced is a special Transition Support Package which includes the Wage Credit Scheme aimed at raising wages.
The other two components of the three—year Transition Support Package include the Productivity and Innovation Credit Bonus and Corporate Income Tax Rebate.
Under the (WCS) scheme, the government will co—fund 40 per cent of wage increases for Singaporean workers earning up to a gross monthly wage of S$4,000.
It is expected to cost the government S$3.6 billion over three years between 2013 and 2015.
To help companies cope with higher costs, the government will also provide a special corporate income tax rebate of 30 per cent of tax payable up to S$30,000 per year of assessment.
This will be applicable for YA 2013 to YA 2015.
At the same time, to help individual firms raise productivity, the government is making it easier and faster for businesses to make claims for the Productivity and Innovation Credit.
A Land Productivity Grant will also be introduced to help companies intensify the use of land in Singapore.
Meanwhile, foreign worker policies will be further tightened.
Mr Tharman said Singapore cannot cut off the flow of foreign workers abruptly, but it has to slow its growth.
And this latest round of adjustments has been made in full knowledge of the difficulties they will pose for many companies.
Mr Tharman said foreign worker levies for work permits and S—Pass holders will increase for all sectors in 2014 and 2015.
But some measures are targeted and will affect the construction, process, services and marine sectors more significantly.
Overall, foreign workers now account for nearly 34 per cent of Singapore’s total workforce.
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."
In the construction and process sector, for instance, the government will mandate more manpower efficient designs and technologies in building projects.
Levies for less—skilled Work Permit Holders will also go up by S$150 between 2013 and 2015.
In addition, a steeper levy increase of S$300 will apply for workers hired outside of the firm’s Man—Year—Entitlement (MYE).
Mr Tharman said there will be no further cuts to the MYE in construction sector this year because by July 2013, the sector will have a significant cumulative reduction of 45 per cent since 2010.
For the services sector, the overall Dependency Ratio Ceiling (DRC) and S Pass Sub—DRC will each be cut by five percentage—points.
This brings the overall DRC for the services sector to 40 per cent and the S Pass Sub—DRC to 15 per cent.
Dependency Ratio Ceiling (DRC) refers to the maximum permitted ratio of foreign workers to the total workforce that a company is allowed to hire.
For existing workers, companies in the services sector will have till June 2015 to comply with the new DRCs. Companies will not be allowed to bring in new foreign workers beyond the new DRCS from 1 July 2013.
As Singapore restructures its economy, Mr Tharman said it must also develop capabilities for new growth industries. Therefore, the government will set aside S$500 million over the next five years to support the manufacturing sector and S$90 million to grow the emerging satellite industry in Singapore.
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