Singapore budget heavy on social spending

SINGAPORE unveiled a budget heavy on social spending yesterday and imposed new curbs on companies hiring foreign workers as the city-state tries to reduce its dependence on overseas labour and address a widening income gap.

Singapore, the Asian base for many Western multinationals and banks, has been trying to restructure its economy by getting restaurants and other services firms to boost productivity and curb their reliance on low-skilled foreign workers.

The government is also trying to narrow an income gap that is one of the largest among developed countries, and the latest budget included increased subsidies for pre-school education as well as cash transfers to Singaporeans earning less than S$1,900 (RM4,750) a month.

"We need to intensify this economic restructuring and skills upgrading so as to achieve quality growth. If we do not do better in raising productivity, we will be caught in a situation where businesses lose competitiveness and wages eventually stagnate," Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said in his budget speech.

Singapore's labour productivity fell 2.6 per cent last year, reversing from growth of 1.3 per cent in 2011.

The long-ruling People's Action Party is facing increased pressure from an electorate angry about a surge in immigration that critics say has resulted in overcrowding, rising prices and competition for jobs and housing.

The budget for the fiscal year beginning April 1 included an increase in the levy that employers must pay to hire low-cost foreign workers that will take effect in July 2014 and July 2015.

"The increases will be most significant in sectors where productivity growth is weak and the growth of the foreign workforce is significant," Tharman said, citing the construction and marine sectors as among those industries that will be affected.

He also said the ratio of low-cost foreign workers that companies in services industries can hire will be reduced to 40 per cent of the workforce, down from 45 per cent currently.

The government also will help companies cope with the tighter labour market by offering S$5.9 billion in various schemes to help firms upgrade.

Tharman signalled the government will become tougher on companies hiring professionals and managers from abroad.

"The Ministry of Manpower will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices."

The government's efforts to curb the number of foreign workers have raised the ire of employers, with the American and other chambers of commerce complaining of labour shortages and the Restaurant Association of Singapore saying eateries may be forced to shut down or move abroad.

Irvin Seah, an economist at DBS bank, said the country's ongoing restructuring has already started to hurt the economy, with some multinational firms looking to move to other regional locations because of rising costs.

Singapore expects an overall budget surplus of S$2.4 billion for fiscal 2013/14, equivalent to 0.7 per cent of gross domestic product. For the fiscal year 2012/13, the overall budget surplus is likely to hit S$3.86 billion. Reuters