Singapore will probably force companies to further reduce their reliance on foreign labor in the 2013 budget, after a public backlash against the influx of workers led to the biggest demonstration in more than a decade.
Finance Minister Tharman Shanmugaratnam may cut the ratio of overseas workers companies are allowed to hire, according to Credit Suisse Group AG. To counter any labor shortfall, there may also be incentives to boost productivity, economists at Citigroup Inc. and Oversea-Chinese Banking Corp. said ahead of the Feb. 25 budget presentation.
Thousands gathered in a rare political protest on Feb. 16, signaling concerns that foreigners are taking jobs from locals and driving up housing costs haven’t abated even after Prime Minister Lee Hsien Loong tightened hiring rules in recent years. Lee has warned that the labor curbs will slow economic growth, while rising costs are bedeviling businesses such as The King Louis restaurant, where all the full-time waiters are foreigners.
“I’m worried every time the budget comes around,” said Sebastian Teow, marketing manager at the medieval-themed restaurant. Teow is already struggling to fill positions at the outlet and coping with higher taxes for hiring overseas workers in recent years, he said. “We are really hoping there won’t be higher levies as they are eating into the profits.”
Singapore’s economy grew 1.2 percent in 2012, the least in three years. The island is in a “new phase” of growth where it must adjust to a smaller pace of expansion, and hiring constraints are among the reasons for last year’s slowdown, the prime minister has said. The government forecasts growth of 1 percent to 3 percent this year.
“The ongoing challenge of sluggish growth coupled with a high-cost environment remains a hurdle to both businesses and workers alike,” said Selena Ling, an economist at Oversea-Chinese Banking in Singapore. The budget “needs to strike a balance between economic restructuring vis-a-vis manpower constraints and cost issues on the ground,” she said.
A report tomorrow may show the economy grew an annualized 2 percent in the fourth quarter of 2012 from the previous three months, faster than an initial estimate of 1.8 percent, according to the median of 11 estimates in a Bloomberg survey.
Elsewhere in Asia today, Hong Kong’s jobless rate rose to 3.4 percent last month, while in Europe, purchasing managers indices for the region showed a deepening contraction in manufacturing and services in February. The U.S. will release consumer price data for January, while economists predict a separate report will show jobless claims rose in the week through Feb. 16.
Lee’s ruling party is facing weakening support in the island that it has governed for more than five decades. The rising number of foreigners has contributed to competition for jobs, congested public transportation and surging home prices. The resulting public discontent contributed to record opposition gains in the 2011 general election, and caused Lee’s party to lose a parliament seat in a January by-election.
Last week’s demonstration was against a population policy that may see the number of people on the island rise to 6.9 million by 2030 from 5.3 million now. Lawmakers from Lee’s party endorsed a white paper earlier this month that outlined proposals to allow more foreigners through 2030 to boost the workforce.
The white paper predicted total workforce growth will ease to 1 percent to 2 percent annually through 2020, compared with an average rate of 3.3 percent per annum in the last three decades. The projections are “tough” for businesses, said Ho Meng Kit, chief executive officer of the Singapore Business Federation, which represents more than 18,000 companies.
In 2012, the government cut the proportion of foreign workers that companies can hire, and increased levies for employing them. An Association of Small and Medium Enterprises survey last year showed more than eight in 10 companies are facing manpower shortages.
Under current limits, employers in the construction industry can hire as many as seven foreigners for every local worker, compared with a ratio of 1.5 for manufacturers and 0.8 for services companies. Monthly levies that companies have to pay for such workers may be as much as S$650 ($524) per employee in construction, S$550 in services and S$500 in manufacturing.
SMRT Corp., the island’s biggest subway operator, said in January that its profitability in the next 12 months will deteriorate in part as staff costs “significantly increase.” Dozens of SMRT’s bus drivers from China held Singapore’s first strike in 26 years in November over a wage dispute.
Unit labor costs rose 6.1 percent in the third quarter from a year earlier, Statistics Department data show. They may climb 3 percent to 4 percent in 2013, the central bank said in October.
“The likely continued pressure on wage costs will be negative for offshore and marine companies, domestic transport operators and exporters,” Sanjay Mookim and Kwee Hong Ching, research analysts at Credit Suisse, said in a research note.
Shanmugaratnam may also announce more assistance for the poor and bigger wage supplements for low-income earners when he presents the budget to Parliament next week, according to Citigroup economist Kit Wei Zheng.
Singapore’s income inequality as measured by the Gini coefficient widened last year, according to the Statistics Department. Inflation averaged 4.6 percent in 2012 and the island is the third-most expensive Asian city to live in and the sixth globally, according to an Economist Intelligence Unit ranking published this month.
Last year, the government said it will make permanent a program to provide cash, utility rebates and medical funds for elderly and low-income households.
“Helping the lower-income segment of the society is likely to remain on the top of the lists as Singapore strives to be an inclusive society,” Francis Tan and Jimmy Koh, analysts at United Overseas Bank Ltd., wrote in a research note.