Budget 2012: Bosses biting the bullet on foreign worker curbs

Restaurant boss Daniel Tay has resigned himself to the fact that the Government is sticking to its tough foreign worker policy and is now considering moving some operations offshore.

'After this Budget, it is quite clear they won't change their attitude,' said Mr Tay, chief executive of the Bakerzin chain.

'I'll probably just start new food factories and outlets in Malaysia where costs are lower and staff easier to find.'

Most of the dozen bosses The Straits Times spoke to said they are trying to adjust to the reality that it will be harder, and costlier, to hire foreign manpower.

Almost all complain of increased staff costs - estimates range from 10 per cent to more than 30 per cent, although the increase is not just due to the levies, but also from paying locals and foreign workers higher wages.

Some are trying to adapt by being more productive while a few others are giving up the fight by either passing on the costs to consumers or moving some operations from Singapore altogether.

The Government has been raising the costs of hiring foreign manpower over the past two years by ramping up levies as part of the overall drive to raise productivity with the goal of raising incomes.

Levy increases began in 2010 and were raised in last year's Budget. Companies will pay between $250 and $750 in levies by the time all the changes have been implemented in July 2013, depending on the sector they are in and how reliant they are on foreigners.

Once all the increases are in place, employers could pay as much as six times more in levies than before the changes.

For instance, before 2010, employers paid $50 a month for an S-Pass, which has a minimum fixed monthly wage requirement of $2,000 and with an education requirement of either a diploma or degree. By July next year, they will have to pay at least $300.

Finance Minister Tharman Shanmugaratnam announced in last week's Budget that quotas, or Dependency Ratio Ceilings (DRCs), will be slashed by 5 percentage points, to 45 per cent in the services sector and to 60 per cent for manufacturing firms.

The changes will hit about 8,500 services-related firms and 500 manufacturing companies that are highly reliant on foreign manpower but not the vast majority of firms, said a Ministry of Manpower (MOM) spokesman.

The DRC changes are a result of the push to raise productivity and reduce dependence on foreign workers; they take into consideration the economic slowdown, the spokesman added.

The Man-Year Entitlement, a means to calculate the amount of labour needed for specific building projects, was also cut by 5 percentage points in the construction sector.

'To give affected companies time to adjust, the Government will provide a two-year transition period till June 2014 for the firms to comply with the new DRCs for their existing foreign workers, said the MOM spokesman.

Yet despite the higher levies last year, foreign employment continued to outpace local job creation, noted UniSIM economist Randolph Tan.

Of the 121,300 jobs created last year, nearly 80,000 went to foreigners, while locals landed 36,600. This was even higher than in 2010, when foreign employment rose by 54,400, official data from MOM showed.

'So I believe the Government has no choice but to cap foreign manpower levels using quantitative restrictions rather than simply relying on the pricing mechanism of the higher levies,' said Dr Tan.

Unit labour costs rose 3.4 per cent nationally last year, partly the result of higher levies, said economists.

Some bosses are having it worse, with those in manufacturing and construction saying that per unit labour costs have risen by as much as 30 per cent due to the higher levies.

For instance, labour costs in construction have gone up by at least 20 per cent since 2010, said Dr Ho Nyok Yong, president of the Singapore Contractors Association.

The situation is not much better in manufacturing.

Singapore Business Federation chief operating officer Victor Tay noted that owing to various factors such as higher foreign worker levies, higher minimum wage requirements for foreign workers and the competitive hiring landscape, some of the more labour intensive firms in manufacturing had said that they were experiencing some 15 per cent to 20 per cent higher manpower costs.

Firms warn that lowering the DRCs and higher foreign worker levies are going to exact a huge toll on their bottom lines, with no immediate reprieve in sight.

The lower DRC means that firms have to be more productive with the same number of staff or turn to local workers, who demand higher wages, as substitutes, said bosses.

At the same time, the base salaries for foreign workers have also risen over the past two years due to higher inflation, said Ms Pauline Shu, director at CEL Coatings, who said that labour costs have risen by 33 per cent.

'Foreign workers will not want to come to Singapore to make a living if the salaries they earn after deducting the cost of living do not make any sense,' she said.