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As voters bemoan influx of overseas workers, new rules push cost of doing business higher

Singapore tightens foreign labor curbs

Bloomberg

Singapore on Monday tightened curbs on foreign labor for a fourth consecutive year, as the government seeks to reduce companies’ reliance on overseas workers amid a public backlash over the influx.

The government will increase levies that companies must pay for lower-skilled foreign employees over the next two years and cut the proportion of overseas workers allowed in some industries, Finance Minister Tharman Shanmugaratnam said in his budget speech in Parliament. He raised tariffs on high-end homes while also announcing income tax rebates and cash handouts.

The push by Prime Minister Lee Hsien Loong’s government to reduce the city-state’s dependence on imported labor has led to a shortage of workers and increased business costs, after hundreds of thousands were allowed in annually in previous years. The clampdown has driven the jobless rate to a five-year low, and Lee has warned that curbs on foreigners will hurt expansion in Southeast Asia’s only advanced economy.

“We cannot cut off the flow of foreign workers abruptly, but we have to slow its growth,” Shanmugaratnam said. “We are therefore making these further adjustments, and we have to do so in full knowledge of the difficulties they will pose for many of our companies.”

An Association of Small and Medium Enterprises survey last year showed more than 8 in 10 firms face manpower strains. In a white paper published last month and endorsed by Parliament, the government 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 government will implement a 3.6 billion Singapore dollars ($2.9 billion) wage credit program to help companies cope with rising salaries, and give about SG$1.3 billion in corporate tax rebates over three years, Shanmugaratnam said late Monday.

“The government is attempting to lead Singapore into a new phase of its development, with higher productivity and less inequality,” said Vincent Conti, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “However, it recognizes that there will be some transitional pain as the economy undergoes structural change.”

A government-appointed panel in 2010 outlined seven proposals to restructure the Singapore economy, including raising productivity and relying less on foreign labor. The government blamed some industries’ use of cheaper, low-skilled foreign labor as a reason for low productivity last decade.

In the 2010 budget, the government said it will impose higher levies on foreign workers in industries from manufacturing to services and construction in phases over three years. In his 2011 budget speech, Shanmugaratnam announced such increases will also take place in 2013. Last year, he said the maximum proportion of foreign workers to local ones that companies can hire will be reduced.

“Businesses have to respond in new ways to the tight labor market,” Shanmugaratnam said Monday. “We cannot carry on in the same way.”

Unit labor costs rose 4.1 percent last year, and the central bank said in October they may climb as much as 4 percent in 2013. The Singapore economy grew 1.3 percent in 2012, the slowest pace in three years.

Lee’s ruling party faces 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.

The number of people in Singapore has jumped by more than 1.1 million to 5.3 million since mid-2004 as the government used immigration to make up for a low birthrate. There are 3.3 million citizens and 2 million foreigners on the island, which is smaller in size than New York City.