By Wong Chun Han
Raising the foreign
worker levy will not reduce Singapore’s dependence on foreign
labour or raise productivity, but will increase the financial
burden on workers and employers, social workers and analysts
say.
The levy hike – part of the
government’s plan to raise productivity and control the influx of
foreign labour – will not work, critics argue, as employers will
pass on the additional costs to their foreign workers, thereby
diminishing any incentive to switch to hiring Singaporeans.
“In the past, whenever foreign
worker levies were increased, a lot of employers simply just passed
on the increases to their workers, either by cutting their pay or
reducing their benefits,” said financial analyst Leong Sze
Hian.
Wages for locals working or seeking
jobs in foreigner-dominated sectors would fall correspondingly,
leaving unsolved a fundamental social problem – stagnating salaries
for low-income Singaporeans.
This in turn hinders any attempt to
raise labour productivity, he said. “If you’re struggling to make
ends meet, how could you be motivated to raise your
productivity?”
Companies hiring foreign workers
are required to pay levies at rates dependent upon their industry
type, the workers’ skill levels, and the number employed as a
proportion of the company’s total workforce.
Changes to the
levy, which includes raising rates and adjusting the
tier system, were announced Monday by
Finance Minister Tharman Shanmugaratnam during his
budget statement in Parliament.
They will be introduced over five
phases over the next three years, starting 1 July this year.
The government meanwhile has
downplayed potential negatives. Manpower Minister Gan Kim Yong
told MediaCorp on
Wednesday that the levy hike’s impact on businesses
would be “minimal”, as long as employers tap into schemes designed
to support their productivity drives.
Concerns over the hike’s
effectiveness were first raised earlier this month, after it was
proposed by the
Economic Strategies Committee in a report.
“Unless it was a massive increase,
a rise in the levy would be unlikely to discourage employment of
foreign workers,” wrote John Gee, president of social service
organisation Transient Workers Count
Too, in a letter to the
Straits Times dated 5 February.
The levy “would just be an
increased tax on foreign labour employment”, which “is likely to
increase burdens on employers and workers without achieving its
stated goal,” he added.
Foreign workers – many of whom work
in very low paid jobs in construction, marine, manufacturing and
service industries – would suffer the most as a result. The levy
hike “will very likely lead to a rise in cases of employers
attempting to deduct money from workers’ salaries on dubious
pretexts,” Gee said.
Despite laws forbidding such
practices, dishonest employers often cut costs by taking money, or
‘kickbacks’, from workers’ salaries. These ‘kickbacks’ are
disguised on pay slips as authorised deductions, such as utility
bills, food expenses and loans.
“Employers passing on business
costs to their foreign workers is something that is pretty common
in Singapore,” said Jolovan Wham, a social worker at the Humanitarian Organisation for Migration
Economics.
This is because employers are savvy
enough to not leave any paper trail or substantial evidence that
can lead to prosecution, he explained.
Rather than raising the foreign
worker levy, the government’s aims – helping low-income
Singaporeans and mitigating exploitation of foreign workers – may
be better served by the introduction of a minimum wage.
Setting minimum wage conditions
would make workers “feel more fairly rewarded and salary levels in
some sectors might start to look a little more appealing to
locals,” Gee wrote.
Wham believes that a minimum wage
policy would be more effective in reducing labour exploitation.
“I’ve seen a worker who was given a
basic monthly salary of $330 only,” he said. “The point of
legislating one is to provide legal remedies for unscrupulous
employers who grossly exploit low wage workers with little
bargaining power.”
“The minimum wage can be pegged at
a level that is affordable to the majority of employers, and be
subject to periodic review by the National Wages Council,” Wham
suggested.
However, he conceded that it is a
move the government is unlikely to make, due to concerns over its
negative impact on labour costs and investor sentiment.
“The minimum wage is a very blunt
instrument,” said Leong, who is president of the Society of
Financial Service Professionals. “You don’t give any flexibility to
companies and sectors to remain competitive.”
An alternative is to direct some of
the levy receipts into the Workfare Income Supplement
(WIS) scheme, he said.
Leong estimates that current
government receipts from the foreign worker levy to be over $1
billion annually, which could rise over $3 billion once all the
scheduled changes to the levy system come through by July 2012.
He suggested that WIS payouts, 71
per cent of which are funneled directly into workers’ Central
Provident Fund accounts, could instead be made entirely in cash.
This would directly improve salaries for many low-income
Singaporeans, provide greater incentives to raise productivity.
“It’s not that people don’t want to
take on certain jobs, but that the pay is simply too low and they
can’t survive on them,” Leong said.
The changes to the foreign
worker levies
Starting 1 July, levies will be
raised for most Work Permit
holders from between $10 to $30.
The tiered levy system will also be
tightened – in manufacturing for instance, the lowest tier for
firms employing up to 40 per cent foreigners will be reduced to 35
per cent, with the middle tier adjusted accordingly to range from
35 per cent to 55 per cent. The highest tier for the manufacturing
sector remains at 55 per cent to 65 per cent.
Manufacturing and service companies
can expect a total levy increase of about $100 per foreign worker
on average, while the construction industry will see higher hikes,
the Ministry of Finance said in a statement.
The graduated hikes and adjustments
to the levy tiers will be phased in every six months until July
2012.
Employers will also have to fork
out more for S Pass
workers – mid-level skilled foreigners drawing fixed
monthly salaries of at least $1,800.
The system will be expanded to
comprise two tiers effective 1 July. The S Pass worker levy will
become $100 and $120, rising from the current single rate of
$50.
The rates will be raised every six
months thereafter, until they reach $150 and $250 by July 2012.
