S'pore Budget 2013 aims to up productivity, reduce foreign labor

Government eyes more productivity and less reliance on foreign labor with schemes to reward small and midsize businesses for innovation, and co-fund wage raises for local workers.
Written by Ryan Huang, Contributor

SINGAPORE--More incentives to help small and midsize businesses (SMBs) improve productivity and moves to reduce the country's reliance on foreign labor are two key components of this year's budget.

This will help the country achieve quality growth and make it a more inclusive society, said Singapore's deputy prime minister and finance minister, Tharman Shanmugaratnam, in parliament Monday.

Singapore's deputy PM and finance minister, Tharman Shanmugaratnam, delivering the budget in parliament.

"Raising productivity is not just our most important economic priority, but it enables us to build a better society," he noted, adding that higher productivity was the only sustainable way to raise wages for ordinary Singaporeans and provide jobs which gave people a sense of responsibility and empowerment.

Productivity through innovation, intensifying land use

Hence, the government will intensify its efforts at economic restructuring and skills upgrading, said Tharman.

This year, there will be more financial incentives for businesses to raise their productivity. The Singapore government has enhanced the existing Productivity and Innovation Credit (PIC) scheme with a new bonus for participating companies.

Businesses spending a minimum of S$5,000 in PIC activities in a year will receive a one-for-one cash bonus capped at S$15,000 per year. This will be for the next two years of assessment, up to Year of Assessment 2015, and paid over and above the existing PIC benefits.

Accoridng to Mak Oi Leng, partner for Tax at KPMG Singapore, the intention behind the PIC Bonus Scheme to help small businesses is positive. "However, it may need some tweaking to simplify and make more accessible. It would also be better if the quantum of the PIC bonus is higher, above S$5,000 a year," Mak added.

Another incentive will be rolled out to encourage companies to take part in industry-wide collaborations to help solve productivity challenges in their sector.

According to Tharman, the Collaborative Industry Projects initiative will be adopted in seven priority industries, such as food manufacturing, retail, textile and apparel, and furniture manufacturing. This is expected to cost the government about S$100 million over three years.

SMBs will also receive more help in working with large multinational companies (MNCs) to strengthen their competencies. The Partnerships for Capability Transformation (PACT) scheme, which was introduced for the manufacturing sector in 2010, will be extended to other industries.

Another new initiative is the Land Productivity Grant aimed at encouraging organizations to intensify their use in Singapore. There will also be help given to those relocating some of their operations offshore, including to the immediate region, but retaining their core functions in Singapore.
Tan Bin Eng, partner for business incentives advisory at Ernst & Young said: "The Land Productivity Grant has the potential to be a game-changer. It is a strong signal of the government's acknowledgment thatSMBs will need to examine all options, including relocation of some activities offshore, to ensure survival in this highly competitive globalenvironment."

Reducing foreign labor, raising local wages

Companies will also receive financial support to raise their employees' wages through a new Wage Credit Scheme, on which it the government will spend S$3.6 billion over three years.

Under the scheme, it will co-fund 40 percent of pay increases given to Singaporean employees earning a gross monthly wage of up to S$4,000. Pay rises given from 2013 to 2015 will be eligible.

Tharman noted Singapore also is looking to tighten its foreign worker policies to help businesses upgrade and raise wages toward "quality growth".

As part of this move, from July 1 this year, the qualifying salary for Specialist Pass (S-pass) holders will be raised from S$2,000 to S$2,200 per month. In order to level the playing field for local workers, a new tiered system will also be introduced where older and more experienced foreign workers will need to qualify at higher wage points. The number of S-pass holders is currently capped at 25 percent of the company's total workforce. 

In a bid to reduce Singapore's dependency on foreign labor, foreign worker levies will go up across the board from July 2014, and July 2015. These will be most significant in industries where growth is weak and the growth of foreign labor is significant, according to Tharman.

Foreign worker quotas also will be cut for the services and marine sectors, which means companies in these segments will have to hire fewer foreign workers or find ways to replace them.

From July 1, the service sector's quota will be cut from 45 percent to 40 percent. The industry will also see its Specialist Pass (S-pass) quota cut from 20 to 15 percent. These employment passes are typically used for mid-level junior executives with a monthly salary above S$2,000. 

Over the longer term, a framework will be introduced to ensure companies give fair consideration to Singaporeans in their hiring practices.

Leonard Ong, partner for tax at KPMG Singapore, said: "The thrust of this year's budget is to intensify the restructuring of the economy, that began in 2010, in order to move Singapore up the value chain. Again, we see more emphasis placed on improving productivity and reducing the reliance on foreign workers."
Ahead of the 2013 budget, key issues which tech SMBs ZDNet spoke with had highlighted included easier access to foreign talent to give access to a wider pool of talent.
In a statement, the Singapore infocomm Technology Federation (SiTF) noted existing manpower challenges faced by ICT companies would continue despite the assistance provided, as restructuring of the business will take time and mindset change.

"This is ironic. ICT is the key pillar for productivity and innovation, however, the ICT industry does not have enough manpower or the right people to assist all industries to improve their productivity," said Eddie Chau, Chairman of SiTF.

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