The primary thrust of Budget 2013 in addressing manpower, productivity and wage relativities is very much a continuation of a series of measures initiated in the aftermath of the 2009 recession.
Singapore's Budgets have never been shy about venturing into the bedroom or the boardroom, but the range of economic measures in this one will affect business operations to such an extent that we will see the impact at the places we work, eat, shop and live in.
On manpower, this Budget is the fourth successive one to raise levies on foreign workers, and the second in succession to tighten their Dependency Ratio Ceilings.
To many observers, it was inevitable. By setting a target to slow foreign manpower inflows significantly by 2020, the Government was already committed to imposing further tightening measures.
On the other side of the productivity equation, it is the fourth successive year that refinements are being introduced to the Productivity and Innovation Credit scheme to improve its accessibility.
With the introduction of the Wage Credit Scheme, it is the third time that the Government is funding an innovation to shift wage relativities in favour of groups of Singaporean workers.
Although the earlier levy increases would have run their course by the middle of this year, the last Budget had already warned of further levies if needed. So from a policy standpoint, it is hard to fault the coherence of the message.
The graduated increases in levies since July 2010 are not something one should expect businesses to welcome, but there can be no mistaking the direction or the need to prepare for the new labour market reality.
Appreciated or not, the policymakers are merely doing what no one else can in a free market economy.
The levy increases price in the future limits to manpower growth that businesses will ultimately have to confront. By doing so, the long-term prospects for companies will be better than if they were left to be taken by surprise.
The approach of this Budget is palpably different from those of previous Budgets. The measures are stronger and more insistent. The deadline is also clearer: The reductions in use of low-wage manpower have to be achieved within the next three years. This clarity will be helpful for businesses in planning their adjustment strategies.
Nonetheless, the tone of this Budget betrays some impatience that the hiring appetite of businesses has persisted despite the combination of quantitative and price restrictions.
If I have any concerns with the Budget, it is that the changes should not be precipitous. More than the changes themselves, it is the pace of change in areas such as restructuring and manpower use that has given rise to issues such as crowding and made productivity gains elusive.
A less hurried pace of change in the past would have afforded us more time to adjust. If the pace of increase in foreign manpower in the last seven years or so has stressed Singapore society, then the pace of change as it moves towards reduced reliance should also be cautiously managed.
While the need for stronger measures on manpower and productivity is easy to understand, it is another thing to expect that they will quickly produce the outcomes wished for.
One only has to look at many of the developed economies to see that policy action alone does not easily lead to job creation, or to productivity gains. Our conundrum could be worsened if these two were to be viewed as contradictory.
I am sure that is not a belief anyone holds, let alone policymakers. But the reality is that the policy will depress the first in the hope of urging the second.
One of the main reasons cited for the United States' inability to quickly regain the millions of jobs it lost during the Great Recession is uncertainty. We should not underestimate the effect that too uncertain an environment could have on businesses, because any damage may not occur in degrees.
There is no guarantee that too sharp a fall in reliance on foreign manpower will not impair the generation of jobs. So Singapore is on a tightrope moving forward. Job losses are to be expected, and the pain of transition will be real.
That is a very dangerous tightrope to walk in too a short time.
The best way to ensure success is for everyone involved to walk it hand in hand, and to make sure both businesses and workers have enough time to adjust.
firstname.lastname@example.org The writer is an associate professor at the School of Business, SIM University
This article was first published on Feb 27, 2013.
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