Apply foreign worker levy to other jobs

Hi Mr Tan


The large immigration of foreigners into Singapore is one of the most divisive issues in Singapore today. There are many Singaporeans who are unhappy and bitter about the large number of FT that have been allowed into Singapore. They feel threatened by these foreigners as many of them have proven themselves to be as hardworking and capable as Singaporeans. Their salary expectations are significantly lower. A fresh graduate from NUS for example expects to earn $2,500 to $2,800. A graduate of similar calibre from China or India is willing to work for between $1,500 to $1,800.


The large gap in salary expectations has led to large amount of economic pressure to employ foreigners rather than Singaporeans. The common thinking among many Singaporeans who are employees is that businesses are greedy and immoral. In the pursuit of profit, they would sack their own countrymen and employ foreigners.


The truth however is a lot more complex. All businesses have to operate in a competitive global environment. Consumers value goods based on quality and price; they do not take into account who made them. Within Singapore, if you employ only Singaporeans while your competitors use foreigners, you will not be able to compete. Outside of Singapore, you will lose to global competitors who are willing to use the cheapest source of labour to produce their goods. Hence ultimately if you use a Singaporean only policy to run your company, then your business will most likely fail.


Recently, in response to negative sentiment on the ground, MOM has begun to tighten the issue of the various types of passes. Many speculate that this is window dressing ahead of a widely anticipated election. Regardless of the intent, this is not a viable long term strategy. This is because technologies like the Internet have made it very easy for business to cross national boundaries. As such, if MOM persists with a policy of not allowing foreigners into Singapore, the Singapore economy will eventually be hollowed out.


The emergence of an abundance of cheap and capable foreign labour means that the income of Singaporean workers WILL fall over the next 5 to 10 years. The unemployment rate among workers who are Singapore citizens will also rise. There is no known economic theory or policy which can stop or reverse this. This fall will continue until a new equilibrium is reached. This equilibrium is such that the income of Singaporean workers is comparable to that of workers from India and China. Here it should be noted that there is no magic economic law which states that the income of Singaporean workers must always be higher than those from India and China.


This unpleasant economic truth needs to be communicated to Singaporeans so that they can understand and accept the new economic reality. If the economic reality is hidden behind half-truths like “job redesign” and “productivity improvement”, then the bitterness and resentment will be even greater then the truth is known. I label “job redesign” and “productivity improvement” as half truths as they are completely ineffective ways of addressing the problem. This is because any training or re-design improvements that you do for Singaporeans, you can also apply foreigners. Singaporeans are not so special so that the training or job re-design can only apply to them.


Open and honest communication is also necessary so that Singaporeans do not make the wrong decisions based on unrealistic expectations. At present, there is a property boom in Singapore. Many Singaporeans are borrowing large sums of money to buy property in anticipation of “More Good Years” and the ability to sell the property at a higher price. Eventually the property bubble will burst and there will be a sharp decline in prices. If we superimpose this against higher unemployment and lower wages, then we are setting the stage for a very painful and bitter period for Singaporeans.


Other than open and honest communication about the future, what we also need are policies which moderate or slow the expected decline in income. Also useful would be policies which help people cope and adjust. The following is a policy recommendation which will address many issues simultaneously.


The root of the problem is the salary gap between Singaporeans and foreigners. In recognition of this gap at the low skill level, MOM has implemented a foreign workers levy for maids and other foreigners that work in Singapore under the work permit system. Given the success of this policy, it would now be timely to extend this levy to those in Singapore under the employment pass or permanent resident scheme. The successful implementation of the foreign workers levy for so many years suggest that if it were applied to the employment pass/permanent resident scheme, it would not “chase away the talent”.


With the money collected from the levies, we can then move to restructure the CPF scheme. The Employer CPF contribution can slowly be reduced to 0%. This would be replaced by payment made from the levies collected from foreigners working in Singapore. As the number of foreigners in Singapore increases, this CPF contribution would increase.


By implementing a policy like this, we put substance into the nice-sounding policy announcements that “foreigners are in Singapore for the benefit of Singaporeans”. It would help heal our society which is increasingly being polarized along the lines of Singaporean and Foreigner. Also we moderate the narrowing of the wage gap between Singaporean and Foreigner in a manner that is least painful to Singaporeans.

Aurvandil