Wednesday, February 23, 2011

How about this, Mr Gan KY?

Reading Today's article on "Higher Levy for Higher Leverage" (see below) baffles me. I fail to see how "higher levies will encourage companies to reduce their reliance on foreign labour and invest in productivity improvements" as quoted by Mr Gan, Manpower Minister.

In the first instance pro-foreign labour policies were drafted out by the Manpower Ministry which you, Mr Gan, and your predecessors had endorsed. The sudden U-Turn can only be related to the coming election. It definitely was not our call to 'invite' these foreigners into our country and then impose levies on them. But then I foresee there will be tweaks again to revert to pro-business post-election.

Don't get me wrong for coming to such a suspicious conclusion. A fair number of policies have been implemented as knee-jerk reactions to garner votes in the past. As a certain minister once said that housing was affordable, only to U-Turn and implement four to five cooling measures after those words. Even so someone said that flooding cannot be prevented, only to have new roadworks and raised ground in the next month thereafter.

Pre-election can do wonders. Post-election however is an entirely different ballgame as many have found out.

Now to higher levies. I wonder who benefits from the increase of levies. The government. Who will transfer the cost of the increase of levies? Hiring companies. Who will get the brunt of the levies' increase? Workers. This will ultimately result in the suppression of their wages. Is this true?

Simple analogy. Just say hiring a local costs SG$1200 in the construction industry (I just said, for example. Don't write, I won't reply) and hiring a foreign labour costs SG$800. With the increase of levy, hiring a foreigner msy now cost SG$1100. So there isn't really much of a difference unless the increase is so high that hiring a local becomes cheaper. So I don't see how this increase of the levy will yield better calls for a local to be hired.

The hiring company probably will depress the foreign labourer's wage to SG$700 to offset the levy increase and meet its total labour cost of maximum SG$1100 payout. A local's expectant wage will have to be adjusted to SG$1000 - 1100 instead of the previous market rate of SG$1200.

I may not have the right figures but assuming I am right in the above example, it can quickly be seen that such an increase of levy did not help a local at all. So why would my minister say that the levy increase will discourage companies from hiring foreigners?

But I definitely know who reaps the largest benefits - the government. In my opinion these levies are free money for them just like ERP and COEs did.

Don't get me going into 'productivity improvements'. Truth be told I have absolutely no idea how 'higher levy' equate into 'productivity improvements'. I seriously think a lot of ministers and MPs ought to have these 'productivity improvements' imputed into their lives if I were to base performance with their last-drawn salaries. Is there a matrix calculation or unit costing to exemplify their productivity? I think not.

Anyway let me suggest a better approach to this 'higher levy towards a higher leverage' quotation.

How about limiting the number of foreigners into Singapore to begin with? That will definitely encourage hiring companies to look for locals.

Next let us increase the levies these firms such that it becomes more expensive for them to hire foreigners than locals. Especially so when a matching skill can be found locally.

Automatically we will not have issues in which locals will be side-stepped. Perhaps we can even give these levies the government had been collecting and integrate it into the local workers' wage structure. Then we will have locals willing to take up such jobs because they pay a decent living.

The whole issue is not because locals are not willing to take up these menial jobs (I don't see this problem in Australia or US), but because the wages are so pathetic that locals would rather find other jobs.

The gist of this article is this -
The increase of levies not only depresses the wages of foreign workers, it does not translate into better wages for locals. It purely fills the government coffers without addressing the angst and doubts of our immigration policies.

And throw in the word 'productivity improvements' to sound complex and confounding. I get the shivers whenever 'divine beings' quote 'productivity' in the same vein as 'globalisation'...

... and 'world peace'. Brrr.

Here is Today's article (link here):

Higher levy for greater leverage
by Travis Teo and Joanne Chan
SINGAPORE - Even as property analysts expect the latest foreign workers levy hikes to push up construction costs, Manpower Minister Gan Kim Yong reiterated yesterday the move's necessity in order to hasten the Republic's productivity drive.
Speaking to MediaCorp, Mr Gan noted that the higher levies will encourage companies to reduce their reliance on foreign labour and invest in productivity improvements.
Said Mr Gan: "We don't have a lot of time because the other countries are also improving ... If you look at the services sector, for example, we're roughly about 75 per cent of the service productivity in Hong Kong. So we're behind but not too far behind." 
He added: "Therefore, we have to step up ... and this is a good time to do that because we had strong economic growth last year."
Acknowledging the concern and anxiety of employers, Mr Gan noted that some companies have taken the productivity drive "seriously" and had implemented relevant measures.
But as for concerns that the higher labour costs will be passed on to consumers, Mr Gan urged companies to rethink their strategies and stay focused on raising productivity.
The construction sector, for instance, has a productivity road map, supported by S$250 million in funding. "But the progress, we believe, can be hastened. It can be speeded up," he said. 
Keen competition will force companies to become more efficient, he added.
The latest changes to foreign worker levy rates will be phased in from next January to July 2013 at six-month intervals.
Meanwhile, analysts told MediaCorp that the hike - which will be felt most keenly by the services and construction sectors - will put a squeeze on the margins for construction firms and developers. 
They noted that the increases come at a time when the Government has increased land supply and rolled out cooling measures. 
Said Chesterton Suntec International head of research and consultancy Colin Tan: "In a rising market it doesn't matter... The problem comes when prices are starting to correct."
The analysts noted that, while it was possible to contain cost increases with improvements in productivity, it would not be easily achieved.
Some companies have shown that one way to counter rising manpower costs in the construction industry is to make the pre-fabrication process more efficient. For example, Tiong Seng Contractors uses lighter materials, such as aluminium, in the production process instead of steel, which is traditionally used.
Another way is to build bigger pre-fabrication components and tap economies of scale.
But improving productivity also requires companies to invest in supervisors and managers. Mr Andrew Khng, president of the Singapore Contractors Association, said: "Productivity is also affected if the middle managers or middle-level supervisors are not trained and if we can't retain them, then the continuity of your productive journey might take a step back."
Another strategy to keep costs in check is to move the pre-fabrication process to nearby countries where labour is cheaper. 
For instance, industry insiders point out that the underground tunnels that MRT trains run through are being built in Malaysia.
But gains from productivity improvements may take time to materialise. In the short run, higher construction costs may push developers to set their asking prices higher when launching new properties.


Anonymous said...

The methodology is clear.

Whenever there is a problem (often created by themselves), the solution is to impose a tax/levy.

Such funds go into their coffers, which is part of their KPI.

Extrapolate this to other ministries, you would see many coffers being filled up to the brim. Hence, the large budget surpluses (you need to decipher these from the official figures).

Toll-seeking schemes are signs of corruption in society. The methodology adopted is such a scheme. Full stop. Period......


Alan Wong said...

I am more inclined to think that our Govt Ministers can't really think for themselves whenever they think that increasing foreign worker levies will automatically lead to increased productivities.

Maybe yes if they decide to ban old workers above a certain age from working or provide them with a pair of automated legs or hands so that they can be cheaperer, fasterer or betterer workers.

If we are not even prepared to have a min wage legislation or pay reasonable wages for our workers, do you think their productivity will ever increase ?

zig70 said...

Spot on.It does make sense.These PAP guys think that they are economic gurus but actually they are a big entrepreneur in conship.I wonder how long can they do these to Singaporeans? Just wish it will end in this coming GE.Finger Cross!