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.
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Wednesday, February 09, 2011

Brilliant con artists or intelligent morons

Let me share this simply story.

A certain Peter allowed Paul to safe keep his money. When Peter requested it back, Paul not only returned his money, Paul slapped Peter with an interest.

Does this make any sense to you? Does Paul need to charge Peter any interest when it first belonged to Peter? In addition Paul had the luxury to use the money to invest and reap the profits. In fact I'd reckon Paul should pay profit dividends to Peter for using the money.

That is how the stocks of a company work for me and pay me dividends.

As simple as this analogy, I fail to understand how REACH has the decency to propose the ridiculous Individual Unemployment Credits scheme? Labour economist Tan Khee Giap even has the audacity to think it is welfarism! How does that constitute giving welfare, you tell me?

The CPF is our blood-earned money. How can it be used as a loan to us when it belonged to us in the first place? Let's be rational - Today Online should not even publish such a laughable article.

I am no economist or financial guru but I immediately caught the sheer stupidity of it all. Using my money to loan back to me and charge me an interest. What a farce! The poor will be made even poorer. How smart is that for the Associate Professor? Either Tan Khee Giap and the REACH workgroup are brilliant con artists, or intelligent morons.

But... but there is no such thing as an intelligent moron. Exactly. That leaves us with only one choice. I'm sure you are smart enough to figure it out.

From Today Online:
Calls for leeway in use of CPF
Better support programmes needed for the involuntarily jobless: REACH
by Teo Xuanwei
SINGAPORE - It is a long-held position of the Government: Central Provident Fund (CPF) savings are mainly one's retirement nest eggs.
This has, however, not stopped one group from persisting with calls for some leeway in using CPF monies - in the form of short-term loans - because of what it sees as a pressing need: Involuntary unemployment.
This, as older workers, particularly those on low wages, await the impact new re-employment laws kicking in next year - mandating companies to allow eligible employees to continue working till age 65 - will have on them.
To this end, a workgroup set up by the Government feedback portal, REACH, has called for better support programmes for those who involuntarily end up jobless. 
The workgroup was one of three formed last year to look into selected key policy concerns. The other two groups focused on promoting better integration between Singaporeans and new immigrants, and providing better support for single and low-income caregivers taking care of the elderly.
One of its proposals, termed Individual Unemployment Credits scheme, allows workers to take a loan (based on a percentage of their last-drawn salary with a cap) from their CPF accounts for three months after they become involuntarily unemployed. The loan has to be paid back upon employment.
Workers will have to contribute 1 per cent of their monthly income, up to a cap, to this scheme, with equivalent co-funding by the Government.
Another proposal, Wage Insurance Scheme, caters to those who take on a lower-paying new job after being involuntarily unemployed, by subsidising 50 per cent of the salary difference between the two jobs. The scheme is also funded via a 1 per cent co-payment by workers and the Government.
A third proposal is to give out a "modest monthly stipend", in the range of $200 and $300, to individuals aged 65 and above to help them meet their basic consumption needs.
Means-testing, based on income level and asset ownership, can be used to determine eligibility, proposed the workgroup, chaired by NTUC Learning Hub chief executive Zee Yoong Kang.
But it noted that this basic retirement grant is intended to be only one component of retirement adequacy. Other components like part-time work, personal savings, the Workfare Income Supplement (WIS) and CPF savings should make up the rest.
The Manpower Ministry said the Government is committed to helping older and low-wage workers and will study the proposals. But it added that the budgetary implications of any proposal must also be carefully considered, so that any schemes that are rolled out are sustainable. 
Labour economist Tan Khee Giap agreed and cautioned against jumping into these "popular suggestions", saying they bordered on welfarism.
"Until you work out the details, such as how much it will cost over time and whether the State is able to pay, one should be very cautious about taking up these recommendations," said Associate Professor Tan of the Lee Kuan Yew School of Public Policy.
He felt that tweaks to the WIS would be "more viable and sustainable".
"Higher cash payouts that are tied to certain conditions, such as making the worker go for productivity courses or skills training, is a simpler, more clean-cut way to help this group of workers," said Assoc Prof Tan.
The WIS scheme tops up the incomes of older, low-income workers who earn $1,700 a month or less with cash and contributions to their CPF accounts.
Unionist Lim Kuang Beng, general secretary of the Singapore Industrial & Services Employees' Union, felt that the retirement grant was the only feasible proposal. He said: "Taking loans from CPF accounts will mean the individual has even less money to draw on when he retires (if he can't find a new job). And those on low wages may not have the money to co-pay for the insurance scheme."
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