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Singapore seeks to slow surge in foreign workers

The government will lower the percentage of foreign workers that manufacturing and service companies can employ and continue a four-year scheme to increase immigrant worker levies, Finance Minister Tharman Shanmugaratnam said in a budget speech.

“We have to reduce our dependence on foreign labor,” Tharman told parliament. “It’s not sustainable. It will test the limits of our space and infrastructure.”

“A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society,” he said.

The jump in foreign workers during the last decade has become a contentious political issue in the wealthy island of 5 million people, as workers from China, India and other Asian countries have swarmed into Singapore’s growing economy looking for jobs. The ruling People’s Action Party recorded its lowest percentage of the vote since independence in 1965 in parliament elections in May.

Singapore doesn’t have a minimum wage, and opposition parties argue foreign workers help keep salaries low, especially at the expense of poorer Singaporeans. The number of foreign workers has risen 7.5 percent each year for the last two years and they now account for a third of the city-state’s work force, Tharman said.

The government has argued foreign workers do jobs Singaporeans won’t and have been necessary to boost economic growth as the local population ages and birth rates decline. However, companies are now expected to boost productivity through investment in technology and worker training rather than relying on foreign workers, Tharman said.

The government is lowering the percentage of foreign workers that manufacturing companies can employ to 60 percent from 65 percent and services companies to 45 percent from 50 percent, Tharman said.

“The easy availability of foreign labor reduces the incentives for companies to upgrade, design better jobs and raise productivity. Companies must adapt to the permanent reality of a tight labor market,” Tharman said.

To help soften the blow to small- and medium-sized businesses, the government will give a one-time cash grant of 5 percent of a company’s revenue up to 5,000 Singapore dollars ($3,950) and will subsidize up to SG$60,000 of productivity and innovation investment and 90 percent of worker training costs, Tharman said.

The cash grant and subsidies should offset the higher levies and stricter limits on foreign workers, said Allen Ang, managing director of Aldon Technologies, which provides parts and services to semiconductor companies.

“It’s true that some companies like to do a short-cut,” said Ang, who employs 70 workers, one-third of whom are from Malaysia and China. “If foreign labor is so easily available, why should they do something more troublesome to boost productivity? But now the government is forcing us to spend on innovation because the foreign labor isn’t so cheap any more.”

The government forecasts the economy to grow between 1 percent and 3 percent this year after expanding 4.9 percent last year and 14.8 percent in 2010.

The government expects a budget surplus this year of SG$1.3 billion, or 0.4 percent of gross domestic product. Higher than expected corporate and property tax revenue boosted Singapore’s 2011 budget surplus to SG$2.3 billion, or 0.7 percent of GDP.