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Budget 2013: Co-wage scheme to help employers

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The Singapore government has announced it will be setting aside S$3.6 billion under the Wage Credit Scheme (WCS) in this year’s Budget, to help businesses provide salary increments.

The WCS will co-fund 40% of wage increases over the next three years, and will apply to employees earning up to a gross monthly income of S$4,000.

This scheme falls under the three-year Transition Support Package, which will provide S$5.3 billion worth of support to local companies in terms of restructuring and sharing productivity gains with staff.

The package includes the Productivity and Innovation Credit (PIC) Bonus, which encourages more companies to tap on the scheme to boost productivity in the workplace. Companies that spend a minimum of S$5,000 in PIC activities in a year are entitled to a dollar-for-dollar match, which will be paid over and above the existing PIC benefits. This is expected to cost the government S$450 million over the next three years.

Businesses in Singapore can also look forward to a Corporate Income Tax (CIT) rebate of 30% of tax payable capped at $30,000 per year of assessment. This will help companies cushion cost pressures, and the rebate will also last for the next three years.

“The further tightening of foreign labour policies, coupled with a more liberalised Productivity and Innovation Credit scheme, will push and pull companies to invest in driving higher productivity,” Grahame Wright, partner for human capital at Ernst & Young Solutions LLP, said.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said Singapore cannot expect to cut off foreign labour dependency hastily, but rather taper off its growth.

He said foreign worker levies for work permits and S-Pass holders will increase for across all sectors in 2014 and 2015, adding some of the measures will target sectors such as construction, process, services and marine sectors more considerably. The minimum qualifying salary for the S-pass will increase from S$2,000 to S$2,200 beginning July 2013.

“The basic reality is that these sectors which are most dependent on foreign workers are also the ones furthest behind international standards of productivity, and which account for the lag in productivity in our overall economy,” Shanmugaratnam said. “The tightening of foreign worker policies is therefore aimed mainly at reducing reliance on manpower, not merely replacing foreign workers with locals.”

While George McFerran, managing director for eFinancialCareers APAC, said it is clear the government is putting Singaporeans at the heart of the local workforce, he is concerned this will create a “more challenging operating environment for businesses and potentially lead to a decline in the levels of foreign investment”.

“Within financial services the move to tighten employment pass eligibility criteria, especially for Q1 passes, may accelerate the shift of certain functions overseas. Since the tightening of foreign labour began in 2010, we have witnessed an increasing number of banks in Singapore off-shoring back-office operations elsewhere in the region and this is likely to continue,” he said.

McFerran added although it is encouraging that the government has indicated a widespread consultation, employers will be concerned that the new measures might “limit their ability to select top talent from a global pool of candidates without slowing down the recruitment process”.

The budget also highlighted changes to the overall Dependency Ratio Ceiling (DRC) in the services sector. The DRC, which refers to the maximum permitted ratio of foreign workers to the total workforce that a company is allowed to hire, will be cut by 5%, bringing it to 40%.

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