Singapore announced new steps to curb immigration as it tries to defuse one of its most contentious emerging political issues.
The rich Southeast Asian city-state has for years admitted large numbers of foreign workers to boost its population and to stay competitive with China and other countries with deeper pools of cheap labor. But Singaporean citizens are increasingly dissatisfied with the policy, which they say causes overcrowding and depresses local wages. Economists believe an over-reliance on foreign workers also is keeping productivity levels down, jeopardizing Singapore’s future growth.
Responding to those concerns, the government said in its annual budget Monday that it will raise levies on foreign workers in phases, starting in July. By 2012, employers will be expected to pay an increase of about S$100 (US$71) in per-worker levies in the manufacturing and services sectors, while charges for construction workers could be higher. The government also will introduce some additional changes resulting in higher levies.
Although relatively small in absolute terms, analysts say such costs are high enough to discourage some employers from hiring low-skilled workers from overseas, especially companies with big work forces in manufacturing and other industries, where profit margins are razor thin.
It’s unclear, though, whether the steps will placate citizens who feel the government hasn’t done enough to keep Singapore’s foreign-born population from growing too rapidly. Between 2005 and 2009, Singapore’s population surged by roughly 150,000 people a year to five million—among their fastest rates ever—with 75% or more of the increase due to foreigners.
Opposition leaders, including those in a new Reform Party created in 2008, have increasingly used the immigration issue to criticize the government, and may be getting some traction, analysts say. Historically, Singapore’s opposition parties have had limited growth, in large part because of the government’s ability to deliver solid economic growth and rising standards of living.
Given popular dissatisfaction over the issue, the government needs “to look like they’re doing something” on immigration, says Tim Condon, an economist at ING in Singapore.
The government has signaled for some time that it is willing to limit immigration, but it is unclear how far it would be willing to go. Singapore already has an exceptionally low unemployment rate of 2.1%, so any move to restrict labor flows is likely to be unpopular among companies that need more workers. Singaporean officials have argued that the higher costs will ultimately force companies to become more efficient instead of counting on cheap employees.
Monday’s announcement came on the heels of a government move Friday to curb rising property prices, another source of unease among Singaporean citizens. Aside from tightening rules for home-loan borrowers, the government introduced a seller’s stamp duty on all residential properties and residential land bought and sold within a year.
The Singaporean budget otherwise was notable for avoiding big hand-outs and stimulus such as loan guarantees or credit support to companies, focusing instead on long-term targets, including improving productivity by 2% to 3% a year over the next decade, compared with the 1% rate of the past decade.
In January 2009, Singapore announced a S$20.5 billion stimulus package to keep the export-dependent economy from falling deep into recession. The economy contracted 2% last year, much less than the 9% contraction the government initially estimated when it presented the stimulus.
“Budget 2010, therefore, looks beyond the immediate rebound in the economy,” Finance Minister Tharman Shanmugaratnam said. “It focuses on building up the capabilities we need for a phase shift in our economy over the next decade, with growth being based on the quality of our efforts rather than the ever-expanding use of manpower and other resources.”
He said the government will give tax benefits to companies that invest in skills and innovation, and will invest S$5.5 billion over the next five years to raise worker productivity.The budget deficit for the year beginning April 1 is estimated to be about S$3 billion, Mr. Tharman told Parliament in his fiscal 2010 budget speech.
—Sam Holmes contributed to this article.