Government Pays Employers to Pay Employees More

Among the measures announced in Singapore Budget 2013, the Government has said it will co-fund 40 per cent of wage increases given to Singaporean employees earning a gross monthly wage of up to $4,000 (starting from 2013). This is to provide support to  businesses to raise workers’ wages through a new Wage Credit Scheme which will cost $3.6 billion over three years.

I have two questions – how will this money be funded, is it from tax-payers’ money? Secondly, is it right that for our government to use public funds to help private companies off-set wage increases? Something just doesn’t feel right about this unprecedented move.

This Wage Credit Scheme (WCS) is to support employers (who need not even apply for it to get it) and is part of the Quality Growth Scheme (QGS)to spur businesses to upgrade, provide better jobs and raise wages, while making do with fewer foreign workers.  I am all for the goals of the QFS, but to actually provide cash to the businesses in this manner is not the right way to encourage them to become better pay masters. What happens after the WCS’ three-year period ends? Will the government give more money again by extending the scheme? And again and again?

Our PAP-government has been overly reliant over the decades on using money to solve all sorts of national issues down to even giving cash rewards to spur good character in students. It is time for our uncreative government to overhaul its’ mindset instead and it should make a genuine effort to change the mindset of employers too.

Tighten (note I said tighten not close) the tap on cheap foreign workers, get greedy landlords, HDB and JTC et al to ease off rental increases that are not justifiable, enforce policies to encourage employers to hire Singaporeans first and let’s see if the companies become more generous and innovative in their hiring policies for local talents (yes let’s start calling our people LTs to make them sound more attractive too).

Our local workers and local talents certainly deserve fair wages and fair employment policies. But using the formula of Our government> pays employers > to pay employees more is not the way.

Just like how it was ethically wrong to use public funds to the tune of $1.1 billion to subsidise two privatised for-profit transport operators SBS Transit and SMRT to bump up their fleet of buses and to help cover the running costs.

It is very disturbing that our government seems to have an unfettered hand when it comes to the use of public funds to help businesses.  On the other hand, they constantly tell us they have to zealously guard our reserves and are tight-fisted when it comes to spending more on social welfare matters.

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26 Responses to Government Pays Employers to Pay Employees More

  1. Although I’ve typically been against several PAP policies for a long time, this budget announcement actually is one that shows it’s on the right track. I’ve read through the Budget Report in detail and understand that most funds come from surpluses from government investments (projected to be in the tune of +7B or so), which probably can be traced back to “public funds” through CPF and whatnot.

    The government has a responsibility to ensure that companies do not end up suffering – a fate that will affect Singapore’s economy drastically. It is not correct to look at private companies as merely that – private – because ultimately they provide jobs for Singaporeans and stimulate the economy. Private companies are also the responsibility of the whole country.

    The solution to improve Singaporean employability is to increase wages and to expect companies to do that suddenly through the passing of a law is unfair and can result in extreme consequences for our economy.

    What the government has done is to provide a stimulus package to maintain our economy while compelling companies to re-invent and re-structure themselves to boost productivity (i.e, reduce dependency on manual labour), increase Singaporean employability and yet temper these costs with a variety of measures over the next 3 years.

    By the end of 3 years, the companies should be better positioned to run on their own feet. This, I feel is a fair balance.

    PS: The social programmes have also received a very huge boost in this Budget and it will do you well to read the entire report.

    • HI Nathanael thanks for your comments. I agree this budget is certainly one of the more enlighted ones and yes I am fully aware that it has given more to social programs this time. What I commented on in my last para was on the historical adamant stance of our govt on telling the people to be self-reliant when it comes to our social needs. This is why we are taken aback whenever they propose such generous schemes of co-funding businesses. On the $1.1 billion payout to SBS and SMRT for example, why did it have to be a straightout gift and not some sort of loan for example? Read this blog for more elaboration http://yawningbread.wordpress.com/2012/02/25/pap-government-in-messy-affair-with-new-sweetheart/

      If you read my post correctly, I said I fully support the government’s goals to help companies upgrade and restructure and to pay locals more. What I disagree with is the highly questionable use of public funds in the co-pay scheme as a way to get employers to raise wages. What happens after the 3 years of co-funding is over? Give more money again to co-fund in case the businesses are not forking out higher wages? My point is to question where is the boundary when it comes to using public funds to help companies and shouldn’t there be some sort of stringent criteria?

      On your point that “private companies is the responsibility of the whole country”. I disagree. Of course, the government has to provide the right environment and the right policies for all business to help them flourish. But at the end of the day, it is the business owners, who are in business to make money, who have to take responsibility to innovate and ensure their own survival.

      • here is another virw from a Reuters News journalist HI Nathanael thanks for your comments. I agree this budget is certainly one of the more enlighted ones and yes I am fully aware that it has given more to social programs this time. What I commented on in my last para was on the historical adamant stance of our govt on telling the people to be self-reliant when it comes to our social needs. This is why we are taken aback whenever they propose such generous schemes of co-funding businesses. On the $1.1 billion payout to SBS and SMRT for example, why did it have to be a straightout gift and not some sort of loan for example? Read this blog for more elaboration http://yawningbread.wordpress.com/2012/02/25/pap-government-in-messy-affair-with-new-sweetheart/

        If you read my post correctly, I said I fully support the government’s goals to help companies upgrade and restructure and to pay locals more. What I disagree with is the highly questionable use of public funds in the co-pay scheme as a way to get employers to raise wages. What happens after the 3 years of co-funding is over? Give more money again to co-fund in case the businesses are not forking out higher wages? My point is to question where is the boundary when it comes to using public funds to help companies and shouldn’t there be some sort of stringent criteria?

        On your point that “private companies is the responsibility of the whole country”. I disagree. Of course, the government has to provide the right environment and the right policies for all business to help them flourish. But at the end of the day, it is the business owners, who are in business to make money, who have to take responsibility to innovate and ensure their own survival.

  2. descended says:

    How is this supposed to work? Will companies just happen to be better positioned? In the first place, These companies had been fed on a soft, under-nourished diet of cheap abundant labor. In just 3 years, can they really undo the lost decade of productivity-intensive efforts? where is the part of a productivity program?

    To me, it seems this 3 years is to placate voters to get another 5 years of rule by the end of which enough new citizens can shore up its vote.

  3. Birdie says:

    Very simple….government tax companies more via higher FW levies. Government say I will pay 40% of wage increase to encourage companies to pay lower-paid Singaporeans more. In reality, company will not pay the lower-paid Singaporeans more than what they would have in the first place (in their annual salary review). In the end, Singaporeans still get paid the same. Companies claw back some from Government via the WCS but overall profits kena squeezed due to higher levies. Government takes in more revenue (levies) than it pays out (WCS) and claim credit for doing more for Singaporeans.

  4. Ying Cong says:

    Hi, Your guts are accurate this time, because this WCS might look enticing on first glance does nothing to improve the situation and infact has the potential to make things worse. Let me explain,

    -CARROT WITH MANY STRINGS ATTACHED-
    First is that this measure only addresses the surface of the problem but not the root, an assumption must be made here and that is companies do actually increase wage through this scheme. With this assumption in mind by transferring public funds directly to help fund wage increases it is essentially a handout with no effort needed on the part of the employer to get. People tend to get too focused on the wage side of things and forget to look at it from the employer side, what does this do for the employer? Thats right it is a move to lower the labour cost which if people dont have short term memory just happens to be the hot topic right now.

    The reason why many people are for the move to tighten cheap foreign labour is precisely to cut off or lessen the effect of depressing wages in the labour market. What this means to the employer is that they will have to face increasing labour cost and restructure their company accordingly to remain competitive. Yet this WCS works entirely in the opposite direction.
    As some have rightly pointed, at the moment companies are “addicted” to cheap labour and nothing less than a shock therapy is needed to cure them of this addiction, WCS does nothing to help in the therapy and infact is akin to another new drug that can potentially fuel another addiction.

    Also the transferring of money from public funds to companies is just not sustainable and does nothing to get rid of the root. (using taxpayers money to pay the taxpayer?) Normally the action of wage increase is the result of a healthy company in a strong and vibrant economy. What WCS does is to create the illusion of a strong and healthy economy by directly trying to affect the bottom line of companies (lowering labour cost). This move is entirely similar to the mass importation of cheap foreign labour only this time it is directly using the tax payers money to do so. While it has the potential to increase wages in the short-term in the long-run it is definitely going to create more problems as companies get “hooked” to this new drug.

    -THE BIG PICTURE THAT NEEDS TO BE LOOKED AT-
    There are essentially two problems here, the problem of low/depressed Wages and also the problem of companies who have problems surviving without cheap labour. The two of them needs to be addressed at the same time, addressing one and not the other will only provide a short-term relief and what we need is DEFINITELY NOT creating more illusions.

    Here i would like to remind people of the financial crisis back in 2008, companies who were in the red had two options to either declare bankruptcy or to restructure themselves and/or find ways to be in the Green again. But here comes big brother offering a 3rd solution – BAILOUT- which essentially is a handout cash to mask the fact that they are infact an unhealthy company. Now sure it can be positive if companies took that money and immediately went on to restructure themselves but thats not the main point, the main point here is that they had to pay it back. In our case theres really no pressure for companies to change, innovate or restructure it is basically a handout with no liability.

    Lucky for us there is a method of tackling these problems at the same time and not separately, and that is the health of the company itself. Healthy companies that are able to survive and compete without cheap labour is definitely the end-goal we SHOULD be looking at. The reasons are obvious, a healthy company is an extremely conducive environment where wages are fair and increments are less pressurizing to give. Any attempts to artificially affect the bottom line especially one with no liability does not help and can halt any meaningful restructuring and/or innovation.

  5. eastcoastperson says:

    Hi Jentrified Citizen,

    I share your concerns. This very direct intervention into the price of labour, along with other policies like the fast changing rules on foreign workers, don’t feel right to me too. I’m really worried because I suspect that, in the desperate quest for a nice round GDP number year after year, our government is veering ever more into the unorthodox. Not that we haven’t or aren’t experiencing it already, but I would be bracing myself for increasingly severe manifestations of the law of unintended consequences.

    Best,
    ECP

  6. chinleng says:

    I’ll be channeling the credit I received from the government to my staff as a bonus. We as employers need to do our part too. http://chinleng.tumblr.com/post/22110727133/special-employment-credit

  7. Thanks everyone for sharing your thoughts and adding to the discussion. @chinleng – good to know u will give that portion of the money to your staff but why as a bonus and not as a wage increase as it was intended? monthly wage increase is to help llow income workers to cope better with their daily living expenses.

  8. chinleng says:

    I’ve already increased the salary of my staff from Jan 2013. Let’s say $100 per month. So I’ll get $40 from the government for this $100 increment. So instead of keeping this $40 (co-fund) for the company, now my staff will get $140 in total instead. So by giving them as a form of bonus, my staff will be getting more.

  9. dotseng says:

    Gentlemen good evening to you all,

    “I’ve read through the Budget Report in detail and understand that most funds come from surpluses from government investments (projected to be in the tune of +7B or so), which probably can be traced back to “public funds” through CPF.”

    In other words Kumar what u r trying to say in a convoluted way is this is tax payers monies. I feel it is necessary to get this detail crystal clear.

    “The government has a responsibility to ensure that companies do not end up suffering – a fate that will affect Singapore’s economy drastically.”

    Well this is certainly new to me. And everyone who knows the philosophy of the PAP. Disagree under the strongest possible terms that if flabby firms go under this will affect the economy. On the contrary, anecdotal evidence has shown time and again when inefficient firms are allowed to die off naturally, then what will usually happen is a process of rationalization will take effect and the firms with the highest level of business IQ will simply increase market share and take up the slack created by those who simply shouldn’t be in business in the first place.

    I realize my methods are brutal and even unforgiving. But that is the only reliable way to create world class firms that can prosper without having to rely on the opium of cheap labor. Besides what you need to understand Kumar is many of these inefficient firms will not die – they will simply need to relocate their businesses elsewhere to leverage on cost leadership. They may go to Malaysia, Cambodia, Vietnam or even China. But it is too presumptuous to assume they will die and this will affect the economy negatively.

    On the contrary when these opium addicted firms move out of Singapore. Or wind up. This can only rationalize the rental market for industrial and commercial space which I might add remains one of the highest in the world. As since there will be less players. New incumbents and those firms that are winners will either step in or begin to expand their operations.

    Under the current formula. Stratospheric rental will never go down! What guess who benefits? 

    “The solution to improve Singaporean employability is to increase wages and to expect companies to do that suddenly through the passing of a law is unfair and can result in extreme consequences for our economy.”

    Sir, it gives me no pleasure to tell u, u r wrong again. The solution to improve the employability of natives has nothing whatsoever to do with wages and everything to do with increasing productivity and developing core competencies that can support a world class enterprise that is able to compete in the international market. Kumar u cannot put the cart BEFORE the horse and expect to make progress – this configuration of carving market share is virtually axiomatic in every industry.

    If what you say is true. Then show me one world class enterprise that has managed to hold it’s own in the international market by just paying it’s employees more money. What u r suggesting here borders on the surreal and alchemic. As u r forwarding a ridiculous calculus: higher wages = more natives will be hired = high performance. There is no such thing. 

    There remains only ONE reliable way to ensure more natives get employed and that is through a restriction on cheap labor that has been the root cause of why so many SME’s continue to languish at the bottom of the value chain. While many of us finger the SME’s for being addicted to the narcotic of cheap labor. What should also be underscored is the govt is equally addicted to levies as a lazy man’s way of generating tax revenue through levies – as a result to even suggest as you mentioned here:

    “What the government has done is to provide a stimulus package to maintain our economy while compelling companies to re-invent and re-structure themselves to boost productivity (i.e, reduce dependency on manual labour), increase Singaporean employability and yet temper these costs with a variety of measures over the next 3 years.”

    Is childish. What they are doing is simply rewarding inefficient and flabby firms that have no business running enterprises in the first place. And inadvertently penalizing well run firms by preventing them to grow organically by artificially keeping these zombie firms alive while they suck up precious real estate along with opportunity cost .What u r proposing will not inure businesses with the requisite imagination to prosper in a highly competitive world. In fact what we are likely to see after 3 years is more firms that shouldn’t even be in business running businesses, only this time, instead of being addicted to the opiate of cheap labor. All we will have despite the best efforts of these incompetent planners are firms who may be terminally addicted to government hand outs.

    And guess who foots the bill? The middle class lah…wither Singapore?

    Thank you Jentrified citizen. And please Kumar do try to take this constructively. I mean well.

    Darkness 2013

    p.s: I am writing from a field camp in the jungle using a very primitive and unreliable Sat-Com – should my post be garbled or the text out of synch do adjust accordingly JC. Many thx and sorry for bogging the bandwidth.

  10. g h says:

    If the government hires more people in the ministries and civil service and pays them more – that’s also taxpayer’s money. In certain sectors, the private sector has to compete against the government or government linked companies as well both in terms of hiring practices and for jobs.
    Many SMEs have no leverage to pay more money when bigger jobs in government pay more. There are no anti-competitive laws to protect smaller businesses from government linked companies bidding for jobs.

    Too many agendas are being confused and wrapped up. There are so many variables – not just cheap foreign labour – that have led to the state of our manpower situation. Things which are beyond our government’s control. Let’s get real about it and be more informed.

    • you are right in that there are many other variables besides cheap labour that affect the success of local businesses. SMEs are also in an unlevel playing field . The government and the businesses should work together to look deeper into all the issues. GLCs compete with SMEs and that is a fact. How fair is this given how far and deep the GLCs and state-related enterprises are in almost every sector (look no further than NTUC group as an unhealthy greedy example).

  11. Pingback: What did the middle class get from the budget? |

  12. Vampiric says:

    Government pays employer to pay employee more? What if the employer did not raise/adjust employee salary? How can we ensure employer raise employee salary? Will the employer be make to pay a certain amount of penalty if salary not increase?
    Also I would like to highlight last year Budget where Singaporean received Rebate on Water & Electricity Utilities Bills in a voucher form. It seems that it only applies to account holder of the Utilities Bills. What about those residing in same address but not account holder? The rebate was left unused eventually (e.g 1 household have four individuals receiving Utilities Rebate Voucher of S$120.00 each however only one deductions/Voucher is allowed i.e account holder). In this case the balance 3 individuals not only did not able to used its Utilities Rebate Voucher but also did not received any GST cash. In other words, these 3 individuals ended with NOTHING!!!

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  14. kaffeinnated says:

    This is how it will end up. The salaries will remain the same for singgies, the employers will pocket the budget from the government, and government will feel out had done its duty.

    Nothing changes. Case closed.

    Kaffein

  15. chinleng says:

    The details of the Wage Credit Scheme are here: http://www.iras.gov.sg/irasHome/wcs.aspx . As employer, we contribute our staff CPF to their CPF account. Hence, CPF board has the records of our staff salaries in 2012. So CPF just need to compare 2012 and 2013 total wage of the staff and they will know if they have received an increment. As @ape had mentioned, it is a co-fund. So 40% of zero increase is still zero.

    The part about employers not needing to apply for it simply means that no forms for us to fill. This cuts down on bureaucracy and unnecessary work. The CPF board record will show whether a staff had received an increment at the end of 2013.

    We should credit the government for making our system efficient in this case and cutting down on unnecessary paperwork.

  16. here is another view from a Reuters News Columnist on why the wage subsidy is a bad idea. http://blogs.reuters.com/breakingviews/2013/02/26/wage-subsidy-could-blunt-singapores-edge/

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