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Singapore Budget 2015: Sagging productivity could prompt new approach
THE thus far puny outcomes of Singapore's restructuring drive could prompt changes in the government's productivity narrative and growth target, as well as refinements to specific productivity initiatives.
This is amid the growing realisation that it will be no easy feat to achieve 2-3 per cent productivity growth per annum over the decade (view chart), the goal set out in 2010, observers say. With this year being the halfway point of that push, economists think Budget 2015 will mark a perceptible shift in the government's restructuring measures.
For one, several economists think the productivity growth target - described by the Ministry of Trade and Industry (MTI) as "ambitious" - will have to be lowered. Bank of America Merrill Lynch economist Chua Hak Bin expects the government to "be realistic" and "forget" its initial 2-3 per cent goal. "If we can get 1-1.5 per cent (productivity growth), I think that will be a tremendous achievement already," said Dr Chua.
While Mizuho economist Vishnu Varathan thinks "it's not completely wrong to shift the goal posts", he said it will be crucial to "provide sufficient context (to underscore that) it's not about relinquishing the goals of productivity". He pointed out that a lacklustre global economy has impinged on Singapore's growth prospects and has, by extension, capped productivity gains.
Said Mr Varathan: "I don't think we should maintain lofty targets just for the sake of looking good. But the messaging has to be clear - we still believe in innovation, in technological upgrades, (but) not all of the payoff is going to happen in five years. We shouldn't give up on that 3 per cent productivity growth target - let's just see it as a longer-term goal."
Observers also expect subtle changes to the official narrative on Singapore's productivity push. Going forward, they believe less emphasis will be placed on headline productivity growth numbers, with more weight given to qualitative aspects instead.
Several experts pointed out that MAS chief economist and assistant managing director (economic policy) Edward Robinson had signalled this in November when he told BT that in the short term, "there are limitations in relying on simple productivity indicators" since they are "not a good guide" to the country's ability to sustain and enhance the population's standard of living.
Other economists like Mr Varathan think there will be "changes in tone and body language". "In some areas, it's going to take more than five years for locals to become interested in these jobs and for (the sector) to move up the value chain. So (the authorities) could decide to allow some slack in certain areas and not tighten labour restrictions so much. The government could soften its tone - and this does not exclude recanting on certain things," he reckoned.
In addition to the usual exhortations to tweak the Productivity and Innovation Credit (PIC) scheme further - to include a greater focus on research and development (R&D) and more sector-specific incentives - there have been suggestions to refine existing restructuring measures.
For example, while the SME Committee (which represents small- and medium-size enterprises) has called for the government to hold back on further planned increases in foreign worker levies, DBS economist Irvin Seah has other ideas.
"If a company has proven itself (to be committed to restructuring) - it has invested in technology, demonstrated improvements in productivity, hired more local workers than required - then perhaps it could get a discount off their foreign worker levies. Turn it into an incentive instead," said Mr Seah. While he acknowledged that the amount of money saved wouldn't be "substantial", he said the sum could be put to better use and boost a firm's topline.
Although the heads of tax at KPMG and Ernst & Young believe the idea "looks workable", they question whether the additional resources required to administer the scheme - both at the company and government levels - would prove too cumbersome to be worthwhile.
Given the difficulties and deficits in measuring productivity using the conventional formula of output over input, several economists urged the government to release more sector- specific data on productivity in different industries. These include, for example, the number of square metres built per man hour in the construction sector, or the table turnover rate in food & beverage (F&B) outlets.
In response to BT queries, an MTI spokesman said: "We have sector-specific data to help us monitor the productivity progress. These complement the usual measure for labour productivity (value added per worker). The data are for internal use and are not released publicly."