Praise from businesses but strugglers worried

[SINGAPORE] Budget 2014's sharply targeted measures to boost productivity won praise, but amid business groups' relief at the absence of across-the-board manpower curbs are worries that struggling businesses may be left behind.

"The new measures are going to strengthen the hands of those that are stronger. It seems that the government is in a haste to drive upgrades and not lose momentum in the productivity upgrading," said Association of Small and Medium Enterprises (ASME) president Kurt Wee.

There is reason to hurry, if the 2-3 per cent productivity growth a year target is to be met by 2020. Singapore's productivity has grown 11 per cent over the past four years, but this was entirely due to the strong cyclical recovery in 2010 with little improvement since.

"However, the fear is that you might choke off a segment of the industry - the weaker ones that have not fully got onto the productivity bandwagon," Mr Wee said.

Measures unveiled by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam last Friday included a much sought after $3.6 billion, three-year extension of the Productivity and Innovation Credit (PIC) scheme and a PIC+ enhancement that raises SMEs' eligible expenditure for tax deduction by 50 per cent.

Other goodies included $500 million worth of incentives to encourage adoption of infocomm technologies, $150 million for co-investments in equity and mezzanine funding, higher risk-sharing on micro-loans and better internationalisation incentives.

These went down well in the eyes of economists such as Citi's Kit Wei Zheng and Brian Tan. "Besides bolstering cash flow, this multi-dimensional approach promotes both product and process innovation in laggard sectors," they said.

DBS economist Irvin Seah, too, said: "Appropriate and targeted assistance to companies will yield much better outcomes in the longer term than broad-based tightening in labour policies that undermines Singapore's competitiveness."

The only manpower-related blow this year was dealt to the construction sector - the sole sector to face a foreign worker levy hike in 2016. Keeping to the "multi-dimensional" approach, the government paired this levy hike with changes to allow skilled workers in the construction, marine and process sectors to work here for a longer maximum of 22 years, up from 18. Also, rules will be tightened to encourage developers to use manpower-saving designs, and give contractors reasons to upgrade their workers' skills.

For all other sectors, the last of levy and quota changes unveiled last year will be fully rolled out by July 2015. But fresh measures have not been ruled out.

"We will continue to closely monitor the growth of foreign manpower in other sectors, to ascertain whether further tightening measures, including levy increases, are needed for 2016 and beyond," Mr Tharman said on Friday.

This should sound a warning bell for less productive clusters. The construction sector has been the exception to the general slowdown in foreign workforce growth over the past two years, Mr Tharman pointed out.

Construction was also found to be one of the lowest contributors to productivity growth in the past five years, in a study published in the Ministry of Trade and Industry's Annual Economic Survey of Singapore last week.

Its productivity level was below average, but it hired a rising proportion of Singapore's total workforce over the past five years partly due to stepped-up building and infrastructure projects, shaving about 0.3 percentage point off productivity growth each year in the past five years.

Another sector with a similar profile was the accommodation and food services sector. "Stronger economy-wide productivity gains hinge on cutting employment share of laggard sectors, which is not assured," the Citi economists said.

Another thought that could give bosses pause is the government may still introduce off-Budget policies relating to foreign manpower. Last year, changes to the minimum qualifying salary for the bottom tier of employment passes, as well as the fair consideration framework that will mandate that firms attempt to hire Singaporean PMETs (professionals, managers, executives and technicians) before seeking foreigners, were announced after Budget season was long over.

But business observers think this is unlikely. Singapore Business Federation chief operating officer Victor Tay said: "What has been set in motion is a schedule-based reduction. I doubt they will roll out measures in the interim, as it may disrupt business operations and project costings."

Measures taken to tighten the inflow of foreign PMETs "are already quite comprehensive and align with the American and European standards" and he doubts the government will go further.

However, Mr Tay said that while this year's Budget has been more targeted - addressing growth-oriented companies and the financing issues of tech start-ups - it does not address the needs of those struggling because of restructuring.

"These are companies which have eroded margins or at survival brink are still finding it harder to obtain financing," he said.

According to the Singapore Business Federation's survey, a smaller proportion of SMEs benefit from government incentives compared with larger ones. They also tend to hire more mature workers, which means their wage bills may be disproportionately hit by the coming rise in CPF contribution rates.

"But that may be part of the philosophy behind the policy: not to put money into companies that are more likely to fail," said Mr Tay. After all, Mr Tharman himself said on Friday: "We are not recycling monies indiscriminately, or seeking to benefit all firms equally. Our schemes will still favour the more dynamic and efficient players."

ASME's Mr Wee added: "There is some risk. There is some signal that the government appears to be pushing for some level of consolidation in the economic scene at large."