Singapore’s Darwinian Budget Sparks Employer Ire: Southeast Asia; Singapore to Raise Property Tax Rates for Luxury Homeowners

Singapore’s Darwinian Budget Sparks Employer Ire: Southeast Asia

Singapore tightened curbs on foreign labor for a fourth straight year and unveiled measures that will raise wage costs for companies through 2015, as the government steps up efforts to increase productivity among businesses.

Companies must pay higher levies for lower-skilled foreign employees over the next two years and cut the proportion of overseas workers in some industries, Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday.

“This is really killing a lot of businesses, many companies are dying,” said Max Lee, managing director of Plasma Precision Technology Pte., which makes and repairs equipment used by offshore marine companies. His wage costs have risen 15 percent in the past year. “We are losing competitiveness and productivity.”

After years of letting firms bring in thousands to work at hotels, shipyards and restaurants, the push by Prime Minister Lee Hsien Loong’s government to reduce dependence on imported labor has forced some companies to delay expansion plans. The clampdown, in part because of voter unhappiness over the influx of foreigners, has led the government to warn that such curbs will hurt growth in Southeast Asia’s only advanced economy.

“This is a Darwinian budget for businesses in Singapore,” said Adrian Ball, head of tax services at Ernst & Young Solutions LLP. “Survival of the fittest!”

Population Surge

The Singapore dollar was little changed at S$1.2369 against its U.S. counterpart yesterday. The benchmark Straits Times Index (FSSTI) of stocks was also little changed.

The number of people in Singapore has jumped by more than 1.1 million to 5.3 million since mid-2004 as the government used immigration to make up for a low birth rate. There are 3.3 million citizens and 2 million foreigners on the island smaller in size than New York City. Foreign workers made up 33.6 percent of the total workforce, the finance minister said yesterday.

The increase in foreign-worker levies and higher salary thresholds for some skilled employees will have an immediate impact on business costs, the Singapore Manufacturing Federation, which has more than 3,000 companies among its membership, said in a statement yesterday.

“We cannot cut off the flow of foreign workers abruptly, but we have to slow its growth,” Shanmugaratnam said. “We are therefore making these further adjustments, and we have to do so in full knowledge of the difficulties they will pose for many of our companies.”

Productivity Target

Yesterday’s announcements were the latest in a series of measures by the government since 2010 to restructure the way companies operate and make productivity a cornerstone of the economic blueprint for this decade. Officials blamed some industries’ use of cheaper, low-skilled foreign labor as a reason for low productivity in the last decade.

The Economic Strategies Committee in 2010 said the city state must double its productivity rate by 2020 to between 2 percent and 3 percent annually.

In the 2010 budget, the government said it will impose higher levies on foreign workers in industries from manufacturing to services in phases over three years. In his 2011 budget speech, Shanmugaratnam announced such increases will also take place in 2013. Last year, he said the maximum proportion of foreign workers to local ones that companies can hire will be reduced.

An Association of Small and Medium Enterprises survey last year showed more than eight in 10 firms faced manpower strains. In a white paper published last month and endorsed by Parliament, the government predicted total workforce growth will ease to 1 percent to 2 percent annually through 2020, compared with an average rate of 3.3 percent per annum in the last three decades.

Tight Labor

“Businesses have to respond in new ways to the tight labor market,” Shanmugaratnam said. “We cannot carry on in the same way. If we pause now and postpone the restructuring of these industries, we will face the same problems of low productivity, low wages and low profitability in the future,” he said, referring to businesses including those in the construction and marine industries.

SMRT Corp. (MRT), the island’s biggest subway operator, said in January that its profitability in the next 12 months will deteriorate in part as staff costs “significantly increase.” Dozens of SMRT’s bus drivers from China held Singapore’s first strike in 26 years in November over a wage dispute.

Unit labor costs rose 4.1 percent last year, and the central bank said in October they may climb as much as 4 percent in 2013. The Singapore economy grew 1.3 percent in 2012, the slowest pace in three years.

The government will implement a S$3.6 billion ($2.9 billion) wage credit program to help companies cope with rising salaries, and give about S$1.3 billion in corporate tax rebates over three years, Shanmugaratnam said yesterday.

Transition Cost

“There will be some loss of cost competitiveness and for companies that cannot adjust to this new cost structure, they will consolidate and some of them may even relocate overseas,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “To be fair, there has been quite a bit of effort to minimize the transition cost.”

At Plasma Precision, where 40 percent of workers are foreigners, Lee said productivity is being compromised as trained workers are repatriated and local replacements remain scarce.

“Our job is to develop the business,” Lee said. “But we are fighting fires every day.”

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

Singapore to Raise Property Tax Rates for Luxury Homeowners

Singapore plans to raise property levies for luxury homeowners as it seeks to tax wealthy residents in the island-state after the government imposed more measures to curb property speculation last month.

The higher tax will apply to the top 1 percent of homeowners who live in their own residences, or 12,000 properties, Singapore Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday, without giving a definition of what constitutes a high-end home. The government will also raise tax rates for vacant investment properties or those that are rented out, he said.

The higher taxes come after Singapore last month increased a stamp duty on homebuyers and imposed curbs on industrial properties as it extended measures it started introducing in 2009 to cool property speculation. Residential prices climbed to a record in the fourth quarter amid low interests and as an increase in the number of millionaires drove up demand.

“Owning high-end real estate here for investment is becoming less of an attractive proposition,” said Alan Cheong, senior director of research and consultancy at broker Savills (Singapore) Pte. “This may affect high-end properties owned by foreigners, who do not have a place of residence in Singapore. This will encourage more to take their capital overseas.”

The property index tracking 39 developers fell 0.8 percent to a one-month low as of 9:29 a.m. in Singapore trading. CapitaLand Ltd. (CAPL), Singapore’s biggest developer by assets, declined 1 percent to S$3.88. City Developments Ltd. (CIT), the second largest, slid 0.4 percent to S$11.30.

Hong Kong

Singapore’s latest efforts were announced three days after Hong Kong increased property taxes. The Hong Kong government last week doubled sales taxes on property costing more than HK$2 million ($258,000) and targeted commercial real estate for the first time as bubble risks spread in the world’s most expensive place to buy an apartment.

“The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out,” Shanmugaratnam said. “Those who live in the most expensive homes should pay more property tax than others.”

For a condominium occupied by the owner in Singapore’s central region with an assessed annual rental value of S$70,000 ($56,547), the tax will rise 5 percent to S$2,780, according to the budget statement. If that home is rented out, the tax will climb 21 percent to S$8,500, according to an example highlighted in the statement.

Based on a 3 percent rental yield, that property is worth S$2.3 million ($1.9 million). Gains in levies for properties assessed at higher rental values will also increase at a faster pace, it said. For a house with an assessed rental value of S$150,000, worth S$5 million based on the same yield assumption, the tax will rise 60 percent to S$24,000. The revised taxes will take full effect from January 2015, according to the statement.

‘Wealth Tax’

“It is a wealth tax,” Yee Jenn Jong, a non-elected member of parliament from the opposition Workers’ Party, told reporters. “There’s been a lot of people that have made a lot of money through property and the government is using that as a way to get additional revenue to offset certain goodies they’re giving to those in the lower income.”

The Singapore government last month introduced curbs where home buyers have to pay 5 percentage points to 7 percentage points more in stamp duties. Among other measures, it also imposed the added levies for permanent residents when they buy their first home, while Singaporeans will have to pay the tax starting with their second purchase.

Foreign Labor

In the budget, Singapore also tightened curbs on foreign labor for a fourth consecutive year, as the government seeks to reduce companies’ reliance on overseas workers amid a public backlash over the influx.

Increasing wealth in the island-state has contributed to rising property prices. Singapore’s millionaire households rose by 14 percent in 2011, according to a Boston Consulting study. The proportion of millionaire homes in the city of 5.3 million people was 17 percent, the highest in the world, followed by Qatar and Kuwait.

“From a progressive tax view point, it’s to be expected and probably quite fair,” said Tan Su Shan, managing director of wealth management at DBS Group Holdings Ltd., who’s also a nominated member of Parliament. “From a developers’ point of view, it’s yet another pill to swallow.”

To contact the reporters on this story: Pooja Thakur in Singapore at pthakur@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net