Manufacturing, oil and gas, chemical sectors may be hardest hit by foreign worker wage hikes: SMF

Key Concepts

SPASSh (Supplementary Retirement Scheme): A voluntary scheme designed to supplement CPF retirement savings.
Employment Pass (EP): A work pass for foreign professionals, managers, and executives.
Work Permit: A permit allowing semi-skilled foreign workers to work in specific sectors (Construction, Marine Shipyard, Process).
CPF (Central Provident Fund): A comprehensive social security savings scheme funded by contributions from employers and employees.
MNC (Multinational Corporation): A corporation that operates in multiple countries.
RHQ (Regional Headquarters): The administrative center for a company’s operations in a specific region.
FnB (Food and Beverage): The industry encompassing restaurants, cafes, and other food service establishments.
AI (Artificial Intelligence): The simulation of human intelligence processes by computer systems.

Impact of Singapore Budget 2024 on Businesses – A Detailed Analysis

This report details the impact of the Singapore Budget 2024, as discussed in a recent broadcast, focusing on its effects on the manufacturing sector and the broader business community. The discussion centers around increased costs for businesses due to adjustments in foreign worker levies and qualifying salaries, and the potential responses and challenges faced by companies.

I. Budget Measures & Initial Reactions

The Singapore Manufacturing Federation (SMF) has identified the general manufacturing, oil & gas, and chemicals sectors as being particularly vulnerable to the cost increases announced in the recent budget. Key changes include:

SPASSh Qualifying Salary Increase: A $300 increase in the qualifying salary for S Pass holders, effective next year.
Employment Pass Qualifying Salary Increase: A $400 increase in the qualifying salary for Employment Pass holders, also effective next year.
Work Permit Levy Increases: Increases to work permit levies for certain sectors, scheduled to take effect from 2028.

Melvin Tong, CEO of an engineering firm with 700 employees (over half of whom are foreign workers), expressed concern about absorbing these costs. He highlighted the difficulty of passing increased costs onto existing, long-term contracts, particularly those with the government. He advocated for a phased rollout of these policies – over two to three years instead of one – to allow businesses to adjust. He stated, “If we haven't won the projects yet, we can build in the additional cost. But for projects that we have secured… I don't think we can pass it on to the clients.”

II. Automation & Support for Businesses

Mr. Tong’s firm, like many others, is looking to automation as a long-term solution to address manpower gaps. However, the SMF is calling for stronger government support for automation initiatives. Currently, the Enterprise Development Grant covers only up to 25% of automation costs, which the SMF believes is insufficient. They propose increasing this support, potentially through interest-free loans or a higher grant percentage, aiming for coverage of up to 75% of processes.

III. Foreign Manpower Statistics & Current Numbers

As of June of last year, Singapore’s foreign workforce comprised:

Employment Pass Holders: Over 201,000
S Pass Holders: Over 177,000
Work Permit Holders: Over 460,000 (primarily in Construction, Marine Shipyard, and Process sectors)

IV. Singapore Business Federation (SBF) Perspective & Concerns

Cock Ping Soon, CEO of the SBF, acknowledged businesses’ understanding of the need for a strong Singaporean core workforce, but outlined concerns regarding the budget measures. These concerns are divided into two main areas:

Employment Pass (EP) Impact: The increased qualifying salary for EPs could make Singapore less attractive to MNCs considering establishing operations (manufacturing, centers of excellence, RHQs). The combined costs of rental, living expenses, and now higher salaries could push companies to relocate, resulting in job losses for Singaporeans. He noted that some MNCs have already begun relocating.
S Pass Impact: The increase in S Pass qualifying salaries will compress margins for domestically-oriented sectors like FnB and retail, which already operate on tight margins. He predicts this will likely lead to price increases for consumers and potential operational cutbacks by businesses. He stated, “there’s probably not a lot of headroom left for them to absorb this increase… they’ll have to increase their prices which will hurt wallets. and two they may need to cut back their operations to be viable.”

V. Key Pressures Facing Businesses & Budget Response

The SBF identified the top three pressures facing companies as:

Manpower Cost
Uncertainty in Customer Demand
Financing Cost

The budget included measures to address these, such as the Corporate Income Tax Rebate and cushioning of increases in CPF rates for senior workers and wages for low-wage workers. However, Mr. Soon indicated that businesses would always ask for more, especially given the government’s higher-than-expected surplus of $15 billion (1.9% of GDP) last year. He emphasized the government’s increased investment in long-term capabilities like AI and internationalization support. He also suggested the government may be reserving some fiscal capacity for future needs.

VI. Overseas Expansion & Emerging Markets

The Prime Minister’s encouragement of overseas expansion was discussed, focusing on markets like Latin America, Africa, and the Middle East. Mr. Soon characterized these markets as “exciting, exotic, but also rather expensive,” requiring patient capital, strong local partnerships, and significant relationship-building efforts. He highlighted the Middle East as particularly promising due to investments in infrastructure and green energy, leading to opportunities for Singaporean firms in architecture, engineering, and renewable energy. The SBF has already established an office in Dubai. He suggested increased government support for companies “hunting in a pack” – larger companies bringing smaller ones along – and for trade associations to establish Singapore pavilions at major trade shows.

VII. Conclusion

The Singapore Budget 2024 presents a complex landscape for businesses. While acknowledging the need for a strong Singaporean core and long-term economic development, the increased costs associated with foreign worker policies raise concerns about competitiveness, particularly for MNCs and domestically-oriented sectors. The emphasis on automation and internationalization offers potential pathways forward, but requires sustained government support and strategic partnerships. The budget’s impact will be closely monitored, with a need for flexibility and responsiveness to evolving economic conditions. The government’s decision to “save some of the gunpowder for tomorrow” suggests a cautious approach, recognizing the uncertainties of the global economic environment.