Productivity Measures and Use of Productivity Fund

Mr Zaqy Mohamad asked the Deputy Prime Minister and Minister for Finance (a) what is the level of adoption of the Productivity and Innovation Credit (PIC) and other productivity-related initiatives by the SMEs; and (b) how can the Ministry improve on its outreach to help SMEs fully leverage on Government schemes to help them transform and improve productivity to cope with the increase in levies for foreign workers and stricter criteria for S-Pass applications.

Ms Irene Ng Phek Hoong asked the Deputy Prime Minister and Minister for Finance (a) if he would provide a progress report on the effectiveness of the enhanced National Productivity Fund and the Productivity and Innovation Credit since their inception; (b) how many employers have drawn from them; (c) to what extent has productivity in these companies improved as a direct result; and (d) whether the effects translate to better wages and working conditions for workers.

The Deputy Prime Minister and Minister for Finance (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, with your permission, may I take the next two questions together?

Mr Speaker: Yes, please.

Mr Tharman Shanmugaratnam: The Productivity and Innovation Credit (PIC) scheme was introduced in Budget 2010 and significant enhancements to the scheme were made in this year's Budget. We expect businesses to make their first PIC claims when they file their annual income tax returns by November this year. Based on the tax returns that have been filed with IRAS so far this year, about 9,800 companies or 20% of the companies that have filed their returns already had claimed PIC benefits.

So, it is a little too early to say what the take up will be for the PIC scheme. But I can say that IRAS has been putting tremendous effort into promoting the PIC scheme, and especially to SMEs. Just to give Members a feel of the scale, IRAS has sent brochures explaining the scheme to all companies, more than once, and conducted 130 seminars for some 19,000 participants. It is also working very closely with the Enterprise Development Centres and the various Chambers and trade associations to have one-on-one consultations with companies.

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As for the National Productivity Fund (NPF), about $600 million has been committed for productivity initiatives over the first five years, starting from 2010. The National Productivity and Continuing Education Council (NPCEC) has identified 12 fairly broad priority sectors to focus its efforts. These comprise a significant chunk of the economy − about 40% of our GDP and 50% of the workforce. We are, in fact, in the process of extending our reach beyond these 12 sectors to more sectors of the economy. For the 12 sectors, productivity roadmaps have worked out for each of them and most of them have already been endorsed by the NPCEC.

Besides these sectoral initiatives with roadmaps for each of them, the NPCEC has also supported a number of "horizontal" initiatives that cut across sectors. One example is the iSPRINT scheme, which incentivises SMEs to adopt information and communications solutions. So far, in fact, about 2,000 companies have benefited from this scheme since it was started last year. These are cross-cutting initiatives that, hopefully, will raise productivity across sectors.

Some examples of how the National Productivity Fund has benefited companies and workers include the following:

First, the construction sector, which traditionally is a labour-intensive industry − about 900 companies have already received help to adopt new technologies, build up capabilities and train workers. For most of the other projects which are in progress, productivity improvements of at least 20% are expected upon completion of the project. Some companies, in fact, have larger improvements of up to 70%.

Second, the Inclusive Growth Programme (IGP), which I think many Members are familiar with, aims to improve the skills and wages of some 25,000 low-wage workers. Twenty-six million dollars has been committed to some 450 projects so far, covering 21,000 local low-wage workers. Two-thirds of the workers involved in these projects are expected to see their wages rise by at least 10% when the projects are completed. This 10% wage increment is over and on top of the regular increments that companies would be expected to give their workers. The training that these workers receive from the projects will also help them to perform higher value-added jobs in future.

Raising awareness and improving the access of SMEs to the productivity schemes − both the tax schemes and the grant schemes − is a continuous effort for all the Government agencies concerned.

Besides the efforts to promote the PIC scheme which I mentioned earlier, SPRING works closely with the Trade Associations and Chambers, the Enterprise Development Centres (EDCs) as well as industry experts and consultants to reach out to SMEs and encourage them to take full advantage of the schemes available. The Trade Associations and Chambers can, in fact, play a larger role in promoting productivity, including devising ways in which their members can collaborate to enhance productivity across the industry. The Government will lend them full support.

Mr Zaqy Mohamad: Sir, I thank the Minister and the Ministry for providing the necessary support to the industries to maximise the PIC scheme. Many of the small companies do not have the kind of business skills or proper HR or finance functions to fully leverage on our schemes. Would the Ministry consider providing funds to build greater capacity for the EDCs and trade associations who could provide proposals on how they could better reach out to some of these companies?

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The second question is to ask whether the Ministry would consider reviewing the way we structure some of the productivity schemes in which, sometimes, we ask the companies to spend first and then give them rebates later. Because for smaller companies, cash flow is often an issue. I think that could be a barrier for some companies in considering some of the various schemes.

Mr Tharman Shanmugaratnam: On Mr Zaqy's first question: yes, we will consider that. Indeed, some of the trade associations, like the Singapore Manufacturers' Association, are considering ways in which they can help their smaller companies with HR and finance functions, working with cloud computing, for instance, and some other ways. And we are quite prepared to provide support for these initiatives.

On the Member's second point regarding cash flow problems of companies and the companies having to spend first and claim later in fact, we are well aware of that. The cash component of the PIC, which is upfront money and it is designed for that purpose, we are trying to see how the cash component itself can be disbursed as quickly as possible. But if companies know in advance that they are going to get the cash component, they can plan on that basis, and they need is some working capital to tide them over. This is something which we are quite prepared to see how we can improve the disbursement.

Ms Irene Ng Phek Hoong (Tampines): Sir, the Government has stated its goal of raising the salaries of workers by 30% in 10 years and the key strategy is to improve productivity. Can I ask the Minister how the Government ensures that the various productivity initiatives translate to better salaries and better working conditions for workers, especially for those at the low end whose salaries have stagnated for more than a decade? Does the Government ensure that the companies, which receive the Government's subsidies for these productivity schemes, implement a productivity gain sharing scheme to link productivity performance to rewards for workers and not just add to their own bottomline?

Mr Tharman Shanmugaratnam: I think the Member has quite rightly emphasised the core of our strategy, which is to raise productivity. Together with that, our strategy has to be to ensure healthy economic growth so that the labour market remains tight and unemployment is low, because that is always to the advantage of workers. It improves the bargaining powers of workers when the labour market is tight.

So, these are the fundamental macro strategies – raise productivity across the board and ensure full employment over the next five to 10 years. There will be, of course, downturns from time to time but, on average, we try to keep the labour market as tight as possible. Those two measures in themselves will not be enough, and that is why we have specific initiatives like the Inclusive Growth Programme where we work with companies and industries to, firstly, upskill workers in very specific ways and work with the companies to ensure that the benefits do flow down to workers. So, the example that I gave earlier on the funding that we are providing for the Inclusive Growth Programme comes with some measurable outcomes that the companies are committed to. I gave Members the example of how we expect the workers to get at least 10% wage increment on top of the normal wage increments. With the upskilling, with the improved technology, we expect wage improvements. It does not come automatically. It also comes through coordinated action like the example I gave – Inclusive Growth Programme. There are some other initiatives which we are also working on in the same vein.

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Mr Ang Hin Kee (Ang Mo Kio): I thank the Minister for his reply. Recently, I met an SME from the food manufacturing industry. He was very happy with the Inclusive Growth Programme and his feedback to me was that his members were also very keen to take up that programme. His question – and I think it is a good question − is whether the Ministry would consider productivity initiatives by companies such as his company be considered as a criterion for foreign manpower allocation in future. So, companies that embark on productivity initiatives get additional points or advantage when they apply for foreign manpower. Secondly, he also enquired if other Government schemes could also include productivity initiatives such that if you have other schemes from SPRING Singapore or EDB, they could also add in a criterion that companies should embark on or demonstrate efforts to increase productivity before they are eligible for other Government schemes.

Mr Tharman Shanmugaratnam: First of all, if a company does succeed in improving productivity and reducing its manpower requirements, it will allow itself more scope even within our existing quotas for foreign and local workers. It allows itself a little more scope to get foreign workers by virtue of having reduced its manpower requirements. But there is a problem in trying to hardwire productivity improvements to our schemes. What is the baseline? Would you discriminate in favour of a company that was previously inefficient and then did something to become efficient against a company which has already done something to become efficient? So, it is extremely difficult to get into that act of discriminating. Companies that have done a good job of investing all along in raising productivity, reducing the manpower requirements, should not be disfavoured in our rules on foreign labour allocation.

As for the last part of his question, we are looking into this generally when it comes to Government outsourcing, whether we can ensure higher standards on the part of the companies that are obtaining Government outsourcing contracts that involve fair employment conditions, what they are going to invest in productivity, and so on.

Er Dr Lee Bee Wah: Mr Speaker, Sir, I would like to ask the Deputy Prime Minister about the construction industry. For the construction industry, I understand that $200 million is allocated, and this coverage is quite high. But if there is demand, will there be additional funding?

Mr Tharman Shanmugaratnam: That will be a happy problem and there will be happy answer.