SKILLS DEVELOPMENT FUND

Mr Ho See Beng asked the Minister for Trade and Industry, in view of the dissatisfaction of certain categories of employers at having to pay 2 per cent of monthly wage into a Skills Development Fund, if he will state the rationale of this levy, and why this contribution should be made by employers whose businesses do not require the use of skilled labour.

Mr Hon Sui Sen (for the Minister for Trade and Industry): Sir, the Prime Minister, at the National Day Rally on 19th August, 1979, has explained fully the rationale for the Government's wage policy this year. Nevertheless, I would like to briefly restate the rationale in the context of the training cess and the Skills Development Fund.

We have to upgrade and restructure our economy promptly, if our economy is to continue to grow at 8% per annum, with the available labour supply. We cannot afford to continue with low-wage, unskilled and labour-intensive activities. In a full employment situation, we simply do not have the abundant labour that is required to satisfy the needs of labour-intensive industries and services. The rapid inflow of foreign workers cannot be our solution, as large scale entry of such workers creates social and other problems. The only real solution is to encourage economy in the use of labour and to shift away from low value-added, labour-intensive activities to higher value-added industries and services that employ less labour, use more machines and have a higher skill and technological content. Moreover, our fully employed relatively better educated and trained population should be deployed in activities that are able to maximise their fullest potential.

External factors are also a crucial consideration in our restructuring policy. More and more developing countries with plentiful labour are adopting the strategy of rapid industrialisation through exports. China is also following this path of economic development. In the not too distant future, we will not be able to compete with them in unskilled, labour-intensive exports.

We are an open free-enterprise economy. The only effective way to induce employers to economise on workers and produce higher value-added products and services is to have correct wage signals. We could have closed the door to foreign workers and let the free market push up wages. The effects of such a course of action would have been traumatic. We have, therefore, adopted the more gradual alternative of guidelines setting a higher wage increase phased out over three to four years to give time to our employers to adjust.

Wages for the lower paid workers must go up by around 20% annually over three to four years to induce employers to optimise the use of labour and to restructure their business. The package of wage cost increases comprises an average 14% increase in wages for workers, a 2% training levy and a 4% increase in employers' CPF contribution. This package provides a buffer of 6% which in the event of a deep recession could be removed or lowered to moderate wage cost increases of employers. Moreover, if the wage cost increase of 20% were to be passed on fully to workers, the sudden jump in purchasing power will be too inflationary.

Besides providing the buffer, the training levy serves as an economic tax. It is not a fiscal tax, as its purpose is not to raise public revenue. It is an economic tax to penalise employers who make no effort to reduce their dependence on cheap labour and improve their methods of production. Such employers will pay more for excessive use of our limited manpower and uneconomic employment of our relatively better educated and trained workers in unskilled jobs. On the other hand, employers can minimise their manpower cost increases by cutting down excessive employment of workers. Employers who are prepared to upgrade and restructure their operations and train their workers to do enlarged jobs and in new and higher skills will be able to benefit from the Skills Development Fund.

The training levy, as an economic tax, must therefore be applied across-the-board. This is not merely for administrative convenience. Exempting any particular sector or business from the training levy, simply because it employs unskilled workers, will undermine the basis of our restructuring policy. Moreover, as the wage increases in this sector will then have to be higher by the amount of the exempted levy, this unskilled sector or business will attract more workers to do unskilled work. Furthermore, no industry in Singapore can claim that they have reached the peak of efficiency such that there is no room for further improvement or that their operations are so rudimentary as to defy introduction of more skill-intensive methods or labour-saving devices.

Mr Ho See Beng (Khe Bong): Mr Speaker, Sir, what will the employer benefit by paying this levy of 2% if his company does not require skilled workers?

Mr Hon Sui Sen: Mr Speaker, Sir, I have said that it is an economic tax. I have also said that I do not believe there are workers whose skills cannot be improved. Therefore, I feel that this levy is of benefit to the whole economy. In the case of the Government, it might also be claimed, for example, that there is not very much that we can do in the way of improving skills. In the legislation which I am going to introduce today, it is prescribed that Government bodies and statutory corporations will also contribute to this 2% levy, and I hope that the Government would, by initiating training schemes, also benefit by disbursements from this levy.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, do I hear correctly that it is the intention of the Government to allow employers to have as many work permit holders as they desire?

Mr Hon Sui Sen: Sir, that is not correct. I do not think I have stated this anywhere in my statement. He must have derived this from some other source.

Dr Augustine Tan: Sir, is it then the intention of the Government to impose an annual quota of work permit holders that can come into Singapore?

Mr Hon Sui Sen: Sir, the intention is that, when we are able, we shall limit the entry of workers into Singapore. Until that is done, we will by a more gradual process try and minimise the import of labour from other countries.

Dr Augustine Tan: Sir, is it not the intention of the Government over the next three years to allow employers to have as many work permit holders as they desire?

Mr Hon Sui Sen: Sir, I thought I have made it clear that the answer is no, and that while we do not want to have the restriction imposed immediately, the intention is to gradually increase the restriction on workers entering into Singapore.

Dr Augustine Tan: Sir, what is the likely nature of this restriction? In other words, what is the percentage decrease? Can the Minister give us some order of magnitude?

Mr Hon Sui Sen: Sir, I think the administrative problem is that there will be applications and that the Economic Development Board will assess the necessity of any particular numbers of workers which may be required and which cannot be found from either increasing the skills of the workers in Singapore and therefore reducing the numbers employed. The administration of this particular restriction will be, of course, done with considerable prudence so as not to disrupt the economy of Singapore.

Dr Augustine Tan: Sir, the question really at the back of my mind is how effective the new wage policy is going to be if, over the next three or four years, employers are allowed to have as many work permit holders as they wish? Secondly, if such is the case, then would there not be greater wage distortions in the economy? Thirdly, because of these wage distortions might the employers not have the incentive of getting rid of more senior workers in favour of immigrant workers so as to save their wage costs?

Mr Hon Sui Sen: Sir, all I need to say is that we will try to administer the new policy judiciously.