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Ho Kwon Ping’s Self-Serving Proposals Have No Merit.


Ho Kwon PIng2Yesterday I wrote about why the general Singaporean public paying for foreign workers’ medical care was a bad idea. If companies are allowed to get away without providing adequate medical coverage for their foreign workers this would effectively be a subsidy to those employers to employ foreign workers rather than Singaporeans.

Today I read about the proposals from the Executive Chairman of Banyan Tree, a luxury hotels and resorts group, Ho Kwon Ping.

Who is Ho Kwon Ping?

Mr Ho was detained in the 1970s for writing critical articles about the PAP Government. During his imprisonment, according to an interview he gave to the BBC,  he had a conversion realising that he wasn’t Nelson Mandela. Purely coincidentally he became very rich but after assuming the leadership of the family business and purely coincidentally he has become a vocal supporter of the PAP.

What is his proposal?

Ho advocates converting the foreign workers’ levy into a deferred savings account akin to CPF, which the foreign worker would be able to withdraw when he left Singapore.

What is the Foreign Worker’s Levy?

This is a sum paid to the government by the employer. At the moment the foreign worker levy acts as a tax on the use of foreign labour. It should make foreign workers more expensive to employ and thus encourage employers to substitute Singaporeans.

Isn’t that a good thing?

Unfortunately, as I have pointed out repeatedly, if the supply of foreign labour is inelastic ( which means that even if their salaries are cut the amount of labour supplied does not fall by very much ) the levy could act merely to drive down wages for foreign workers while the gross cost to the employer (wage plus levy) remains unchanged. In this case the government is benefitting from the levy but the foreign workers are worse off. Most importantly Singaporeans are even worse off as no new jobs have been created for Singaporeans.

Tax with inelastic supply

Tax with inelastic supply

So the Foreign workers levy doesn’t help Singaporeans and is ineffective.

So isn’t Ho’s proposal an improvement?
Ho’s proposal is to convert the levy into a deferred savings account for the foreign workers. The same problems apply.

  •  Employers can theoretically reduce their foreign workers’ direct pay by up to the full amount of the deferred savings because these workers will be able to access their savings when they return to their home country.
  • Given foreign workers’ weak bargaining power it is likely that employers will be able to cut their direct pay substantially.
  • Ho’s proposal thus amounts effectively to a removal of the tax on foreign labour.
  • Employers are likely to respond by employing MORE foreign labour and cutting back on their usage of Singaporeans as far as they are able.

Why is that self -serving?

While the number of Mr Ho’s employees in Singapore appears to be small, he speaks clearly with the economic interests of employers in mind and not Singaporean workers or even foreign workers.

What’s your solution?

  •  A better solution would be to have a minimum wage that was mandatory for all workers, both local and foreign.
  • This would remove the ability of employers to drive down foreign workers’ wages to the detriment of Singaporeans competing with them for jobs.
  • The levy could then be converted into a CPF account for foreign workers or retained as a tax on foreign labour.

My preference would be to have a cap on the overall number of foreign workers and then auction the entitlements to the highest bidders. This would ensure that foreign workers were allocated to where they would be most productive while controlling the overall levels. The cap could be adjusted up and down to keep wage growth in line with productivity growth.

Unfortunately judging by the comments on my Facebook page many employers are unhappy that the Government is not subsidising them more to take on foreign workers and making it easier for them to employ foreigners. This will always be so as far as employers are concerned. Labour can never be cheap enough. Slave owners in the American South worried that if slavery was abolished labour would become too expensive to allow them to profitably grow cotton and other crops.

Lets hope that Singaporeans are not too naïve to see through the arguments of special interest groups that appear to have altruistic motives but are actually trying to gain a commercial advantage.

5 Comments »

  1. Regret to say, I have some difficulty in following the arguments.

    The imposition of tax on foreign workers is a source of revenue for the govt; easy money or income, notwithstanding the administrative costs in infrastructure and software necessary for the administration of foreign worker employment in Singapore.

    Just like the maid levy for foreign domestic maids – another source of easy income for the govt, the foreign worker levy can in no way be seen as a help for Singaporeans and thus the conclusion: “So the Foreign workers levy doesn’t help Singaporeans and is ineffective” seems to be a non sequitur. Far from being ineffective, the levy, for foreign workers or foreign maids, is a valuable source of income for the govt and I would never imagine that it was designed with the welfare of Singaporeans in mind.

    Setting aside the foreign worker levy as a deferred savings fund for the foreign workers, to be available as their entitlement on their departure from Singapore, can be considered a laudable scheme; it would definitely be a financial benefit for the foreign workers, provided their pay is not cut because of this. It would also mean a loss of income for the govt and that is something that needs to be seriously thought through; what about the wages of govt employees handling foreign worker employment? Where is the income to pay for their salaries?

    Ho Kwon Ping should be congratulated if he could convince the govt to give money away so easily. Fat chance; this is PAP.

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    • By converting the levy into deferred compensation this is likely to mainly benefit employers who will cut the current pay of workers who have little bargaining power. This will make foreign workers more attractive relative to Singaporeans and lead employers to substitute foreign workers for Singaporeans or try to cut Singaporeans’ wages.

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      • This is merely a presumptuous position. In employing a foreign worker the employer is already cognisant of the operating costs for such employment – the salary of the foreign worker[s] and the relative levy. The salary goes to the foreign worker[s], the levy to the govt. The salary is presumably something mutually agreed between the foreign worker[s] and the employer. So why should a cash payment from the govt to the foreign worker[s], from the govt’s coffers, to be actually disbursed only when the foreign worker[s] leave[s] Singapore, be construed as an excuse for the employer for cutting the salary of the foreign worker[s]? If the govt were to be so kind as to dish out a cash payment to every foreign worker as an expession of appreciation for their work contribution to Singapore, when they retire, without specifying the source of this payment, could the employer use this payment as an excuse for cutting the salary of the foreign worker[s, considering the salary has already been paid?

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  2. Dear Kenneth, I believe your diagram is incorrect. It shows relatively more price inelastic demand than supply. Hence, the consumer incidence is greater than produce incidence. If the diagram indeed depicted inelastic supply, producer incidence (ie in this case the burden borne by the foreign workers themselves, assuming that the market under consideration is the market for foreign labour in Singapore) ought to be greater than consumer incidence. Cheers.

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    • In reply to A.M. Well spotted. Laziness on my part. In my haste to get the post up I just took a diagram showing the effects of a tax when there is inelastic supply. Agreed that if the elasticity of supply of foreign workers is zero then the levy is wholly borne by the foreign workers.

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