Business Guide · May 10, 2011 0

Singapore may reduce foreign workers, boost social spending after opposition makes gains

Singapore’s ruling party is under renewed pressure to cut immigration and boost social spending after the opposition made record parliamentary gains by campaigning for fewer foreign workers and higher wages.

The People’s Action Party, which has kept an authoritarian grip on power for more than five decades, won 81 of the 87 parliament seats in elections Saturday. However, the six seats won by the Workers Party are the most by the opposition since independence in 1965, and the PAP’s share of the overall vote fell to 60 percent from 67 percent in 2006 and 75 percent in 2001.

The government will likely reduce the number of foreign workers in a bid to ease voter discontent over stagnant wages and overburdened public services, a move that could slow economic growth in coming years to between 3 percent and 5 percent from an average of about 8.5 percent between 2004 and 2007, said Wei Zheng Kit, an analyst with Citigroup in Singapore.

PAP leaders have taken the election results as a wake-up call. Prime Minister Lee Hsien Loong said his lawmakers would spend the next weeks “soul searching” and suggested some policies would be changed, though he did not specify which ones.

“Many voters, including some of those who voted for us, clearly expressed their significant concerns both on the issues and our approach to government,” Lee said Sunday. “We understand in the PAP that this election is a watershed election, and we have to adapt to this new situation.”

The surge in foreign workers began in 2005 as the government sought to diversify the economy away from manufacturing into services such as tourism. About 150,000 foreign workers entered Singapore each year from 2007 to 2009, and they now make up about one-third of the island’s 3 million work force.

Foreigners have helped build and staff projects such as the city-state’s first two casino resorts, and largely provide cheaper, younger labor amid Singapore’s aging population and low birth rate.

However, ordinary Singaporeans complain that competition with foreigners has depressed wages, boosted housing prices and clogged public transportation with low-cost airlines. Singapore’s economy grew a record 14.5 percent last year and the government expects growth near 6 percent this year, but many locals complain that their standard of living is slipping.

The government already began to lower the number of foreign workers last year, and after Saturday’s election results, will likely cut back further, said Irvin Seah, an analyst with DBS bank in Singapore.

“There could be more stringent approval guidelines for work permits, employment passes,” Seah said. “As this could restrict the flexibility of the government to respond to the surge in demand for more foreign labor, there could be near term transition costs in the form of slower growth and higher labor costs.”

Singapore’s annual inflation rate was 5.0 percent in March, up from 3.3 percent in August. 

The government may take further measures to cool property prices, which have risen about 70 percent since 2006. Increased government spending and subsidies for health care, education and retired workers may also appear in coming months, along with a more progressive tax structure and income redistribution schemes, analysts said.

“We expect a renewed focus on ways to check the widening income gap,” said Wai Ho Leong, an analyst with Barclays Capital in Singapore. “There is generally likely to be more attention focused on issues relating to the constraints to growth — namely, housing affordability, the inflow of foreign workers and the quality of life for the ‘sandwiched’ middle income group.”

Some analysts expect a stronger opposition voice in parliament will yield more debate and a more stringent policymaking process.

“Greater accountability and diversity of views may result in better policies,” Kit said. “Measures to raise incomes for the average household may help promote private consumption and a more balanced, less volatile growth model.” – AP