Singapore Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam delivered his budget speech in the parliament on Monday, saying that the government, in a bid to pursue quality growth, will further tighten foreign worker policies while supporting the drive to boost productivity.

The budget proposals also included measures to help mitigate the impact of rising living cost on the low-incomers and those aimed at helping the families with childcare and other services they need.

Observers said this is a balanced budget with measures to cut the costs for local residents while supporting the drive to restructure the economy by reducing the reliance on foreign labor, giving support to upgrading efforts by businesses and subsidizing training for local workforce.

TIGHTENING OF FOREIGN WORKER POLICIES

Tharman said that the tightening of foreign worker policies will be most significant in sectors where productivity growth is weak and the growth of the foreign workforce is significant.

The foreign worker quota for the services sector will be cut from 45 percent to 40 percent from July this year, he said. This will affect businesses such as restaurants, retail shops and marine engineering firms. Restaurants and retail shops will also have their S pass quotas cut from 20 percent to 15 percent.

Singapore has in place a system where the permits for foreign workforce were classified into several categories, largely in accordance with their salaries. S pass holders are mostly junior executives earning more than 2,000 Singapore dollars (1,620 US dollars) each month.

For the marine sector, the number of foreign workers a firm can hire for each local worker will be cut from 5 to 4.5 in January 2016. It will fall further to 3.5 foreigners per local worker in 2018.

There is no change in the foreign workers quotas in the manufacturing, construction and process sectors.

The Manpower Ministry will also raise the levies for foreign workers in certain sectors and the qualifying monthly salary for S Passes from 2,000 Singapore dollars (1,620 US dollars) to 2,200 Singapore dollars (1,782 US dollars).

There will also be a new tiered system which will mean that older and more experienced S-pass applicants will need to qualify at higher salaries. This will help level the playing field for local workers, Tharman said.

The Manpower Ministry will also continue to tighten eligibility requirements for the employment pass workers for professionals, especially the Q1 pass, the lowest category on the hierarchy.

In the longer term, it will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices.

RESTRUCTURING BEGAN IN 2010

The tightening of the foreign worker policies did not come as a surprise for many. It is part of the government's Quality Growth program aimed at helping businesses to upgrade, create better jobs and raise wages.

The government is also giving more support to enterprises in their efforts to upgrade operations and improve productivity, and investing in the local workforce by "heavily subsidizing their training in every skill," Tharman said.

"We are restructuring our economy. We began this in earnest in 2010," he said.

The finance minister said that the productivity growth in Singapore has been relatively weak over the past decade.

"With the exception of the previous decade, our productivity growth rates were well above the norm even as our labor force grew significantly," he said.

Singapore's productivity was about a third of the most advanced economies in 1980, and it rose to about 70 percent of the most advanced economies like the United States three decades later.

Singapore did it by bringing leading global companies, upgrading local enterprises and building a strong education system and improving the skills of its workers, he said.

However, Singapore must go through a new phase of transformation. It needs to "catch up from a decade of slow productivity growth," he said.

"The 2 percent to 3 percent per annum target for productivity growth that we had set after the weak decade until 2009, is ambitious but we must make every effort to achieve it," he said. " That will bring us, at the end of this decade, much closer to where the most advanced economies are today."

BUSINESSES VOICE CONCERNS OVER PACE OF CHANGES

The local and international businesses have been crying over the pace of tightening of the foreign worker policies as attempts to renew the work passes for some of their employees may sometimes end in failure or a downgrade of the passes.

Singapore government started tightening its foreign worker policies since before the general election in May 2011. It has been urging the businesses to upgrade and reduce their reliance on cheap foreign labor and raise the productivity instead.

"Restructuring will unfortunately lead to some businesses being winnowed out, but the end result must be a vibrant and sustainable local small and medium enterprises sector. Every support must be provided to help the businesses which bring in more efficient techniques and service models, so they can grow in a tight labor market, and where possible make their mark internationally," Tharman said.

As part of a three-year Transition Support Package to help companies with their restructuring efforts, the government will co- fund 40 percent of wage increases for Singaporean employees earning up to 4,000 Singapore dollars (3,240 US dollars) in gross monthly wage.

The scheme will cost the government about 3.6 billion Singapore dollars (2.9 billion US dollars) over the next three years.

The scheme will serve as an incentive for companies to share their productivity gains with workers, said Tharman.

To help individual firms raise productivity, the government is making it easier and faster for businesses to make claims for a Productivity and Innovation Credit. A land productivity grant will also be introduced to help companies intensify the use of land in Singapore.

Training for Singaporean workers will be boosted at all levels of the workforce.

BALANCED BUDGET, CHALLENGES FOR MANUFACTURERS

The finance minister also unveiled a series of measures worth a total of 1.7 billion Singapore dollars (1.4 billion US dollars) to relieve the impact of rising living cost on the low-income residents.

All taxpayers will receive a personal income tax rebate. Those below 60 years old will receive a rebate of 30 percent, capped at 1,500 Singapore dollars. Those above 60 will get a higher rebate of 50 percent, subject to the same cap.

The range of direct handouts includes goods and services tax voucher, top-ups to personal accounts to cover medical costs and rebates on service and conservancy charges.

Some 1.4 million Singaporeans from lower- and middle-income households will receive double the amount of assistance this year.

The government will also spend 3 billion Singapore dollars (2.4 billion US dollars) on the pre-school sector over the next five years to help train more teachers and give support to the operators.

It will also be raising the taxes for high-end residential properties while lowering the tax rates for others.

Chiu Wu Hong, tax partner at KPMG, said the budget is balanced.

"It reinforces the message that the country has to push ahead with economic restructuring and with the initiatives to address higher healthcare costs and cost of living," he said.

"This is a budget that is transitional rather than transformational. In this slower growth environment, the government has moved to address the issues arising from an economy that is restructuring," said Victor Tay, chief executive officer of Singapore Business Federation.

The Singapore Manufacturing Federation said it welcomes the budget which highlights the need for Singapore businesses to be innovative and productive.

"We acknowledge the assistance that will be provided by the government through the various incentives. However, manufacturers will still face challenges in attracting and retaining workers in this sector. In addition, the pace of transformation will also be a major challenge and concern to manufacturers," it said.

Tharman said the government expects a surplus of 3.9 billion Singapore dollars (3.2 billion US dollars) for the fiscal year 2012, or 1.1 percent of the gross domestic product. (1 Singapore dollar = 0.81 US dollar)