Government should get real about wage cuts

Mellanie Hewlitt
Sg Review
27 August 2003

(See also SDP’s press release in the next section)

DPM Dr Tony Tan, addressing Sembawang Shipyard workers yesterday cautioned them about the need to cut CPF and wages to make Singapore competitive.

He said the independent research unit PERC in its report released confirmed that the labor costs in Singapore are higher than USA and Australia (Source: Channel News Asia).

DPM Tan did not elaborate on the fact that a huge portion of Singapore’s wages goes to pay for a very fat, over weight and top-heavy government bureaucracy, as well as indecent land and transport costs. Peer a little deeper into this conumdrum and one might notice that all these variables were tighly “managed” and “controlled” by Singapore’s policy makers.

He also remained silent on the fact that the inflation rate in Singapore has inched upwards as electricity rates, MRT fares, GST etc are all increasing even as Real Wages shrink and bankruptcies increase.

As usual, Singapore policy makers have only looked at one side of the equation and have ignored the big picture. These include the cost of living in Singapore.

Several other essential factors have also been overlooked in DPM Tans examples of US and Australia;

a) Unlike the US, UK and Australia, there is no public welfare scheme or unemployment benefits here in Singapore. If one doe not work, one does not eat literally. The worker is on his own with no help at all from the state.

b) What about the cost of land and a car, compare these in US, UK and Australia?

c) Singapore (unlike US, UK and Australia) has a very bloated and top-heavy state administration. See below comments from Lee Han Shih;

Lee Han Shih in the 19 Aug 2003 issue of TODAY (and Singapore Review);
“One out of perhaps 10 people in the local labour pool works for the government (the exact number is not disclosed). These people do not generate wealth. Their salaries are paid for by the labour of those who do. On average, one in nine people in the private sector is supporting a civil servant.

Put another way, some 11 per cent of every non-civil servant’s pay goes towards keeping the civil service running. This money is collected in many ways – directly through income tax and the goods and services tax and indirectly through levies, licence fees and other charges that work themselves into the salary structure.

This is a scary figure. Coupled with CPF contributions, nearly half of a working person’s wages (47 per cent, to be precise: 36 for CPF and 11 for the civil service) cannot be used to meet his immediate needs. Is it any wonder that business costs in Singapore are considered high?”

The above is even more scary when we compare the largest component of wages in State Administration, Ministerial salaries. Using DPM Tans base for comparison (i.e. Australia, UK and US);

1. Singapore Prime Minister’s Basic Salary US$1,100,000 (SGD1,958,000) a year Minister’s Basic: US$655,530 to US$819,124 (SGD1,166,844 to SGD1,458,040) a year.

2. United States of America President: US$200,000 Vice President: US$181,400, Cabinet Secretaries: US$157,000

3. United Kingdom Prime Minister: US$170,556, Ministers: US$146,299, Senior Civil Servants: US$262,438

4. Australia Prime Minister: US$137,060 Deputy Prime Minister: US$111,439,
Treasurer: US$102,682

As usual Singapore policy makers have chosen form over substance, looking only at one sole criteria; wages. A worker’s wage cannot be viewed in isolation by itself as there are a host of other variables which will determine this wage.

Is this a case of severe Myopia or Wilfull Blindless? You decide.

And even if one chooses to look solely at wage as a basis for comparison, the focus should be on REAL WAGE (i.e. Wage net off costs of living and daily expenses). It is no secret that one of the main reasons for the for Singapores dismal birth rates is the huge cost of starting a family here.

Dominique Dwor-Frecaut, regional economist at Barclays Capital said a 6 per cent CPF cut “is not going to get companies knocking on their doors to set up new manufacturing bases in Singapore.

“Low- and middle-end factories would still prefer to go to China. The only difference it can make is in the services sector, where it may induce banks to come to Singapore.”

The CPF Cut may be a “Quick Fix” but not a Long Term Solution. Policy Makers cannot conveniently refer to this to address every economic problem. It is not a universal cure all. Surely Singapore’s best and brightest highly paid cabinet can do better then this.

Analysts added that introducing a flexible wage component could work to kick-start the economy and save jobs BUT would not help cure longer-term structural problems. Said Hugh Young, managing director of Arberdeen Asset Management in Singapore “Ultimately, if you ask me whether it can bring about a circular swing which is more fundamental in the long term, I will say no.”

A “systemic change” is necessary for Singapore to pull itself out of the current economic rut. They argue it needs to take bolder measures such as further liberalisation of the domestic services sector, more encouragement of private enterprise and even possibly going as far as implementing a looser monetary policy.

It is conceded that the CPF is a problem. But this was a brainchild of the PAP. And having imposed it regimentally in the past, it seems that policy makers are now doing a 180 degrees about face, solely at the expense of workers.

Are Singaporeans seeing the results of a micro-managed economy gone awfully wrong? And why have policy makers not learnt from their past mistakes to let market forces regulate the ebb and flow of the economy? Perhaps it is because wage restraint policies do not affect Ministers on a personal level.

“When asked how the pay cut would affect him, Mr Goh admitted candidly that it would have little impact as his children were grown up and his house paid for, “I do not speculate on the property market. I do not have any oustanding loans. I don’t owe anybody anything. So what I have, I don’t spend very much.”
– Straits Times, on how the 10% ministerial pay cut would affect PM Goh Chok Tong, May 23, 2003

Lee Han Shih hit the nail on the head when he noted;
It is telling that the first thing the government does to help get jobs for Singaporeans is to start up yet another statutory board, the Works Development Agency, which presumably generates some new jobs for civil servants.

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