Singapore, where Hewlett-Packard Co and Seagate Technology Inc are among the biggest employers, will cut companies' contributions to pensions to keep jobs and investments moving out to China and India, where costs are lower.
The employer's pension contribution will be cut by about a third and salary ceilings for pension fund eligibility lowered, said Prime Minister Goh Chok Tong (
Singapore is moving to shore up jobs and investments amid near-record unemployment and the economy's worst quarterly contraction on record. The cut may help companies such as Singapore Airlines Ltd, which reported its first quarterly loss, and manufacturers such as Seagate, which moved jobs to China and other parts of the region.
"In terms of exports, particularly to the US, Singapore has lost market share over the past five years," said P.K. Basu, managing director at Robust Economic Analysis Ltd in Singapore. "That concern will be at least partly addressed by cutting wages."
Singapore workers will take a wage cut through a reduction in the employers' pension contribution of 16 percent of their pay to as low as 10 percent, Goh said. The changes will be placed before Parliament in the next few weeks.
"We have to consider these severe measures," Goh said in a televised rally Sunday night. "Adjust or lose more jobs. For me, the choice is clear."
Still, any cut in pensions, which most of Singapore's 4 million residents use to fund home purchases, may hurt a recovery in the city-state's property market, where prices of private apartments have fallen for 11 of the past 12 quarters.
"The proposals over-emphasize reduction of wage costs to sustain employment," said Mukul Asher, public policy professor at the National University of Singapore. "Wages are also income and such drastic reduction will reduce domestic demand and therefore, jobs -- the net impact is unclear."
Trimming pensions may also affect mortgage payments and hurt the private property market as fewer upgrade, analysts said. Four in five residents live in government-built homes, which are subsidized, and a trade-up to private property is a key aspiration for them.
City Developments Ltd and CapitaLand Ltd, Singapore's biggest developers by market value, make up more than a third of the 45 companies on the Singapore benchmark Straits Times Index that have property investments.
"If it's staggered over time, the impact may not be that disastrous for the property market," said Yang Sy Jian, research director at UOB-Kay Hian Research Pte in Singapore.
"Still, I don't think the cut will solve all things -- we won't be able to match the competitiveness of workers in other countries," he said.
By lowering wage costs "we also signal to investors we're realistic and long-term in our thinking," Goh said. "This will help us attract more investments and more jobs."
The government expects offshore investors such as Motorola Inc to put S$7.5 billion (US$4.2 billion) into Singapore this year, from S$8 billion last year.
The city-state is also trying to attract companies such as Dell Inc to run Asia-wide operations from Singapore.
"Wage costs are definitely a concern," said Bill Amelio, Asia Pacific president at Dell, which employs 200 in Singapore. "But Singapore has some of the greatest knowledge worker skills, and you can't find some of those same skills in other low-cost countries -- so that's still a major advantage that Singapore has, and one that we will continue to leverage."
Singapore's economy shrank 11.4 percent in the three months ended June 30 from the previous quarter, the worst slump on record. Goh said a week ago he expects GDP to expand between zero and 1 percent this year, cutting the official estimate for a second time in five months.
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