June 23, 2008

Foreigners key to avoiding worst-case scenario

Very responsive foreign-worker policy will help Singapore fight stagflation, says Swee Say

By Clarissa Oon

IF INFLATION is bad, consider a 'worst-case scenario' of Singapore sliding into stagflation, said labour chief Lim Swee Say yesterday.

It is inflation coupled with slow or negative economic growth - a situation Mr Lim said the Government must guard against by ensuring that the economy keeps growing.

Otherwise, jobs will be lost and wages will stagnate.

One way to avoid stagflation is to maintain a foreign-worker policy that is 'very responsive' to business needs, he told some 200 residents of Sengkang West at a dialogue that wrapped up his visit to the constituency.

Mr Lim, secretary-general of the National Trades Union Congress (NTUC), illustrated his point by comparing Singapore to Denmark. Both countries have near full employment, but Singapore's economy grew by 7.5 per cent last year, while Denmark's was only 1.3 per cent.

Denmark's slower growth rate was because it was running out of workers but still placed a cap on foreign workers because of integration issues, Mr Lim was told on a research trip there last week.

Singapore takes a different approach.

'If we're short of construction workers, we allow (foreigners) to come as construction workers. It helps us to keep growing our economy,' he said, urging Singaporeans not to view foreign workers 'as a threat'.

Noting that the economy is expected to slow down this year, growing by 4 to 6 per cent, Mr Lim assured Singaporeans that as long as it 'does not slow down too much, the jobs and wage increases will still be there' to offset the impact of inflation.

He pointed to the wage gains in the first quarter of this year. After adjusting for inflation, wages still went up by 3.6 per cent.

Mr Lim, who is also Minister in the Prime Minister's Office, was responding to questions on the rising cost of living, which dominated the two-hour dialogue.

Residents wanted the Government to do more to help them cope with inflation, which hit a 26-year high of 7.5 per cent in April, owing to soaring food and fuel prices.

Among them was retiree Puliekutty Govindasamy Perumal, 70, who asked if the Government would consider cutting taxes, such as the goods and services tax (GST), to ease the impact of inflation.

But Mr Lim said not every Singaporean is affected by inflation to the same extent.

Thus, the best way is to offer targeted help to those who need it the most, rather than giving subsidies across the board.

He then related a conversation with a Malaysian friend who told him Malaysia's fuel subsidies now constitute 6per cent of the gross domestic product, which Mr Lim said is 'enough to pay for all our education in Singapore'.

Such subsidies, said his friend, do not work because it is the middle- and high-income car owners who benefit most from them.

Realising that subsidies are no longer sustainable, the Malaysian government raised petrol prices by 41 per cent and diesel prices by 63 per cent earlier this month.

This led Mr Lim to quip: 'Never go for easy or popular solutions. We can subsidise everything but it won't last.'

He hopes Singaporeans 'have the trust and confidence in the Government that it is doing the right thing' to help lower-income households, as well as to sustain economic growth.

The Government's approach, he explained, is to peg handouts such as growth dividends and GST offsets to income level such that lower-income families get more.

Co-operative supermarkets run by NTUC are also doing their part by pricing their house-brand products 10 to 15 per cent cheaper than the market price.

He pointed out that the sales of house brands at NTUC FairPrice and other supermarkets, such as Cold Storage and Shop N Save, have gone up as consumers eschew more expensive brands.

This, he said, is a sign of Singaporeans' adaptability and the market adjusting to rising food prices.

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