Growing talent and productivity in a rapidly evolving economic landscape

In his annual New Year message delivered on 31 December 2019, Prime Minister (PM) Lee Hsien Loong stressed the importance of Singapore remaining an open economy in today’s volatile world. He signaled that the upcoming 2020 Budget will continue to work towards helping both businesses and individuals maximise opportunity as well as mitigate the external risks brought about by trends and issues that include global trade tensions, the rise of populism, wider regional instability and Industry 4.0. A key priority will be to support businesses in raising their productivity by helping their employees to retrain and build new skillsets and capabilities.

Over the past three decades, Singapore has strengthened its position as a major hub in the region and with this confidence, Singapore has started to shift its focus from attracting foreign talent to grooming local talent. As a result, many of the tax breaks that were previously available to foreigners to attract them to relocate and be based in Singapore are being removed or phased out. The latest being the lapsing of the Not Ordinarily Resident (NOR) scheme where foreigners could enjoy tax savings under the time apportionment of income tax concession if they travelled significantly from Singapore for work purposes.

However, Singapore’s merits and relative strengths now present us with opportunities to invest in policies that continue to drive improved growth and productivity in the short and medium term.

Attracting and retaining talent

Foreign labour is still very much in the spotlight. The number of foreign workers in Singapore has remained relatively consistent with a small increase of about 22,000 workers in the twelve months to June 2019 being offset by a reduction of about 44,000 in the previous two years. Foreign worker quotas continue to be reduced – for example, in the 2019 Budget, it was announced that the quota in the services sector will drop to 35% by 2021.

However, it should be noted that many – if not all – multinational corporations (MNCs) that have operations in Singapore seek out the best talent regionally and globally to remain competitive and contribute to Singapore’s economy. It would therefore be beneficial for Singapore to continue to make it as efficient as possible for these employers to attract highly skilled individuals. Recently announced programs such as the “Tech@SG” initiative – where qualifying technology and digital companies may enjoy relaxed employment pass requirements – could potentially be replicated for other important sectors.

In order to build new capabilities and improve individual skillsets and workforce productivity, many MNCs are very willing to provide their locally hired talent with overseas opportunities to gain vital regional and global experience, and young Singaporeans are eager to take advantage of such life changing experiences. However, Singapore is a clear outlier in this matter - its relative inability to support deployment of talent overseas was acknowledged in the 2019 Budget with the “Global-Ready Talent Programme”.

This disconnect is largely due to the often social – not financial - difficulties that such experiences can create for families when considering the potential impact on housing and school waiting lists. In line with PM Lee’s point about the ongoing reform on the education and housing system in his New Year address, an area that Singapore can explore would be the implementation of a policy for Singaporeans who are currently doing a qualified overseas secondment by providing housing and schooling guarantees upon their return. This would hopefully provide some support in addressing social barriers that prevent Singaporeans from relocating overseas for work, and go towards ensuring that they will not be unnecessarily penalised on the social front when they return.

Improving productivity

The government has long supported schemes to improve productivity through education and training of employees. These schemes have operated under many different guises and have included wider programmes such as SkillsFuture, Adapt & Grow and more targeted ones such as the Tech Skills Accelerator Scheme aimed at enhancing employability outcomes in the ICT profession. There is no doubt that the 2020 Budget will include additional measures of support for employers looking to retrain existing talent, but it is our opinion that the approach needs to be ambitious, holistic and wide ranging.

Many commentaries on the potential impact of Industry 4.0 paint an unnecessarily dystopian picture, suggesting that the rise of automation, connectivity, virtual reality and robotics will negatively impact the labour force. It should be noted that where there are losers, there are winners, and Industry 4.0 will also present unrivalled opportunities for economies that prioritise the upskilling of labour across all sectors. We would therefore advocate that 2020 Budget focus on supporting all employers in all sectors in retraining existing employees in essential future technological skills such as coding, data analytics and robotics.

How should this be funded?

Clearly, policy decisions such as those advocated above come with a significant cost and have to be balanced with the cost of other priorities. There is a strong argument that over the mid-term, such investments would fund themselves as they would support Singapore’s continued – and improved - competitiveness in the wider regional and global arena.

It should be noted that it is not necessary to balance any additional costs directly from personal tax collections as in many countries – including Singapore – the percentage of overall tax revenue contribution has shifted towards indirect tax. However, the most obvious route to balance the books from a personal tax perspective would be to increase personal tax rates or to reduce income thresholds, but this is not likely to be popular.

We echo PM Lee’s comments that “Singapore has to stay open and connected to the world, and that a Singapore turned inwards cannot survive”. We would advocate that measures set out in the 2020 Budget work towards helping both employers and employees in Singapore seize the opportunities created by wider regional instability and the ongoing Industry 4.0.

The writers are Sabrina Sia and Jod Gill, Deloitte Singapore Global Employer Services Leader and Tax Director respectively. The above are their personal views and may not represent the views of the firm.