Levy hikes will be scrapped.
Singapore's unrelenting drive to reduce its reliance on foreign workers will have to take a backseat this year, as the city-state scrambles to combat slowing growth and soaring labour costs.
According to a report by Citi, foreign worker levy increases are expected to be deferred further or scrapped entirely in Budget 2016, as the broad-based levy hikes in recent years have proven to be counter-productive.
"An overly sharp increase in foreign worker levies could cause otherwise productive firms to fail. While data have not been disclosed, we suspect the successive rise in FW levy hikes may have accounted for a significant portion of unit labour cost increases since 2010," Citi said.
Citi added that with the substantial reduction of foreign workers for some sectors, such as offshore and marine engineering, earlier proposed foreign worker levy hikes are no longer necessary.
However, Citi stressed that it is not likely that the government will grant businesses' wish for an outright cut in levies.
“The cyclical reduction in labour demand necessitates that the supply of foreign workers be curtailed further to limit competition with locals for jobs. More broadly, a foreign worker levy cut would be too abrupt a signal of reversal from the earlier policy of capping the foreign worker share at one third of the workforce,” Citi said.
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