The service sector has to reduce its dependence on foreign labour.

This was announced by Finance Minister Heng Swee Keat in his 2019 Budget Speech on Feb. 18.

S Pass growth reached 5-year record high

According to Heng, Singapore's services sector, especially segments like F&B and retail, have remained labour-intensive.

As a result, growth in S Pass and Work Permit holders in the services sector have been picking up pace. Over the last three years, the number of S Pass and Work Permit holders increased by 34,000 in the last three years. Heng said:

"In particular, the S Pass growth in services is the highest in five years. If this trend persists, foreign manpower growth will be on an unsustainable path."

In general, services sector segments like F&B and retail are more prone to hiring Work Permit and S Pass holders because they cost less.

Both employment passes are for semi-skilled foreign workers but S Pass holders must be paid a wage of at least S$2,300.

Cautioning that Singapore cannot rely on foreign workers as a long-term solution, the Finance Minister urged companies to revamp work processes, redesign jobs, and re-skill workers.

To that end, Heng announced the following workforce quota (Dependency Ratio Ceiling) for the services sector:

1. Reduce Dependency Ratio Ceiling from 40 per cent to 38 per cent on Jan. 1, 2020, and to 35 per cent on Jan. 1, 2021.
2. Reduce S Pass Sub-Dependency Ratio Ceiling from 15 per cent to 13 per cent on Jan. 1, 2020, and to 10 per cent on Jan. 1, 2021.

Foreign Worker Levy rates remain unchanged for all sectors.

What can companies do with less foreign labour?

To help companies cope, Heng announced two measures help companies cope with the change and train up their own workers: enhanced support levels for the Enterprise Development Grant (EDG) and the Productivity Solutions Grant (PSG).

The EDG provides local enterprises with to 70 per cent government funding for projects that help to innovate businesses, strengthen business foundation, and tap overseas markets.

In general, SMEs can claim up to 70 per cent of financial support while non-SMEs can claim up to 50 per cent of financial support.

Starting from April 1, 2020, businesses who benefit from the EDG will have to commit to tangible outcomes for workers such as wage increases in order to qualify for the grant.

The PSG supports companies keen on adopting IT solutions and equipment to enhance business processes.

This grant will be enhanced to cover worker upgrading - such as training expenses. Companies need to submit a training plan in order to qualify for the grant.

The 70 per cent support levels from both grants are originally meant to lapses back to 50 per cent after March 31, 2020. To help companies transition to a lower dependence on foreign workers, the 70 per cent support level will be extended for another three years to March 31, 2023.

More information on these grants will be announced by the Ministry of Trade and Industry (MTI) and Ministry of Education (MOE) Committee of Supply.

All the Budget 2019 stories you need to know:

Top image via Population.sg

[Edit: Previously we incorrectly stated that only the Work Permit Dependency Ratio Ceiling would be reduced. The DRC of both Work Permit and S Pass will be reduced. This has been amended]