HK jitters as Singapore slashes wages

SINGAPORE on Sunday announced it will slash the cost of salaries and wages by at least 12 per cent.

Deputy Prime Minister Lee Hsien Loong said the wage bill costs of companies would be reduced in the form of lower employer contributions to the Central Provident Fund (CPF) pension scheme and cuts in its flexible wage system.

This refers to cuts in the variable elements of salaries, like 13th month payments and other bonuses.

The move was intended to steer the island state from recession, he said.

The cuts had been anticipated but it is the first time the government has mentioned a percentage figure.

The plan drew a sharp reaction from legislators and analysts in Hong Kong. Lawmakers said it could exert additional pressure on local companies already reeling from the region's economic crisis and looking for ways to trim costs.

Mr Lee said the last time Singapore was in recession, in 1986, cuts equivalent to a 12-per cent reduction in wage bills were made in employer CPF contributions.

``This time the situation is probably a more serious one, so I don't think it can be less than a 12 per cent cut,'' he said.

Singapore is expected to to unveil a package on Wednesday aimed at cutting business costs.

Prime Minister Goh Chok Tong said he had recommended a cut in employer CPF contributions from 20 per cent of monthly salaries to 10 per cent. Legislator Sin Chung-kai of the Democratic Party said the move would make Singapore more competitive with Hong Kong. ``The Singaporean government has been very aggressive and pro-active in attracting technology-based companies, and their reduction of the cost of salaries and wages will certainly make things more difficult for Hong Kong.''

He chided the government for not being as pro-active as Singapore in courting global companies like US oil firm Caltex, which will have relocated its global headquarters from Texas to Singapore by March. Mr Sin said Hong Kong, Manila and Sydney lost out in the race to host the oil giant's base.

Patrick Maule, chairman of the Institute of Human Resource Management's remuneration and research committees, said: ``Scores of companies will probably not pay as much bonuses as they used to because of this additional pressure. But I think the impact on Hong Kong will be more psychological than anything else because this will just be another straw to the SAR's difficulties.''

Legislator Eric Ka-cheung said Singapore's action might exert pressure on some companies and prompt them to follow suit.

 Published in the Hong Kong Standard Nov 9, 1998