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Cut Business Costs |
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| First, it is vital to cut business
costs to stay competitive in a period of reduced overall
business demand. The Government implemented a comprehensive
$10.5 billion cost reduction package in November last
year, covering all the key elements of business cost,
including wages, rentals, utilities and transportation
costs. This was in response to the CSC proposals to
help companies survive the crisis and to preserve jobs. |
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| This major package will take time
to show results. Many of the cost cutting measures only
came into effect on 1 January 1999. It is still too
early to assess their beneficial impact on businesses
and the economy. Hence, this Budget will not contain
any additional major new cost-cutting initiatives, although
it will not neglect appropriate rebates to individuals,
which had not been included in the November package.
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| The cost reduction package has received
the wholehearted support of Singaporeans. Workers have
accepted the 15 per cent reduction in overall wages.
The spirit of tripartism is strong and resilient in
Singapore.
We have always emphasised policies
to reduce stickiness in wages and improve the flexibility
in the labour market. We have progressively built up
a flexi-wage component over the years, and avoided restrictive
mechanisms such as minimum wages, wage mark-ups or job
security legislation. This has given us unique flexibility
to adjust our wages quickly in the current downturn,
to preserve our competitiveness. This has not only reduced
business costs but also helped arrest the fall-off in
labour demand. Without the necessary wage adjustments,
even more jobs would have been lost and the unemployment
rate would have risen to more than the 3.2 per cent
actually registered in 1998. |
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| Our cost-cutting package has been
well received by both analysts and investors. A recent
Merrill Lynch report commented that as a result of the
cost-cutting measures, "unit labour costs should
plunge back to the 1992-93 level, substantially boosting
the economy's cost competitiveness". Another report
by ABN-AMRO noted that "Singapore is demonstrating
that with the package it can adjust its prices and costs
quickly. The package will help boost confidence in the
economy". Investors too have reacted positively.
The substantial cost savings, particularly from the
CPF cut, will help businesses ride out this difficult
period. The package has also helped the Economic Development
Board (EDB) convince investors that Singapore offers
them an attractive business proposition, even in the
midst of the recession. |
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