Deputy Minister Tharman Shanmugaratnam today said the government will take innovative measures to restructure Singapore's economy to grow on the basis of skills, innovation and productivity.
This includes managing the country's dependence on foreign workers.
Mr Tharman said Singapore's foreign workforce has grown rapidly, by 7.5% per year over the last two years (excluding foreign domestic workers), and is now at about one-third of our total workforce.
He emphasised that "this has happened in an environment of full employment for Singaporeans and shortage of labour in many sectors of the economy".
"We have no alternative but to slow down the growth of our foreign workforce," he said.
He added that while some sectors will require significantly more foreign workers over the next five years, given the major housing and public transport projects, further measures have to be taken to avoid "an ever-increasing dependence on foreign labour".
A calibrated reduction in Dependency Ratio Ceilings (DRCs) of the manufacturing and services sectors will be put in place. DRCs specify the maximum proportion of foreign workers that companies can hire.
The DRCs for Manufacturing and Services are currently 65% and 50% respectively. From July 1, 2012, the DRCs for Manufacturing and Services will be reduced to 60 per cent and 45 per cent respectively.
The Minister for Finance and Manpower noted many firms in manufacturing and services are still well within their DRCs and have headroom to employ foreign workers.
Firms most heavily reliant on foreign labour will have to find ways to reduce their dependence, he said.
The DRC for S Passes will also be reduced from 25% to 20% for all sectors from July 1, 2012.
In light of an expected year of slow growth, he advised that Singapore should this as an opportunity to lower the DRCs across the board in both manufacturing and services.
"All firms can then take this into account in their future hiring decisions. This will help to contain our dependence on foreign workers in the long term."
He added that the government will also consider increases in the foreign worker levy beyond July 2013 depending on the growth of the foreign workforce in the next 12 months.
Mr Tharman said affected companies will be given up till July 1 this year to adjust to the new DRCs.
"However, for their existing foreign workers, companies will be given until June 2014 to comply with the new DRCs. This two-year transition recognises that many companies would have already invested in their existing workers," he said.
The changes are expected to affect 500 manufacturing companies and 8,500 services companies, most of which are small enterprises which will have to do with one or two fewer foreign workers.
Minister Tharman added that the Construction sector will also be tightened. He said: "Besides the reduced S Pass DRC, we will further reduce the Man-Year Entitlement (MYE) quotas by 5 per cent in July 2012, and raise levies for basic skilled workers hired outside the MYE quotas."
The Ministries of Manpower and National Development will share more details regarding these changes soon.