Baby Perks for Parents

SINGAPORE) The baby plan announced by Prime Minister Lee Hsien Loong on Sunday could cost the government more than $100 million a year. But the eventual cost of not raising the birth rate could be much higher, economists said yesterday.

A committee headed by Trade and Industry Minister Lim Hng Kiang indicated earlier this year that it could cost up to $200 million a year to give mothers two extra months' leave at full pay. The government has now decided to give one extra month - which would halve that cost.

Women currently get two months' paid maternity leave. Mr Lim's committee looked at extending this to as long as six months, but the government has settled on a one-month increase to three months.

Full details of the baby plan have yet to be released. But other elements announced by PM Lee at the weekend include a cut in the maid levy for families with children under 12, bigger childcare subsidies, extra tax breaks, extended baby bonuses and two days of childcare leave for each working parent with children under seven.

The cost of these benefits is on top of the possible $100 million for extra maternity leave.

Manpower Ministry figures show about 266,500 married women aged 20-39 were employed in Singapore as of June last year, and their average median monthly pay was about $1,700.

In terms of the maid levy, there are about 150,000 foreign domestic workers in Singapore, and employers pay a monthly levy of $345 per worker. This adds up to about $50 million a month, or $612 million a year in revenue.

Cutting the levy will eat into this. But not all maids work in households with children under 12, so the amount of revenue that will be lost is hard to quantify.

Economists said yesterday that even if the baby plan costs more than $100 million a year, the benefits of a higher birth rate will far outweigh any short-term revenue loss.

'This is basically an investment by the government,' said Nizam Idris of IDEAglobal. 'The long-term cost of a low birth rate would be higher. In an ageing population, the proportion of the economically inactive citizens would increase dramatically.'

GK Goh economist Song Seng Wun agreed that the government's baby plan is a 'much cheaper alternative' than the economic cost of a chronically low birth rate.

'This may affect the government at the margins, but they will probably be able to offset with charges elsewhere through other measures, such as GST or other forms of taxes,' Mr Song said.

'The bottom line is that as long as you see economic growth, government revenue collection will tend to follow suit, which will mitigate any losses.'

Fraser Securities says in a report that the 'baby measures and tax benefits for the family should indirectly boost investor sentiment'. Fraser expects the ST Index to climb above the 2,000-point level in the next few months.

While mothers will be happy with extra maternity leave, employers face possible staff shortages. SMEs, in particular, could find it difficult to cope with the loss of key employees for an extra month.

'In general, the typical SME workforce is relatively small, so longer maternity leave could have an impact on the resources of companies,' said Lawrence Leow, president of the Association of Small and Medium Enterprises. But he believes most will cope.

The government's move towards a five-day working week - also announced by PM Lee on Sunday - was applauded yesterday by human resource consultants.

'I think this is a great move,' said Dhirendra Shantilal, vice-president and managing director of Kelly Services Asia. 'A five-day work week, in my view, will enhance productivity. I see this as very positive.'