MAIN AND DEVELOPMENT ESTIMATES OF SINGAPORE FOR THE - FINANCIAL YEAR 1ST APRIL, 1987 TO 31ST MARCH, 1988
Mr Chairman, Sir, I would like to thank all the Members for their valuable suggestions and comments. The various Members have ranged over a very wide area of my Ministry's responsibilities. I will try to answer all their queries. I would like to start with the CPF because this is the issue that a lot of people are waiting to hear about from me. First, concerning the long-term rate of CPF. Various Members have spoken on this issue giving both the employers' as well as the employees' point of view, and they have also pointed out the economic implications. I would like to assure them that their views will be taken into consideration in determining the long-term CPF rate. My Ministry has been making a careful study of this issue together with the Ministry of Trade and Industry and, where Medisave is concerned, also with the Ministry of Health. Certain parameters are already clear and I would like to inform Members. First, future increases in the CPF rate will have to come from affordable wage increases so as not to affect our international competitiveness. For example, in a particular year if the employers and the unions representing the workers agree on, say, 5% wage increase, then perhaps 1% or 2% could be kept away in the CPF account. So it is not going to be an add-on to the wage increase that is agreed upon, but it will form part of the agreed wage increase. This is the way to ensure that our wage costs are kept competitive. Second, the restoration of the CPF rate will have to be done gradually after the economy has recovered. I think this is obvious. If we try and do it all in one go or too fast, then there is danger that we may stall the economic recovery. There is only so much that the economy can afford and we have to do it gradually. Thirdly, the rate should be sufficient to provide for the basic objectives of the CPF scheme. These are housing, commensurate with the member's income; medisave and an acceptable level of retirement income related to the pre-retirement income of the member. This means that we should confine the CPF to its basic objectives and not allow ourselves to stray into extraneous areas. For example, education. Fourthly, the total CPF rate should not be too high. Members are aware there is a moral commitment to restore the CPF rate. But I think Members as well as the public should realize that whatever increase in the CPF rate will come from future wage increases. So the higher the CPF rate, the lower will be the take-home pay. Therefore, it is advantageous for the worker if we do not try and push the CPF rate up too high, of course bearing in mind that members do have their housing commitments to fulfil. Fifthly, it would be desirable to aim for a structure such that the employer's rate and the employee's rate are equal. I think the Member for Kebun Baru has mentioned this point and I fully agree with him. This is our basic aim. But Members may want to bear in mind the point that whether it is the employer's rate or the employee's rate, it is actually all part of the wage costs. So long as we remember this constraint, it will be possible to make the adjustments to make sure that the rates are as far as possible equal. Sixthly, a lower CPF rate should apply to workers above age 55. Again this point has been touched on by various Members and I think it is a point that the Government has more or less already accepted. This is to encourage the employment of workers beyond age 55. This lower rate is possible for the older workers because most of them would have already paid off their housing loans. So with a lower CPF rate, it will be possible, in the event that the wage cost has to be reduced, to do it without affecting the take-home pay of the older workers. Seventhly, part of the increase in the CPF rate should be channelled to the Special Account to avoid over commitment to housing by future home buyers. I agree fully with the Member for Radin Mas that we should take this opportunity, when we try to restore the CPF rate, to bring back the Special Account so that a certain amount of the increase will go into the Special Account. For those members who are already committed to housing, they should continue to be allowed to make use of their Special Accounts in the event they have exhausted their Ordinary Accounts. But for future home buyers, they should plan on the basis of the Ordinary Account. So the Special Account will be there to ensure that they have at least some cash when they retire. This account can also act as a buffer which can be adjusted in the event of an economic recession. My Ministry has been carefully studying this issue and I expect to be able to announce our conclusions soon. At this point I would also like to mention, as the Member for Radin Mas has pointed out, that it may not be so appropriate for us to reduce the CPF rate for workers at age 40. We have considered this point, but there are two problems. One is that if we have a lower rate for those aged 40 or 45, this means that, in order to cover the basic objectives, we need to have a higher rate for younger workers. This will affect new investments and companies which employ new workers. The other consideration is that, as of now anyway, most of the older CPF members, in fact have lower CPF savings. So they need to have a higher rate for them to build up the nest egg for their old age. So whilst it is clear we should reduce the CPF rate from age 55 onwards, we are not so sure that it should be done from age 40 or 45. Next, I would like to touch on CPF for education. Unfortunately the Member for Paya Lebar is not here. He raised this issue yet again yesterday. I think the Member has missed my main point. He suggested that we should classify the tertiary institutions into "trustee institutes of higher learning" and to assess whether education in these institutions is risky or not. This is not the main point. My main point is not whether university education is risky or not risky. My point is that in setting the long-term rate of CPF there is no provision for education as an additional objective besides the three I have mentioned, which are housing, medisave and the retirement income. If we decide to include education as an additional objective, it means that the CPF rate that we are now determining will have to be higher by a few percentage points. Since any increase in the CPF will have to come from future affordable wage increases, this means that the take-home pay of members will be lowered. The preferred approach, I think, is to allow members to keep this equivalent amount in their own savings as part of their own take-home pay. They can save it for their own needs, whatever it may be. Perhaps only 10% to 20% of members would require this saving for university education. So we should not compel everybody to save at this same high rate in order to provide for the few. This is basically a question of compulsory savings versus private savings. By confining the CPF to its basic objectives we will have less compulsory savings in CPF and more private savings by members for their individual needs. We should realize that education is a very wide field, ranging from self-improvement courses which may cost $50 or a couple of $100 to overseas university education costing $50,000 to $100,000 or even more. Once CPF is allowed for education, I expect the pressure will mount for more and more of it to be used for education. For the self-improvement courses that I have mentioned, it will probably cost the CPF Board more to release the small sums involved than the actual fees themselves. As for local university education, the courses are highly subsidized and the fees are not high. The Government has already established a $100 million soft loan scheme to finance half the fees. The Minister for Education has also agreed to consider lowering the interest rate. This is the best arrangement for Singaporeans. The graduates should have no problem repaying the loans after they start work. The other extreme of this spectrum is overseas tertiary education. For this, the cost is extremely high, maybe $100,000. Certainly the CPF scheme is not designed with such large expenses in mind. Those CPF members who can afford this cost are relatively well-off and I do not think they require support from the CPF. In any case, there is no provision in the CPF for this kind of expenditure. I suspect the people clamouring for the scheme are basically the small number of few members who see their CPF savings building up and they just want to get their hands at it, not realizing that they need the money really for their old-age requirements. It is an error to think that there is excess fat in the CPF scheme. We are designing the scheme just for the basic needs. Members should avoid over-committing this amount to properties unless they think it is a good investment. If you calculate the amount needed for a member to live on for 20 years or more from age 55 years, it is really a big sum. Just do a simple calculation. For $400 per month, over 20 years, if you multiply the $400 by 20 years by 12 months, it will come up to almost $100,000, not considering interest cost and inflation. This is an indication of how much a person needs to be able to live on at a standard similar to what they were used to be before retirement. Another argument that has been advanced on why we should allow CPF to be used for education is that since we allow it for shares and gold, so why not for education? The point here is a subtle one. When we allow it for shares or gold,these are basically investment schemes. All the returns have to go back to the CPF. They cannot be touched. The scheme is not to enable members to speculate on the stock market. That is not the purpose. The scheme is to enable them to make long-term, careful, considered investments in whatever form, with the intention of enhancing the value of their savings for old age. This is different from education where once you take out the money it is gone from the account, and then you have to depend on your child. It is not the same thing. One is investment, trying to enhance the value of the savings. The other is something else. It is true that investment in shares can be quite risky. Those members who feel that it is too risky should leave their money with the CPF Board to earn a guaranteed return. There is no compulsion for them to invest in the stock market. In fact, as of now, only about 4% of the eligible members have used their money for shares and gold and the sum they have invested is only about 4% of the investible savings which are allowed. You can see that most Singaporeans are careful and the money is properly kept. Members may wish to know, for example, what the returns are that have been recorded over the last 10 years for the different kinds of investments. I have some figures here. For the 10 years between 1975 and 1985, the average rate of return from investment in properties was 16%. Investment in shares, ie, the local stock market, 13%; investments in gold, 10%. If they have left their money with the CPF deposit, the return would have been 6.4%. What the returns will be over the next 10 years is anybody's guess but it is true that the higher the potential return, the higher the risk. To wind up this point, I would like to come back to the basic point of my position, which is, that the CPF scheme is not designed for education. We should therefore confine it to the basic objectives in order that the rates will be kept low and there will be more savings for the individual to make use of. Sir, I would like now to turn to the comments made by the Member for Radin Mas concerning the Home Protection Insurance Scheme (HPIS). As the Member has mentioned, the scheme has been operating well since it started in November 1981. It now provides insurance cover for about 350,000 CPF members who have bought HDB or HUDC flats. For a scheme of this size which does not require medical examination, some members are bound to try and take advantage of the scheme. A few members are suspected to have done so. They were suffering from terminal illnesses when they arranged the maximum cover for themselves under HPIS. If we allow this kind of abuse to go on, as the Member has said, this may eventually affect the premium which the other members have to pay. Therefore, to prevent such abuses in future, the CPF Board will require new members who join the Home Protection Insurance Scheme in future to sign a declaration that they are not suffering from terminal illness or permanent incapacity to work at the point when they take up the insurance. Subsequently, if we find that they have made a false declaration, for example, if they pass away and we check up and we find that there are medical records to show that they have been suffering from certain illnesses, then the claims will be disallowed. On the positive side, in the light of the experience with the scheme, the CPF Board is also considering various improvements to the HPIS. For example, we will allow the insurance cover to commence from the signing of the housing loan agreement. At the moment, there is a one-month lag and this has affected some members. In future, we will do it faster. Upon signing, the cover will commence. Another idea is to allow the insurance cover to be extended to both husband and wife, to both joint owners of the flat. There have been some cases where the CPF member is, in fact, not the one servicing the loan. For example, the husband may be a taxi-driver who has very low CPF. Our scheme at the moment covers the CPF member mainly based on the use of the CPF savings. When the non-CPF member dies, there is in fact no protection for the family. So my intention is to extend the scheme to cover both members in proportion to the amount of the loan they are servicing so that the total cover is still 100% of the housing loan. In addition, we intend to allow the CPF account of the member to be used to pay the premium for both members. This will be an improvement of the scheme. The CPF Board will make a fuller announcement of all the details. I think I have covered most of the points on CPF. I would like now to move to the question of foreign workers' levy which has created some debate outside this House and also because some Members have mentioned it. I have already explained a few days ago, when debating the Budget policy statement, the rationale behind this scheme. Let me repeat some of these points and elaborate further. The levy is basically a scheme to regulate the inflow of foreign workers. Since we are going to allow this revolving pool of foreign workers to continue beyond 1992, we must have some kind of a mechanism to regulate the supply. The levy scheme applies only to new work-permit holders. Therefore, it does not immediately affect existing foreign workers, the cost of employing them nor the cost of local workers. It is for the purpose of facilitating the changeover to the new scheme and to minimize the cost impact that the Government has decided not to extend the levy to all the foreign workers immediately but to do it progressively to new workers. The effect on the new work-permit holders depends on the take-home pay which is needed to attract them to work in Singapore. This should be determined by market forces and not by the salary of a Singaporean worker who has to save 25% of it in CPF. As I have explained before, and also further elaborated by the Member for Kebun Baru, the fixed levy in fact favours the employment of semi-skilled and skilled foreign workers. For those categories of workers, it may become cheaper to employ them in future with this scheme as compared to the CPF scheme. As I have said before, I am prepared to consider measures to discourage job-hopping by the existing foreign workers. The type of measures to be taken will have to be examined but, in principle, I am prepared to consider measures to discourage job-hopping, if necessary. The Government will also monitor the labour situation and make adjustments, if necessary. Some employer groups have expressed concern about the possible impact of the levy scheme on wage costs and industrial relations. They may be hoping that the Government will change its mind. I have to clarify that the Government has decided on the scheme after careful consideration of all the factors involved. The extension of the levy scheme will be implemented from 1st April 1987 as announced. Employers should therefore proceed on this basis. They should have no objection to this basic concept of the levy if they accept that the revolving pool of foreign workers which will be available beyond 1992 has to be controlled. The levy is basically a pricing mechanism to regulate the inflow of foreign workers. We have set the levy at $140 per month to start with. The appropriate level will have to be gauged from actual experience with the scheme. We are not sure how market forces will work out. So we have to see how the scheme works out in practice. If it turns out to be too high for companies to be viable, the Government will consider a downward adjustment. Conversely, if it turns out to be too low, for example, if we get a big flood of foreign workers coming in again, it will have to be adjusted upwards. Some employers have expressed concern that the fact that we are having two schemes - one for Singaporeans and one for foreign workers - may give rise to industrial relations problems. My Ministry has consulted the NTUC to seek their cooperation to facilitate the smooth implementation of the scheme. As the Member for Kebun Baru has mentioned, and he is a trade unionist, the unionists accept the scheme and are prepared to explain the scheme to the Singaporean workers. So I hope with their cooperation there will be a minimum of industrial relation problems. We have to accept the fact that there will be two schemes. Employers should work out the detailed arrangements for this purpose, get on with the job and keep costs under control. I would like now to turn to the questions by the Member for Leng Kee. He asked for the profile of the unemployed workers. May I ask the Clerk of Parliament to distribute a table showing the profile in June 1986 as well as December 1986. [Copies of document (Cols. 1021 - 1022) circulated to hon. Members.] Members can study the figures and draw their own conclusions from them. document - PROFILE OF UNEMPLOYED PERSONS AGED 15 YEARS AND OVER (Cols. 1021 - 1022) I would just like to point out a few main observations which can be drawn from this Table. Firstly, the unemployment rate has gone down from 6.5% in June 1986 to 4.6% in December 1986. This was because of a pick-up in the manufacturing sector and also an increase in employment in some service sectors, although employment in the construction industry went down. This affected mainly foreign workers and most of the new jobs created have been taken up by Singaporeans. As a result, the number of unemployed has gone down from a total of about 79,000 in June 1986 to a total of 56,500 in December 1986. The unemployment rate is somewhat higher for males than for females. The pick-up has been mainly in the electronics and garment sectors which require mainly female workers. Nevertheless, a lot of the unemployed male workers have also found jobs, if you analyze the figures, especially the younger ones. The Table also shows that there are more males unemployed than females, partly for the reason I have explained and partly because this also corresponds to our workforce which is male dominated. The male unemployed tend to be lower educated and older; their median age is about 32 years, as compared to the females whose median age is 25. As I have said, the younger workers find it easier to get jobs with economic recovery than older workers. This means older workers have to make greater adjustments to their job and salary expectations in order to be re-employed. I would also like to urge employers not to classify jobs as only suitable for younger workers. They should employ older workers if they can do the job. Another interesting point to note from the Table is that as at December 1986, there were still quite a big pool of unemployed workers who were relatively young, below 19, below 25, below 30. Of those below 25, there were about 18,000 of them. Some of these might be "frictionally" unemployed, that means they were in-between jobs. But others may be waiting at home for their ideal jobs to come around. I hope they will adjust their job expectations early and accept the jobs which are available. Some of the comments that I have made also relate to those points that the Member for Boon Lay has touched on. I share with him the concern that the older workers are finding it harder to get jobs. My Ministry has been in touch with the various Government departments to try and get them to employ older workers for cleaning jobs and so on. I hope the private sector will do the same and not classify jobs as suitable only for younger workers. But this is a problem that requires the cooperation of employers, employees and the Government to solve. Perhaps the main solution will come from economic recovery. Moving now to the points made by the Member for Yuhua. Apart from commenting on the CPF rate which I have already answered, she commented on the wage restraint policy and how it should be applied this year. Basically she made two points. One is that there should be flexibility in wage restraint and how it is to be applied this year. For example, it should be in relation to company's performance. On that point I agree with her. I think this was also the way it was done last year. It was not a complete freeze. Companies which could afford did give out some pay increase. Companies which were losing money, of course, could not afford to pay. Now that we are on the way to recovery, wage restraint should continue but there should be some flexibility, as the Member has advocated. The second point she touched on is whether the low-income workers could be given some special consideration in this wage restraint policy. This is something which the National Wages Council will have to consider. The NWC has been meeting and deliberating on this issue. So I will leave it to them to examine this point and take into consideration the Member's views. The Member for Radin Mas asked about the Minimum Sum Scheme and he is concerned about possible abuses of the tax benefit. As the scheme now stands, if a member makes cash contributions to the Minimum Sum accounts of their parents, he enjoys tax relief on his contributions up to the approved amounts. If the parent dies before the sum is used up, the money goes into the contributor's CPF account. So there is already a safety provision there, and I think it is adequate. The accounts that the members open for their parents will be in the names of the parents. So it is the parents who have access to the money. This is a point which members should bear in mind when they contribute to their parents' accounts, and I hope they do so with the genuine intention of supporting their parents. The Member for Boon Lay raised a couple of other points, firstly, about part-time workers and, secondly, the question of support for working mothers, what the private sector can do in this area. Concerning part-time workers, as he rightly pointed out, the situation at the moment is a bit unclear in the Employment Act. In fact, ours is not the only case. Even the ILO has not come up with guidelines on this issue and the practice varies from country to country. My Ministry has been examining this point to see whether and how we should amend the Employment Act to facilitate the employment of part-time workers. There are a number of suggestions on how we can do this. One is, and this is only a suggestion, to exclude part-time workers from certain provisions of the Act concerning rest days, annual leave, sick leave, public holidays, and so on. On the other hand, to protect the workers, other provisions of the Act concerning notice of termination, unfair dismissals, payment of salary, and so on will have to remain in force. The rationale behind this suggestion is that if we make the system more flexible to allow greater flexibility on the part of both the employers and the employees to come to their own arrangement, this will facilitate the employment of part-time workers. For example, some part-time workers only work on weekends. So it does not make sense if they insist that they must have public holidays, they must have so many days annual leave, and so on. If we exempt the employers from those provisions, maybe they can offer a higher pay to attract the workers to compensate them for the loss of fringe benefits. Another suggestion would be to pro-rate the benefits according to the number of hours they work and either give them these pro-rated benefits or pay them a salary in lieu of these benefits. That is another way of doing it. But it is a bit less flexible than the first one. We will have to strike a balance between the various possibilities. There may also be a need to draw a dividing line between what is considered part-time and what is considered full-time employment. At the moment there is no distinction in the Employment Act. So legally, if you employ a part-time worker even for a few hours, you have to give him the full benefits that a full-time worker is entitled to. Of course, my Ministry has been very practical in this area. We have not been strictly insisting on this. I think this is really a grey area and in some ways it is an anomaly. In terms of hours of work, the experience varies from country to country. In the US, the dividing line is 35 hours per week. Anything above that is considered as full-time work enjoying the full benefits under the Employment Act. In Ireland, it is also 35 hours per week. In UK, Denmark and France, it is 30 hours per week. In the Netherlands, it says 30 hours here, but I think it is 25. I have to check on this. So we are studying this issue to see what should be right for our situation. We have done a survey of some companies employing part-time workers. Most of them are in the service sector - retail trade, fast food outlets, hotels. Some are in the manufacturing sector. In fact, a few manufacturing companies have been very successful in employing part-time workers, especially housewives from the neighbourhood. Most of the part-time workers are housewives and students. We have found that some of these employers surveyed do provide fringe benefits, such as off-days, annual leave and sick leave, but there are others that do not. Most of the companies do not provide maternity leave. The hourly wages are about the same, some are more, some are less for part-time workers, as compared to full-time workers. In some cases, the hourly wages may be higher because there are no fringe benefits. We are still studying this issue and I would welcome comments and suggestions on how we should go about doing this. By making these arrangements to facilitate part-time work, I hope they will also contribute towards greater employment opportunities for retirees and older workers. The other question from the Member for Boon Lay is about working mothers and the private sector. As he rightly pointed out, the private sector employers cover a very wide range. Some are very big, employing thousands of workers, some only employ a handful of workers. So obviously whatever scheme they come up with must be in accordance with their own ability to pay and their own needs. What the Government has done is to set an example. Hopefully, some private sector employers will be encouraged to follow this. But I think it is difficult for us to enforce it and say, "You must do this." And whatever we do must also be in keeping with the general population policy of the Government. We can look into various areas. But the overriding factor must be: what is our long-term population objective? How do we intend to go about doing it? One way is perhaps, as the Member said, to be more flexible in allowing a restructuring of work to facilitate working mothers. Another way may be to allow compassionate leave, to allow leave to look after the sick children. But the employers, of course, are also concerned about how to run their companies and how to minimize costs. So there has to be a balance somewhere. I think for the moment we have to do it by example and by persuasion. But I do hope that, as responsible corporate citizens, our private sector employers will follow suit and support the national effort. Sir, I think I have covered all the points raised.