INCREASE IN EMPLOYERS' CPF CONTRIBUTIONS

INCREASE IN EMPLOYERS' CPF CONTRIBUTIONS:

(Impact on Singapore's business competitiveness): 7.

Mdm Ho Geok Choo asked the Minister for Manpower (a) how will a 3% increase in CPF contributions impact the business competitiveness of Singapore; and (b) if the fruits of Singapore’s economic growth can be passed on to workers through their variable wage component instead of raising the employer’s CPF contribution.

The Minister for Manpower (Dr Ng Eng Hen): Mr Speaker, Sir, the NTUC proposed the CPF increase. The Government is still consulting various stakeholders, including unionists, employers, workers and other relevant agencies on the proposed CPF increase. It would be premature to speculate on the actual increase, if any, but we agree with Mdm Ho that the impact on our overall business competitiveness should also be a factor for consideration.

Mdm Ho also asked if we should increase workers’ variable wage component instead of the employer's CPF contribution. CPF increases and rewarding workers through a higher variable wage component are not mutually exclusive options. It does not need to be "either or". You can do both. Our view is that,

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if the economy continues to do well, an increase in employer CPF rates may be appropriate, as a structural change to benefit all workers.

Mdm Ho Geok Choo (West Coast): Mr Speaker, Sir, I would like to ask what is the Ministry's view with the following observation. Where economists have warned of divergent growth patterns between different businesses and income groups and that a dual economy may emerge, with businesses catering to the global market seeing robust growth whilst, on the other hand, companies serving local markets are lagging behind because private consumption growth is slow. I would like to ask how and how else can the Government help equalise this disparity for businesses and incomes.

Dr Ng Eng Hen: Mr Speaker, Sir, I thank Mdm Ho for her question. She is asking for two sets of situations. One set is for workers. In fact, she is quite right. The low-wage workers, if we increase the CPF for them, they would be more costly to employ and they might find problems in employability. If we increase, for example, the employees' CPF, obviously they will have less in take-home pay. I think that is why there is merit in NTUC's suggestion that, for this group of workers, we actually reduce both, and that is something we are seriously considering, ie, reduce the employees' CPF so that their take-home pay is increased, and reduce the employer's CPF so that they cost less to hire.

Of course, then something has to be done if we did do that to match the reduction in CPF, and this is where Workfare comes in and this is an active area that we are consulting various agencies. For various companies, Mdm Ho is saying, "Yes, some companies are doing well and there is a global demand for my goods, but certain companies that are looking at domestic demand may not be doing very well." And we agree that

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the CPF is a blunt tool. Even when we reduced it, there were companies that were doing well post-SARS. We recognise and, therefore, it is important to consider two general points.

One, that we should do it only when the economic forecast is sustained and projections are good. Two, the actual increase, if any, should be able to allow a majority of companies to respond to it, as well as to look at other budget measures which may be helpful to these companies which are usually the SMEs.