CENTRAL PROVIDENT FUND (Increase in employees' contributions)

Mr Ng Kah Ting asked the Minister for Communications and Minister for Labour why, despite Government's assurances in the past, contributions to the Central Provident Fund have once again been increased thereby eroding the benefits accruing from the recent increases in wages recommended by the National Wages Council and thus reducing the take-home pay of wage-earners.

The Acting Minister for Labour (Dr Wong Kwei Cheong) (for the Minister for Communications and Minister for Labour): Mr Deputy Speaker, Sir, this year, the NWC recommended a wage increase guideline of $32 + 6% to 10% range and an additional 2% of the group monthly wage bill of June 1981 to be distributed among meritorious performers. Based on an average monthly wage of $535 calculated from CPF records of active contributors earning between $201 and $1250 per month in November 1980, the recommended total wage increase represents an increase ranging from 14% to 18%. Deducting the increase of 4% in the rate of CPF contributions will still result in a nett average monthly wage increase ranging from 10% to 14%. The additional 4% CPF contributions belong to the wage earners and hence there can be no question of eroding the benefit of the wage increase.

The major consideration behind the Government's decision to increase employees' rate of CPF contributions by 4% is to enable contributors to use 381/2% instead of the previous 32% of CPF savings for the purchase of public housing. Because of the higher costs of labour and materials, prices of new HDB flats have increased by an average of about 38% from 1st June 1981. An analysis of the applicants on HDB's waiting list to buy flats shows that the number of applicants who have sufficient CPF savings to pay for Model A flats at the new prices using 32% CPF savings was 71.5% for three-room flats, 65.5% for fourroom flats and 63.0% for five-room flats. By increasing usable CPF savings from 32% to 381/2%, the percentages increased from 71.5% to 81.5% for three-room flats, from 65.5% to 75.00/o for four-room flats and from 63.0% to 73.0% for five-room flats. An average increase of about 10% of applicants for three, four and five rooms can now buy using only their CPF.

The Government's policy is to enable as many Singaporeans as possible to own their homes. The Government is looking into other ways of achieving this, like spreading out the instalments to enable more Singaporeans to buy their homes using their CPF. There is a difficult period ahead. The costs of materials and labour for HDB flats are likely to go up because they depend on the cost of oil and the tight labour market. There will unfortunately be a small percentage of Singaporeans whose income levels may not be enough to enable them to acquire their own homes, particularly if their wives have never worked, or if their wives stop work before having accumulated enough savings in their CPF. They will have to rent HDB flats.

Mr Ng Kah Ting (Punggol): Mr Deputy Speaker, Sir, is the Acting Minister for Labour aware that one of the main objectives of CPF contributions is for old age? But in the statement that he made just now, it is quite clear that it is also meant for something else besides old age. Would he care to comment on this?

Dr Wong Kwei Cheong: Mr Deputy Speaker, Sir, the CPF was originally set up mainly as a savings fund of members for their old age. However, the CPF can also be used for other purposes, as is well known by the Member for Punggol. With effect from 1st July 1981, 38 1/2% of CPF savings can be used to purchase houses under the approved housing schemes such as the HDB, JTC, HUDC and Mindef housing schemes.

CPF savings can also be used to purchase shares of Singapore Bus Service Limited.

The Government has also agreed to allow CPF members to use their CPF savings to redeem outstanding mortgages on private residential properties, with effect from 1st June 1981. From 1st January 1982, they can use their CPF savings to purchase private residential properties. The amount of CPF savings that can be used is limited to 90% of the savings in the Ordinary Account and 90% of the monthly contributions to the Ordinary Account.

If the CPF Home Protection Insurance Scheme is approved by Parliament, CPF members who have used their CPF savings to purchase flats or houses, and who have outstanding mortgages on these flats or houses, can use their CPF savings to pay for the premium of the mortgage reducing cover under the scheme.

Mr Ng Kah Ting: Mr Deputy Speaker, Sir, does this not clearly show that the purchasing power of the CPF savings will be eroded in time to come? Has this not been taken into consideration?

Dr Wong Kwei Cheong: Sir, the Government is also concerned about the erosion of CPF savings of members who already own their homes, and who are not using their CPF savings for any of the approved purposes. Such members can be assured that the rate of interest on CPF savings is presently being reviewed by the Government, with a view to giving members a better interest rate than the current interest rate of 61/2%.

Mr Ho See Beng: Mr Deputy Speaker, Sir, apart from eroding the benefit accruing from the recent increase in wages recommended by the National Wages Council, how does the Minister of State justify the increase in the rate of CPF contribution of an employee who has not received a wage increase from his or her employer?

Dr Wong Kwei Cheong: Sir, in a tight labour market situation that we now have in Singapore, it is unlikely that employers would let their employees have reductions in their take-home pay at the end of the month.

Mr Ho See Beng: Sir, if I can bring an employee who has not received an increase in wages, can the Minister of State guarantee that he be exempted from paying the increased CPF contribution?

Dr Wong Kwei Cheong: Mr Deputy Speaker, Sir, if the hon. Member for Khe Bong can bring such an employee who has not received an increase in wages as a case for conciliation, our Ministry officials will certainly look into the matter.