MAIN AND DEVELOPMENT ESTIMATES OF SINGAPORE FOR THE FINANCIAL YEAR 1ST APRIL, 1985 TO 31ST MARCH, 1986

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Order read for consideration in Committee of Supply (9th Allotted Day).

[Mr Speaker in the Chair]

Head V (cont) -

Resumption of Debate on Question [28th March, 1985],

"That the sum to be allocated for Head V be reduced by $10 in respect of Subhead VA-01 Object Group 1100 of the Main Estimates." - (Dr Augustine H.H. Tan).

Question again proposed.

The Minister for Trade and Industry (Dr Hu Tsu Tau): Mr Speaker, Sir, I will respond to questions raised yesterday afternoon by Members for Whampoa, Clementi, Radin Mas and Jalan Kayu, and my Minister of State will deal with the rest.

On the question raised by the Member for Whampoa about the state of the Singapore economy and the various reports built in the local press and in foreign press which have left the general impression that our economy is sliding into a state of recession. It is important that we look at the problem in perspective so as not to leave an incorrect impression for the rest of the world.

Undoubtedly, there are sectors of our economy which are facing some problems. These are well-known. For example, the developers are facing cash flow problems, so are the retail merchants, the shipyards, and our refineries are facing squeezes on the profit because of wide spread international competition and reduction in demand. However, one should look at the economy of Singapore as a whole, and see what we mean when we say "it is in a state of recession." Unfortunately, in the case of Singapore, we do not have a standard definition of recession that is accepted by all economists, I think partly because we have not seen a real recession ever since we became independent.

The widely used definition of recession in the United States and in some parts of Europe is that if an economy suffers two consecutive quarters of GDP decline, then it is entering a state of recession. If we use this definition, let us examine some figures relating to the Singapore economy.

Mr Speaker, Sir, with your permission, I would like to ask the Clerk to distribute one Chart and two Tables. [Copies of Chart and Tables distributed to Members]. (Cols. 1791 - 1794) [Copies of Chart and Tables distributed to Members] - Gross Domestic Product at 1968 Factor Cost, Singapore's Economy as a Whole Gross Domestic Product at 1968 Factor Cost, Gross Domestic Product by Sector at 1968 Factor Cost (Cols. 1791 - 1794)

The first sheet is a chart in which we have the GDP plotted against quarter-by-quarter performance over the last five years. You will see that it is represented by a jagged line which shows very marked seasonal effects in which the first quarter of each year's GDP shows a significant decline. Now, the explanation is fairly straight forward. In the first quarter, we have Chinese New Year during which large sectors of the economy simply grind to a halt. The fourth quarter in each year is a good quarter for export industries since our main export markets will be stocking up for the holiday sales. But, without exception, as you can see from the graph, the economy recovers for the rest of the year. There is a clear pattern of growth and decline. If you look at the year 1984, you will see that the curve starts to turn downwards. It means that the economy is slowing down, and that is what we are going through now, a slowing down of the economy, and I would state that it is not a recession by definition.

If you turn to Table 1, we have tabulated over the last three years the actual comparison of GDP growth in Column A, the gross changes in each quarter over the same quarter in the preceding year in Column B, and the quarter-to-quarter changes in Column C. Now, you will see, other than the first-quarter declines, the reasons for which I have explained, that there is no case for a recession if you accept the definition that it means two consecutive quarters of decline. In 1984, you will see a slowing-down growth. So, indeed, that is the case. These are gross figures for the economy as a whole.

It will be useful if you look at the development sectorally, which is shown in Table 2, where we have tabulated the economy broken down into six main sectors. I think the only relevant figures are the ones which are bracketted. Under Manufacturing, for example, you will see that the third and fourth quarters 1984, we had two quarters of consecutive decline. So you could say that, within the Manufacturing sector, there was indeed manifestation of a recession by the definition I have given you. On the other hand, Trade had a recessionary period during the first and second quarters of 1984 but appears to have recovered quite strongly in the second half. Transport and Communications has been growing throughout, without any interruption. The same applies for Financial Services and other buoyant sectors of our economy. Construction was also generally strong mainly because of public sector construction, although there was a decline within it of private sector construction. Others include, for this purpose, agriculture, quarrying, utilities and various miscellaneous items. You will see that it is in this sector where you can, indeed, say we have had recession for quite a long time, but a lot of this is due to the winding down of our pig industry, and also declines in some periods in the chicken and egg industry. So this gives you an illustration of the sectoral changes in our economy and the overall picture which, as you can see, is not as bad as some might get the impression. This is not to say that we do not recognize there are specific sectors which are in some difficulties, as I mentioned earlier, the developers are facing cash flow problems. This is primarily due to over-capacity and not lack of demand. Consumer demand for housing and for trade goods and for services has not declined. The problem arises because of gross over-capacity in both housing, offices, shopping centres, what have you.

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In the case of Singapore, the property market follows a cyclical pattern. The period between troughs is approximately 7-8 years. My recollection is that the last trough was around 1978. So we should be approaching a trough just about now. In the case of Singapore, this may be speculative but indeed the cycle is between seven, eight and nine years. In the case of Singapore, if we assume that the economy as a whole is going to continue to grow, property must recover because we have limited land. The question is: can companies survive the intervening period? This is the area which, I think, we ought to focus on, how we should help the companies get through the difficult period. Because fundamentally, that sector must recover, if we assume the economy as a whole is sound.

The same applies to the retail sector where there is at the moment gross over-supply of retail activity. Again, it is not because consumer demand has declined. Tourist arrivals have remained fairly constant. In fact, it is rising. The purchasing of our local goods and services continues to be present. But everyone in the retail sector is suffering, simply because if consumption demand does not rise more than the 5%, 6% or 7% per annum and you double or quadruple capacity, everybody's profit margin suffers; and indeed this is what has happened. Sir, many companies which were caught with high rentals incurred during 1981 and 1982 are now facing severe cash flow problems. This is a problem we recognize. But it does not mean that consumer demand is falling off completely. It is simply that there are too many shops catering for the same consumer demand.

I hope that this puts into perspective more correctly the state of the Singapore economy. Preliminary figures for the first quarter of 1985 look fairly encouraging. So I think we see problems in particular sectors, but for the economy as a whole I would still be fairly sanguine.

Dr Augustine H.H. Tan (Whampoa): Point of clarification, Sir. In Table 2, under item 5, Construction, for the fourth quarter, there should be a decline there. The brackets are missing. It is 367. The figure 367 is less than 374 for the third quarter.

Dr Hu Tsu Tau: The brackets would be covering areas where we have two consecutive quarters of decline, not single. Because that is the definition for recession, which I have used.

Dr Augustine Tan: But then in the first quarter of this year, there is a decline in Construction. That will make it so. What about the first quarter of this year?

Dr Hu Tsu Tau: The figures for the first quarter of this year will not be ready until towards the latter part of April.

The second question raised by the Member for Clementi concerns the participation of Government companies in private sector activities. He wants to know whether this is going to be a continuing problem. The second part of his question was, what is Government's privatization policy? On the first question, the Finance Minister in his Budget statement has already made some general observations. But it may be useful if I repeated these for Members' information before moving on to the second question.

In the Budget statement, the Minister for Finance said that Government has issued guidelines to Government companies which require them to confine their activities to their original mandate. Where they feel a need to depart from these guidelines, they would have to obtain the specific approval of a committee chaired by the Minister for Finance. This is to ensure that Government-owned companies do not stray into areas which compete directly with the private sector, and this is a clear-cut policy now accepted by the Government.

On this point, perhaps I should elaborate a little on Government's philosophy between Government participation in the economy and its attitude towards the private sector. The First Deputy Prime Minister and the Minister for Finance have already enunciated on various occasions the wish that the private sector should participate more fully in the economic development of Singapore from now on for the next 10 years.

The reason for this seeming change in direction is not that Government believes that its participation in the past in the economy was wrong, but because of the basic shift in the development of the world economy. In the early post-independence days, Government's priority was on job creation. And indeed in those days, without Government initiative and mobilization of capital into the areas of ship-building, shipyards, ship-repairing, encouragement of refineries, steel, I am fairly certain that the growth of the Singapore economy in the 60s and 70s could not possibly have been as fast as it did. We were facing a situation where the Singapore businessmen, traditionally engaged in trading, entrepot activities, and in servicing the British Army here, had no experience nor the ability to engage in industrialization and Government initiative was essential. The companies which were set up to do these jobs have done an excellent job. In fact, most of them have proved extremely profitable during the 60s and 70s.

Why change direction now? That is because there is a fundamental transformation in the world economic development. Heavy industries, like shipyards, shipping or refineries and the others, are facing considerable difficulties and seeming long-term declines because of gross over-capacity, worldwide. And it will take some years of world economic growth for these industries to recover. Faced with this situation, we have to move forward very rapidly. Hence Government's move towards restructuring our economy because not only do we face declines in these primary industries which we were so successful with in the past, but we are also facing considerable competition from the lower wage countries in the region, including China and, potentially, India.

Also, world technology is moving so rapidly into high-tech areas, into the service areas, which in the latter case is going twice as fast as conventional world trade. In this environment, in the new technology areas, in service industries, new companies require new techniques. These companies generally are smaller, need less capital, far greater innovation. These new technologies also face very short-term life cycles, rapid obsolescence. In this environment, the Government sees that the conditions required for them to survive are better served by the private sector with its greater risk-taking capacity, its greater possibilities of innovation and entrepreneurship; and less possible for Government with its civil servants to participate in this area. Hence a requirement to change direction fairly rapidly.

It is also necessary to relieve the heavy load now placed on senior civil servants who are running our major industries. I do not think Members are probably aware that handfuls of senior civil servants are doubling up as chairmen of major companies, in addition to discharging their normal responsibilities. This imposes an impossible load on individuals and I do not think long-term it is sustainable. Indeed, if it were not for their particular dedication and expertise, it would not have worked. Hence the need to change direction.

Turning to the question of privatization, what is Government's policy? The Government has not completed its plans for the programme of privatization but the intent is clear. There are 100% Government-owned companies which are currently not listed on the Stock Exchange. It is possible that some of these may be listed if they meet the Stock Exchange listing requirements of profitability, size and other criteria. For those companies where Government considers it does not need to retain majority control for strategic reasons, such as defence related companies, the degree of privatization or divestment of equity could be considerable. It could range from 100% divestment - by selling shares in the entire company to the public, leading to a change of management, or it could mean partial divestment in which the Government continues to retain a 51% control for example, in which case management will still be within the control of Government - to companies in which Government will merely divest an additional amount of equity but still retain a significant equity interest as a long-term investment. So there are many possibilities and permutations.

We are not in a desperate hurry to accelerate this process because, compared to some other countries, we do not need the money. So we do not need to sell companies simply to raise funds. But where we want to issue equity, it will be when the timing is right, when the capacity of the Stock Exchange is able to absorb this release of equity and where it is considered beneficial to increase the shares in the market in order to add depth to the Stock Exchange.

I will now turn to the question raised by, I think, the Member for Radin Mas on his request that local manufacturers need new technological infusion and will the Government provide further incentives more than what is now available through the PDAS scheme. We agree that technology transfer is vital for the development of local manufacturing capacity. The PDAS was set up for a very specific purpose of encouraging local companies to develop new products or to improve existing products. In addition, there are other incentives to encourage technological transfers such as manufacturers are allowed to write off capital cost, acquiring approved know-how, patent rights over five years under the Income Tax Act. Manufacturers are also allowed double deduction on operating expenses for R&D activities under the Income Tax Act.

I believe the Member for Radin Mas also asked for specific incentives to encourage exports where concession tax might be granted for companies which are prepared to export on the margin. This is an area which, I think, we will have some difficulty because it will be quite contrary to the GATT code. And we are already facing complaints from the developed countries. Special tax concessions sought violate the GATT code. So in order to help our exporters, we have to look to other means which are now promoted by the Trade Development Board, finding new markets, new products and new methods of marketing. 11.30 am

I believe he also suggested that Government might wish to consider the privatiza- tion of statutory boards, including Telecoms. Although I cannot speak on behalf of the Ministry of Communications, I think it is not the Government's present intention to privatize the Telecoms because Telecoms is doing an excellent job. It is profitable, although it is considered to be a monopoly. I know there is some criticism on those grounds. But nevertheless, firstly, we do not need the money. In the case of UK and some other countries, they are privatizing because it is a source of Government funding. We do not need that. However, I am not saying that we might not do this in the future but there is no present intention.

Finally, Sir, I would like to talk about the question raised by the Member for Jalan Kayu, which is the suggestion that Government should encourage the development of venture capital, high technology companies, by providing tax concessions for individuals, like doctors and lawyers, who might have surplus capital and, instead of diverting this to the turf club, it might be useful if this could be pooled to provide venture capital. It is an interesting proposal which has already been looked at. There are, of course, tax implications which we will have to consider. It is something which has been used in other countries. So we are actively looking at this particular problem, including the possibility of allowing small companies, high-risk companies, to be listed in a separate board in the Stock Exchange, as is done in the United States, where these companies during the formative growth stages do not meet the criteria but could do with the infusion of risk capital. We are looking together with the MAS at the implications of allowing the OTC type operation to be done in Singapore.

The Minister of State for Defence and Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, I will just deal with one more point from the Member for Alexandra, which was a question on intellectual property. This means, do we have copyright laws which will protect software, protect TV programmes on cassette tapes, protect inventions, films, and so on? Presently our laws, according to the Member for Alexandra, are slack and therefore it is difficult for somebody to protect his intel- lectual property. If I write a software programme, you can copy it, and there is nothing I can do about it.

It is a real problem. In the Addendum from the Minister for Law to the President's Address, the Minister has stated that his Ministry will be reviewing the laws on intellectual property, on copyright and patents, in the term of this Parliament. It is complicated because there are two countervailing factors which must be considered. One that we cannot simply shut down and say, "Thou shalt not do so." Because if we say that, people will simply do it somewhere else. The Member may have read in the Straits Times recently how Hong Kong evening TV serials are copied. They make the tape. They fly it to Singapore the same evening. The next day it goes to Malaysia, it is copied, and by the afternoon of the second day, within 24 hours, they have got hundreds of copies all over Singapore, Malaysia and probably other parts of Southeast Asia. So for us simply to say, "You shall not do this" may not be effective at all.

On the other hand, we have the opposite consideration, which is that it is our policy to encourage research and development, to encourage the growth of the software industry, to encourage creativity, to encourage people to generate ideas and to be able to profit from the ideas which they generate. And you cannot profit from the ideas which you generate if after you have written a book, somebody else prints 10,000 copies, the originals cannot be sold, and the 10,000 copies do not yield you royalties.

We need to strike a balance between these two considerations. If we are going to foster an environment of creativity, and to encourage the development of our software industry, then we must have stronger, better copyright laws than we now have. This is a matter which I am sure the Minister for Law will bring before the House in due course.

Mr Tan Soo Khoon (Alexandra): Sir, may I just point out that I also mentioned about counterfeiting of trademarks, and I hope this matter will be raised with the Minister for Law.

Mr Eric Cheong Yuen Chee (Toa Payoh): Mr Speaker, Sir, the question I want to raise with the hon. Minister of State is whether there is any policy on the setting up of foreign trading companies without any manufacturing and/or assembly facilities in Singapore. Sir, we are aware that the EDB and other Government agencies have been instrumental in not only promoting investments but also assisting them in R&D projects and marketing, etc. Some of the industries have also contributed to the transfer of technologies or management expertise, and to our economic progress, and providing jobs for our people. In the case of foreign trading companies, such benefits are negligible. Some of these are principals of locally established trading houses which have been operating here for many, many years. Over the years they have developed a sophisticated marketing system in Singapore. Some of these companies have also contributed to the development of local managerial expertise. One has just to look through the staff list of many of these locally established companies, one will have noticed many of the senior positions are held by Singaporeans.

But with the establishment of these foreign trading companies, particularly from Japan, which merely take back their product lines from the former local agents, there is a significant increase in expatriate personnel. Some of the functions of these expatriate personnel can, in my view, be performed by our local executives. There is no transfer of technologies or management expertise. In some instances, it resulted in retrenchment of local employees. There is no means to protect the interests of the locally established trading companies which have in some way contributed to our economic and social progress.

Mr Chew Heng Ching (Kaki Bukit): Having spent a large part of my career doing economic planning in the public sector and now corporate planning in the private sector, and having mentioned the need for a tripartite body comprising the Government, the private sector and the Union to deliberate on national economic strategies and policies, I thought it is appropriate for me to pass some com- ments or suggestions on the proposal to set up a national economic committee to review the 10-year Economic Development Plan.

Sir, sound economic planning has been a fundamental factor in our success in the last 25 years. In the preparation of our national economic plans so far, the public sector has played a major role in that though there were consultations with the private sector on an informal basis, a large part of the ideas on the plan actually came from the public sector, which includes the statutory boards and the Government companies. For this was inevitable as the public sector has been a prime mover in our economic development in the last two to three decades.

The result of this is that we seem to have good planning expertise in the public sector while it appears that we do not have good planners in the private sector. Consequently, the private sector tends to look to the Government for long-term direction. Following the Government's intention to gradually withdraw from business and to let the private sector be the prime mover in our economic development, it is only appropriate that the private sector should now be more involved in our national economic planning process. I am sure there is no lack of good ideas from the private sector on how we should steer our economy from here. By getting the private sector and the union involved in the planning process, they will understand and appreciate the rationale for certain Government economic strategies and policies better, and will certainly be more committed in the implementation of the national economic plan since they have a hand in its preparation, and hopefully, in the years to come, the level of planning expertise in the private sector will improve.

Sir, the proposal to set up a national economic committee comprising the Government, private sector and the union to review the 10-year Economic Development Plan for the 1980s is indeed timely and praiseworthy. The plan was prepared in 1979-1980, and, like all plans, it is based on certain assumptions. Some of these assumptions may no longer be valid today, as the external and internal factors and constraints affecting our economy have changed in the last five years. I believe the overall mission or goal as laid out in the plan is still valid. But the means towards achieving that goal should be reviewed and, if necessary, fine-tuned or modified. We all know that we are moving into high value-added, high-technology areas. Other countries, like Hong Kong, Korea and Taiwan, are all upgrading in the same direction. I hope the Committee will clearly identify those high value-added and high-technology areas that we should get into, bearing in mind our strengths and weaknesses, our competitors' strategies and the need for us to develop our own niches.

The Committee, for it to be effective, should be kept small. But a lot of back-ground work will have to be done outside the Committee. The latter should therefore be supported by various sub-committees, representing the key sectors in our economy. The small businessmen should not be left out, for they too are performing a useful role. They may be small businessmen today, but they could be big-time entrepreneurs tomorrow. Sir, the total setup of this Committee would therefore be bigger than anticipated. But this is inevitable since we have a diversified economy and there is a need to cast our net wide to ensure that good ideas are not left untapped.

Finally, Sir, planning is a dynamic process. I therefore propose that the Committee should not be dissolved after the exercise to review the 10-year Economic Development Plan. The Committee should instead continue to monitor the progress in the implementation of the plan on a regular basis and recommend the necessary fine-tuning along the way. There appears now to be a lack of a formal dialogue mechanism between the Government and the private sector on general economic and business matters. As a follow-up of the planning process, the Committee's role could perhaps be expanded to assume this dialogue role, that is, to act as a formal body whereby ideas from the private sector could be channelled regularly to and discussed with the Government, and Government's thinking on economic and business matters disseminate downwards to the private sector. The Committee could perhaps meet regularly at quarterly or six-monthly intervals. But a word of caution, the Committee should not be allowed to degenerate into a complaint bureau by the private sector businessmen.

Sir, these are some of my comments or suggestions. I hope the hon. Minister of State for Trade and Industry and Defence will find them useful when he gets on the business of reviewing our 10-year Economic Development Plan.

The Chairman: Mr Leong, you have two amendments.*

Mr Leong Horn Kee (Thomson): Sir, like my colleague, the Member for Kaki Bukit, I have also worked at the Ministry of Trade and Industry. There are several areas of interest to me. This morning I shall confine the points which I would like to raise to trade matters. Since presently in this House we have a Member who is also the Chairman of the Trade Development Board, I hope we have a sympathetic ear.

First of all, Sir, as stated by the Minister for Finance in his Budget Statement, he said that in the 1980s the engine of economic development should be the private sector and not the Government. Therefore, in the same direction I would suggest that there should be more private sector involvement in the trade promotion activities of the Trade Development Board. It is the private sector members who would know best where are the new market opportunities, where are the market niches which will be opening up in the world, They will be the persons who know what needs and requirements they have to establish themselves in these new markets. Therefore, it is only appropriate that in future there should be more private sector involvement in the trade promotion activities.

Next, Sir, I would like to speak a little on our small local traders and small local companies. This is one group of com- panies that needs assistance and help from our Trade Development Board. They will find difficulty in gaining access to foreign markets. They will find difficulties in establishing contacts in some of the major growth markets in the region, such as Japan, Australia and China. Therefore, if the Trade Development Board would consider setting up a Small Companies Unit specially to look into ways and means on how we could help such small companies, it would be of great assistance to them. At the moment, we have a Small Industries Unit in the EDB which primarily takes care of small industries in terms of manufacturing and local operations. The proposed Small Companies Unit in the TDB would be a useful follow,up from there to help our local companies to look for export opportunities and export markets.

Next, Sir, I would like to move on to a suggestion on how we can help some of our new technology companies in establishing themselves in Singapore. The Government is promoting new technology companies with new products and services to be established in Singapore. These companies will face difficulties in opening up potential markets because invariably their products are new to the region. In fact they are new to buyers and users both locally in this region. Therefore, they will have to spend greater efforts and resources to open new markets and opportunities. I would like to suggest that the Ministry or the TDB could consider helping such new technology companies. For example, at present we permit double deduction allowances for trade promotions and trade fairs overseas. Perhaps the Ministry could consider expanding this Allowance to include new companies which are looking for new markets to help them defray their promotional expenses in the first few years of operation. For example, they could spend money and effort in organizing seminars to introduce their products. They could spend money and effort in attending trade conferences, trade fairs and exhibitions, both locally and overseas. Perhaps the Ministry could consider extending the Double Deduction Allowance Scheme to cover some of these expenses,

Next, Sir, I would like to move on to how we can help to encourage More multinational companies to set up their international purchasing offices in Singapore. As we know, the Pacific region is going to be one of the fastest growing markets in the future. It is the region where we will see very fast growth in the 80s and the 90s. Many multi-national companies will be looking towards this region for the supply of cheap parts, components and products. There are several low-cost producers in this region which could manufacture products, components and parts much cheaper than the Western economies. Therefore, there will be many multinational companies which will be looking towards this region to explore how they can source from all these low-cost producers in the region. Therefore, the Ministry or the TDB could consider establishing schemes that can encourage such multinational companies to establish their purchasing offices in Singapore.

Finally, Sir, the last point I would like to raise is on whether we should establish an Information Resource Centre in Singapore to help such foreign as well as local traders. Our traders would need information on the suppliers in the region, the buyers who can buy their products, and information on contacts they can establish in all these foreign markets. Therefore, if the Ministry or the TDB would consider setting up an Information Resource Centre, I suggest within the TDB, to help our local and foreign traders, it will be of great assistance to them. I gather that there is a library in the TDB. Perhaps this library can be upgraded to serve this function and the library could be computerized to provide an efficient service.

BG Lee Hsien Loong: Sir, I will respond to the points from the Member for Toa Payoh first. He asked why foreign trading firms were allowed to set up in Singapore and squeeze out some Singapore companies. We in Singapore operate a free market economy. Foreign firms are free to set up here, to do business here, to enter into arrangements with Singapore businessmen here and, when these arrangements no longer suit their needs, to terminate these arrangements according to legally and commercially acceptable terms.

It is not the policy of the Government to give protection to a particular domestic sector, however long established it may have been, because the Government does not believe that it is in the long-term interests of the economy to do so. Singapore is so small that it is not feasible for us to produce things ourselves in order to generate employment, in order to generate markets within the country, in order to be self-sufficient in a way which a large country like the US or Japan can be, If a local firm is to compete, it must have something to offer which a foreign firm does not have to offer. It has to upgrade itself. It has to provide specialized skills. It must do something which an expatriate cannot do.

From the point of view of the company, I am sure they would much prefer to operate with Singaporean staff than with expatriate staff, because it is very expensive to bring an expatriate to Singapore. The overheads, the allowances, the family and so on, are not expenses to be entered into lightly. Certainly it will not be done for emotional reasons. If a company decides to bring in foreign staff, I presume they have compelling reasons to do so, and that the expatriates are able to provide something which our people have not yet been able to provide. The solution is for us to upgrade ourselves, not for us to keep out expatriates.

The Member for Kaki Bukit made some suggestions on improving private sector economic planning, and on the progress of the Economic Committee which I am chairing. I thank him for his suggestions, which we will certainly consider in the work of the Committee. It is indeed the purpose of the Economic Committee to involve the private sector in this process of looking ahead, of forecasting where the niches are, what the possibilities are, what developments offer considerable growth over the next 10, even 20 years. It is a difficult job. It is one which will require vast experience, a wide diversity of background, and a considerable power of judgment, even clairvoyance. So we really need people who know their business, who can loo ahead and can tell us what they think w should do. Indeed, we will keep the Committee small, and have many sub-committees so that as many people as possible can be involved and can express their views.

The process of consultation continues. We do not need an Economic Committee just to start the consultation process. It is a process which has been in existence and shall continue after the main report has been completed. And if the Committee is a successful one, then I am sure the links which have been established in its work will be maintained and will serve to modify the plan, and to generate further ideas in years to come.

The Member for Thomson spoke about trade promotion and using private sector ideas. That is what we are doing. Encouraging local companies to export is a serious problem. The Member for Radin Mas mentioned this yesterday. It is very difficult to export overseas, because we have to break into the markets, and unless you are familiar with the markets, unless you have contacts there, you cannot break in. The Government helps quite a lot. The Economic Development Board has overseas offices in 13 cities and two more honorary representatives elsewhere. The Trade Development Board has 12 overseas offices and five honorary representatives. Their job is not only to answer questions when asked, but actively to go out and solicit business, to discover new opponunities, and to feed this information back to our companies in Singapore, so that we can take advantage of it.

The Trade Development Board does have an Information Resource Centre. It is a library which shall be upgraded, so that if anybody wants information he can find a directory of businesses, know what the rules are, know which government departments to go to for licences and permits. It will be done.

As for the suggestion on export promotion, the Minister has replied, and explained the sensitivity of it. I would add two points on export promotion. One, nearly every company in Singapore lives on exports, either directly or indirectly. Even if you make chips which you sell to Texas Instruments, Texas Instruments does not sell them in Singapore. It sells them in America or in Europe. Every company goes for exports. Everybody has to export. To say that you are giving export incentives is not to make a sectoral concession but actually to give it across-the-board.

The second point about export subsidies is that not only are they contrary to the GATT code, but they also attract very specific and very inconvenient attention from our trading partners. At a time when many countries, particularly the United States, are preoccupied with trade deficits, any attempt by a trading partner to give some special concessions to his company so that he can sell more is treated with grave suspicion, and examined with legalistic minuteness. It is not only a matter of looking and being embarrassed, but also of counter-measures being taken.

The Americans have a system of countervailing duties. For those Members who do not understand, I should explain. It means that if they find a Singapore company is getting an export subsidy of, say, 10%, then to compensate for that, they will impose a tax on the exports of 10% in the United States when you sell to them. So, if we subsidize, they will tax. In other words, take money from the Singapore Government and give it to the American Government. Those are called countervailing duties. And there are many pressure groups within countries with trade deficits, industries which are affected, which watch very carefully their market conditions. If particular unfair benefits are given to companies, they prod their legislators to take action against these companies and to impose countervailing duties. Once imposed, they are very hard to remove. So we have to be very careful when we talk about export promotion. I think we have to work hard at it, but it is difficult and may be counter-productive to subsidize it. 12.00 pm

Dr Aline K. Wong (Changkat): Mr Speaker, Sir, may I be allowed to speak for a few minutes. In spite of the economic slowdown, I believe some industries are still facing a labour shortage problem. Last year, in fact, in October, there was a report drawn up by the National Task Force on women in the labour force, and the report was presented to the National Productivity Board and subsequently to the National Productivity Council. One of the major recommendations of the Task Force was to establish child-care centres in order to draw women out to join the labour force. The report also contained other kinds of recommendations, including training and re-training of women, and also more flexible kinds of work schedule, better working conditions, part-time work, and so on.

Now, we are seeing the establishment of child-care centres particularly under the charge of the Ministry of Community Development. The other day, I raised a point about the new fee structure, and I questioned its effectiveness in encouraging women to come out in large numbers to ease our labour shortage problem. I believe some industries, such as the electronics industry, employ quite a large number of women, in fact, about 80% of their workforce are women, and they depend quite heavily on foreign workers. In view of the fact that some industries are still suffering from this problem, does the Ministry of Trade and Industry or the Ministry of Labour have any plans to tackle this problem? I can raise this question again this afternoon, because this question actually straddles the three Ministries. Does the Minister or the Minister of State for Trade and Industry have any further plans to draw women out into the labour force, apart from depending on the childcare programme?

Mr Leong Horn Kee: Mr Speaker, Sir, just a point of clarification. I believe the Minister of State has not answered two of my points, the first of which is whether the TDB should consider setting up a Small Companies Unit; and the second is, how can we promote international purchasing offices to be set up in Singapore.

BG Lee Hsien Loong: Mr Speaker, Sir, I apologize to the Member for Thomson. I overlook these two points.

Indeed, TDB will consider setting up a Small Companies Unit. I will refer this suggestion to them for their consideration.

On international purchasing offices, here, I think, our best strategy to encourage industries is the assurance that this is a stable country, and confidence that this is an efficient government. We have that, so we are able to attract not only international purchasing offices here, but also many other industries, many other firms, to this region. I will give EDB the suggestion on international purchasing offices. I think we have certain natural advantages geographically which the companies can take advantage of, and I am sure they will follow up.

On women in the labour force, the Member for Changkat asked whether we have any plans. We have been working on this for some time now. It is not only a matter of child-care centres, but also of attitudes and institutional arrangements to be worked out, so that women can participate in part-time work, half-day work, interrupt for a few years to have children, and come back to work. We have discussed this extensively. It is something which we should work on. Our labour participation rate for women is still low, and the best way for a family to raise its standard of living and increase its income is for the wife to work, if the wife is not working. Even if the wife cannot earn as much as the husband, if she earns half as much as her husband, that is a 50% increase in family income. Our Labour participation rate for women is still low. There is a chart in the Annual Economic Survey which shows that for women in the 35-39 age group, only about 35% of them work, one-third; that means two-thirds are at home. They are probably looking after their families, but if we could find some way for them to work, even half the time, it would make a tremendous difference to their families and to our economy. So we would certainly look into it.

Dr Aline Wong: May I clarify a point here? Actually our labour force participation rate among women is quite high. It is comparable to other advanced countries like Japan, West Germany, France, UK. But what is low is, in fact, among those women who are already married and have children. So this is where the critical point is, especially for women who will be bearing their second child. This is where the rate really drops off drastically. This is where we have to work on. That is why child-care centres are so important to provide an opportunity for married women with young children to work.

BG Lee Hsien Loong: I agree with the Member for Changkat. That is why I said "aged 35-39", they are mostly married, and mostly have two children.

Dr Augustine H.H. Tan (Whampoa): I prefer women to look after their own children. Sir, before I withdraw my amendment, may I just offer a few observations.

Sir, we are moving into a new era where the private sector will take a leading role in our economy and, I believe, that the reformulation of some policies are going to be necessary, and the Members from this side of the House have been forthcoming with some good ideas. I think the suggestion on venture capital ought to get the attention of the Government, especially when Government begins selling government companies. There will be plenty of capital to dispose of. So one avenue would be in terms of venture capital. And I think we need to revamp our tax structure to shift capital from speculative activities to productive activities, and marketing is an area which our companies need help in. So I think the TDB's efforts will be much appreciated.

At the same time, Sir, the idea about private inputs into public planning is an important consideration. The Minister for Trade and Industry has been very reassuring to this House and the figures presented before this House, I hope that would put paid to the dismal analysis and dismal presentations about the state of our economy. I am glad the Minister of State has voiced strong support for the GATT and I look forward to his participation in international forums to push the free trade idea, free trade policy, because that is so important for Singapore. Just a note of disagreement with him: he mentioned rightly that the domestic market is too small for us to consider protectionist -

The Chairman: Dr Tan, you have finished all your 10 minutes. You had eight minutes yesterday and two minutes today.

Dr Augustine Tan: Yes. I would just urge him to give special consideration to local companies in other ways.

The Chairman: Are you going to withdraw the amendment?

Dr Augustine Tan: Yes, I will do so now,

Amendment, by leave, withdrawn.

The sum of $84,841,700 for Head V ordered to stand pan of the Main Estimates.

The sum of $425,395,700 for Head V ordered to stand part of the Development Estimates. Head R -

The following amendment stood on the Order Paper Supplement - Dr Ow Chin Hock Dr Augustine H.H. Tan Mr Lim Boon Heng Mr Heng Chiang Meng

(1) That the sum to be allocated for Head R be reduced by $10 in respect of Subhead RA-01 Object Group 1100 of the Main Estimates.

The Chairman: Dr Ow. He is not here. Dr Augustine Tan.

Dr Augustine Tan: Sir, I beg to move,

That the sum to be allocated for Head R be reduced by $10 in respect of Subhead RA-01 Object Group 1100 of the Main Estimates.

Sir, the first issue I would like to raise concerns the transfer of funds in the CPF to Medisave. I was quite surprised when I received my CPF statement recently that, sometime last year, quite a substantial sum was transferred from the Special Account into the Medisave Account. And I had thought that only 6% contribution was transferable, but apparently much more has been done.

Mr Lim Boon Heng (Kebun Baru): Sir, the Ministry of Labour has announced its intention to allow a wider choice to CPF account holders to invest part of their savings. I welcome this policy, but I must urge caution. It is in the nature of investments that risks are associated with it. When the use of CPF funds is freed selectively, consumption is also selectively directed and controlled. Such selective action interferes with the free-play of market forces.

It is one thing to allow CPF funds to be used for the purchase of HDB flats, but another thing to allow it for the purchase of private property. Government does not decide the prices of private property. So by making CPF funds available only to purchase private property, we create a higher demand for private property. This inflates property prices. We have seen this happen. Property prices firmed and rose when CPF funds were allowed to be used to purchase a first private residential property. In my opinion, it delayed a necessary correction of private residential property prices. Many who made use of their CPF savings to purchase a first private residential property two or three years ago now find the value of their properties sharply reduced.

Recently, the First Deputy Prime Minister has suggested for discussion that CPF funds be made available for the purchase of a second or third residential property. A local newspaper reported that many people supported the idea. I am afraid I cannot support this suggestion whole-heartedly, at least not at this time. If we allow it now, another artificial boom will be created and the price correction that is happening now will once again be delayed.

Presently, a segment of our working population who fall above the HDB income ceiling of $3,500 are unable to buy HDB flats. They have also found the prices of private residential property beyond their reach. With the current adjustment of the private residential property prices, they see a glimmer of hope that at long last they may be able to afford a private property. The last thing we should do now is to create an artificial boom and drive private property prices once again out of their reach. It is not my intention to throw cold water on the Government's efforts to find ways of liberalizing the use of CPF funds. On the contrary, I support it. But CPF savings are hard-earned and we should try to ensure that they are wisely spent and not eroded by inflation due to an artificial boom. If we allow CPF funds to be used to purchase a second or third property, it must be allowed together with a range of other options. We should look into other areas.

One investment is in education. The Minister for Education has reiterated that education and training is a cornerstone of our economic upgrading strategy and the key to a better life for our people. Investment in education would, therefore, boost the productive capacity of our people. The call for the use of CPF funds to finance the education of the account holder's children has been made before. It has been rejected on the grounds that CPF is for old age security and there is no guarantee that the children will pass nor any guarantee that they will look after their parents.

I think we can have safeguards. If a child can gain entry into our institutions, for example, the NUS, NTI, Singapore and Ngee Ann Polytechnics and perhaps even the VITB, he has a certain probability of passing. The risk of failure is worth taking. We can limit this only to our own local institutions for a start and, perhaps, we should also make it compulsory that once the child starts working, the amount can be paid back into the parents' CPF account with the appropriate interest. I think this proposal should also be extended to the CPF account holder himself if he wishes to upgrade his skills. If he can gain entry into our institutions, I do not see why we should not allow him to use his CPF funds, We may even consider assisting him with SDF support.

Another use of CPF funds that we may allow is the purchase of insurance policies. In this respect, I do not think it is necessary for CPF to run its own insurance scheme. Account holders ought to be allowed to decide from which insurance company he wishes to purchase a policy. I am sure there are many other suggestions and these should be seriously considered and implemented.

Above all, in spite of all these proposals for liberalizing the use of CPF funds, we must not forget the original basic objective of the CPF, which is to provide financial security at old age. I think we can allow CPF funds to be used if a certain quantum is left behind. He can either use a per- centage of contributions or a sum, or a combination of a sum and a percentage. I hope my suggestions do contribute to the discussion which the First Deputy Prime Minister has called for. 12.15 pm

Mr Heng Chiang Meng (Jalan Kayu): Mr Speaker, Sir, I would like to follow up on the idea of allowing members to use their CPF monies for their children's tertiary education proposed by the hon. Member for Kebun Baru.

Sir, this is not a new idea. It has been brought up almost every year but, for some strange reason, this idea has always been turned down. However, as somebody said, if it is a good idea, we must play the four Ps, ie, the politics of perseverance, persistence and patience.

Sir, I do not wish to go into the benefits of such a scheme. I think the Members, past and present, especially the Member for Kebun Baru, have gone into this. But I would like to touch on some of the points that have been raised by Ministers in previous years when they refused to consider this proposal. Briefly, they fall into four areas. The first area, Sir, is that they said such a scheme is consumptive, which means that the funds are withdrawn before the age of 55. This is really not an acceptable argument because, similarly, the funds withdrawn for purchase of houses, especially when prices of private houses fluctuate very widely in our market, are also withdrawn before 55. In fact, I would like to say that with tax benefits for CPF contributions, I know a number of companies that pay low salaries, high bonuses and high CPF contributions so that CPF monies can be withdrawn later for the purchase of houses. In this way, employees get their funds for the purchase of private residential properties as well as getting the tax deduction for their CPF contributions.

Sir, if property investment is considered as something that is desirable, then I think more desirable would beth e investment in the children's future.

The second argument is that if the funds are used, the CPF member could be destitute in old age. This presumes that the funds are completely used up for their children's education. But, Sir, I do not think this would be the case. Just like property investment where you can withdraw only 90% of the Ordinary account balance and up to 80% of the valuation of a property, I think similar controls can be instituted for withdrawal for children's education.

Also it does not necessarily mean that every child will completely ignore his parents if the child fails to pass the course or if he does not get a good job. I would think that since his parents have sacrificed their savings to secure the best for his future, he will definitely be more motivated to support his parents.

Sir, we are an Asian society. That has been said many times in this House. And I would say that it is in the nature of our values that we want to sacrifice our own future for our children's future. This sacrifice is the stuff on which filial piety is built upon, and I fail to understand why the Government which is trying to promote these values is dead against this idea.

At the same time, I understand that another objection is that the child may fail. It is not necessary that the child must pass his examinations or complete his tertiary education. But it is because of this sacrifice that the parents are prepared to make that we create or further the concept of filial piety and strengthen the bonds between the parents and the child.

Finally, there is the objection of abuse in terms of the institute as well as the course. Here, I am sure the Public Service Commission has sufficient controls and means to make sure that the university they go to, whether it be in Singapore or abroad, must be an approved university. And as far as courses are concerned, certainly the CPF Board is not going to approve somebody doing a Ph.D. in, say, the mating habits of butterflies. But, Sir, if one is going to do a proper course like economic development, computer studies, I am sure this is something within the approved list of the Psc.

The mood, as the Member for Kebun Baru said, seems to be more liberal today; in the sense that there is talk to allow CPF members to have a greater say and responsibility over their funds. it is in this mood, Sir, that I hope that the Minister concerned would add another P to the four Ps, ie, that the politics of perseverance, persistence and patience will finally pay off.

Sir, another point I would like to make is that we have read in the papers recently about the non-payment of CPF contributions by some employers. The present system and the present situation of workers' CPF payment under the law and the monitoring of the CPF payments by the Board is not satisfactory. We have read or we have heard that the CPF contributions do not have much priority in terms of the ranking of payments when companies are liquidated. In fact, presently, if the CPF contribution is deducted from the employee's salary, I think, it ranks about second or third. And if it is the employer's contribution, ie, the other 25%, it ranks even lower.

Sir, we know that workers in Singapore today use the CPF contributions for many things, the most important being the purchase of a roof over their head. And it must be a shock to those workers who find that they are actually not paying for their houses when they thought that they are.

Currently, the CPF contributions rank below secured creditors and receivership costs. Here, I would like to suggest to the Minister for Labour to consider changing the law to put the workers' wages and CPF contributions, regardless of whether they come from the workers' wages or from the employers, ahead of secured creditors. This is not something new, Sir, because under maritime law, the seamen's wages come ahead of secured creditors. In this respect, I must admit that we are likely to get objections from secured creditors, such as the banks, which, normally in most cases, will be holding legal mortgages on the liquidated company's assets. Hence, to prevent abuse by unscrupulous employers who may pay themselves millions of dollars and high salaries, I would like to propose that this suggestion should only be applied to workers covered by the Employment Act. In this case, hopefully, the amount would not be too much and the secured creditors would have less objections.

The Senior Parliamentary Secretary to the Minister for Home Affairs (Mr Chin Harn Tong): Mr Speaker, Sir, the Government has announced its decision to sell off its shareholdings wherever possible. But no equally significant proposal has been made regarding the Central Provident Fund. I am speaking from the viewpoint of workers who find a big chunk of their money going into the CPF until they retire or die. Of course, CPF contributions can now be withdrawn on other grounds. However, my concern is with the present basis of the CPF. The CPF is run very much like a savings scheme. What the contributor puts in is exactly what he or she would take out later plus the accumulated interest. In other words, a CPF account superficially resembles a POSB account except that the savings are compulsory and the savings are doubled by employers.

Sir, as long as the CPF is treated like a savings scheme, there is a definite limit to the number of ways we can use CPF contributions. If a worker expects to have no more than $100,000 inclusive of interest to his or her credit with the CPF after a lifetime of work, the worker cannot do very much more with that sum of money other than paying for a home and living expenses in retirement. Sir, it is for this reason that I am suggesting a slight modification to the basis of CPF.

To illustrate my point, with a yearly premium of $150, I can buy an endowment policy of, say, $5,000 or a whole life policy of $15,000. To put it simply, the endowment policy stresses on savings while the second policy stresses on protection. I know I am over-simplifying this aspect of life insurance. But my point is that the CPF can achieve more if it is not wholly run as a savings scheme. The arrangement whereby a contributor who uses his or her CPF contributions to buy an HDB apartment is insured by CPF against his or her mortgage liability to CPF is an example of what can be done by CPF, In the same way, Sir, a small portion of a person's CPF contributions can be used to buy, as has been suggested, an annuity for the person on his or her retirement. Or an insurance policy can be taken out to pay an unemployment allowance to a retrenched worker in addition to whatever retrenchment benefit the worker may receive from an employer.

Sir, in these days of high CPF contributions, it is very hard for trade unions to convince employers to pay as much retrenchment benefit as in the days of low CPF contributions. On the other hand, workers who are temporarily unemployed for a few months may have a real problem of making ends meet if he or she receives little or no retrenchment benefits. 12.30 pm

I know many CPF contributors will be unhappy with any suggestion that may reduce their CPF savings. But that is because they have been so used to the idea of CPF as only a savings scheme. They have to start thinking of the CPF as being a scheme of protection. The main purpose of the scheme will be, of course, protection against want in old age. Other purposes can be, as at present, protection against homelessness or ill-health. Another purpose, as I have suggested, is protection against unemployment. A portion of the CPF contributions naturally has to be used up in paying the various forms of protection, as nothing in this life is for free.

Sir, the other side of the story is that the limited amount of CPF contributions at the disposal of each person can be used to secure more benefits for each person than at present. I think the Government should give more thought to modifying the basis of CPF in keeping with our social economic development. Sir, if my suggestion means more business for the insurance industry, that is unfortunately unavoidable.

The Chairman: Would the Minister like to answer, or would you like them to carry on?

The Acting Minister for Labour (Mr Lee Yock Suan): They may carry on, Sir.

Mr Eric Cheong Yuen Chee: Mr Speaker, Sir, the question I wish to raise is whether the hon. Minister for Labour would con- sider extending the use of CPF balances for major repairs to Housing Board flats, particularly in older estates. This is quite different from renovations to new HDB flats. Flats in the older HDB estates were constructed at a rapid pace, coupled with poor workmanship. And many parts of the flats deteriorated over the years and are in need of major repairs.

Sir, in my Constituency there are six blocks of flats faced with problems. In many of them the wooden windows have rotted and have to be completely replaced. I conducted a survey with the help of the RCs and found that in one particular block, 80% of the windows require replacement. The original cost of the flat was only $8,500, but the cost of replacing these windows amounted to a total of $6,000. We should consider this renovation as an investment in one's own property.

Most HDB residents are wage earners and they could not possibly fork out such a large sum of money at one time. I hope the Hon. Minister will give consideration to my suggestion.

Sir, another point I wish to raise is that the Member for Potong Pasir made a big issue on the proposal to defer the withdrawal age of CPF contributions. He demanded whether the Government had consulted the people. Recently, he had the audacity to propose that CPF contributions be reduced from 50% to 40%. Is he aware that CPF contributions is part of a worker's wages? Whatever the percentage quantum he proposed to reduce from an employer's contribution amounts to a reduction in wages in the same percentage terms for the worker. Did the Member for Potong Pasir consult the people or the workers of Singapore that they support or agree to his proposal? How will a 10% reduction in CPF contribution, as envisaged by him, benefit the workers of Singapore?

Sir, I have been dealing with employers for more than 25 years, and I have yet to come across an instance where an employer would voluntarily pass on any savings from any concessions, like reduction of excise duty or statutory contributions. Sometime ago the Government reduced the rate of duties on leather goods, garments, cosmetics and other consumer goods. The savings accrued out of these concessions were never passed on to the workers or the consumers. The recent reduction in entertainment duties is a case in point. There is no reduction in the price of cinema admission tickets.

The Member for Potong Pasir also claimed that CPF contributors can afford to purchase HDB flats even with a reduction in CPF contributions from 50% to 40%. In the recent general election, members of Opposition parties also maintained that the people would eventually not be able to afford to purchase HDB flats based on current CPF contributions of 50%. So I am questioning the validity of his argument that with a reduction of 10% a contributor could continue to afford to purchase a Housing Board flat, If we take a worker's gross salary as $600 (Why $600? The wage norm considered by the NWC last year was $680. So I just round it up to $600) and based on 40% CPF contribution, as suggested by the Member for Potong Pasir, he will barely make it if he purchased a 3-room flat in Woodlands or Yishun with a 20-year loan.

As we all are aware, most HDB lessees pay their monthly loan instalments with their monthly CPF contributions. Should a contributor choose a flat in Ang Mo Kio, Bedok, Tampines, then he has to make up the difference on his monthly instalment payment in cash. Furthermore, Sir, is the Member for Potong Pasir aware that the so-called increase in take-home pay for the workers is subject to income tax liability at the end of each year, and they also lose out by a similar amount in CPF savings?

Sir, I have worked out some calculations on the current selling price of a 3-room flat in Woodlands and Yishun, that is a new town, $37,300 less 20% down-payment of $6,600, leaving a balance of $30,700. If the contributor takes a loan of $30,000 from the CPF, which is the normal case, depending on the loan period, for 10 years he has to fork out $344 pm; 15 years $262 pm; 20 years $222 pm. So if a contributor decides to purchase a flat in Woodlands or Yishun, he can make it if he takes a 20-year loan.

Example 2. The selling price of a 3-room flat in Ang Mo Kio, Hougang, Bedok, Tampines, $52,200 less 20% downpayment of $9,000, leaving a balance of $43,000. That can be converted into a $40,000 loan spread over a period. For 10 years he has to pay $458 pm, 15 years $349 pm, 20 years $296 pm. And in the end, if his CPF contributions is reduced to 40%, he can never make it.

These are not fictitious figures, Sir. I have obtained them from the application form from the Housing and Development Board.

Mr Goh Chee Wee (Boon Lay): Mr Speaker, Sir, many comments and suggestions have been put forward by Members of this House, and the members of the public regarding CPF contributions. The most unkind of them all, I believe, is the proposal advocated so strongly by the Member for Potong Pasir, ie, to reduce the CPF rate of contribution.

Sir, CPF is workers' money. To suggest reducing CPF is to suggest reducing the pay and reducing the savings of the workers. I strongly object and detest such a move. Rather than suggesting a reduction in CPF, I think the more sensible thing to do is to see how the CPF money can be better utilized to serve the interest and the need of the CPF members. The CPF scheme has enabled the ordinary citizen to own a home. It has helped our citizens to save for old age. It has enabled our people to save money to pay for medical expenses through Medisave.

As and when the CPF members have accumulated sufficient savings in their account for old age, the Government should perhaps consider further liberalizing the use of CPF savings. The use of CPF savings for tertiary education of the account holder's children or for their own education, for instance, should be seriously considered by the Government. Here, I would like to express my support for the views expressed by the Member for Kebun Baru and the Member for Jalan Kayu for the use of CPF for education and training.

Sir, as I have mentioned earlier, CPF savings are workers' money, and we must ensure that whatever contributions which are due to the workers must be credited to their CPF accounts. It is in this connection that I wish to voice my concern over the collection of CPF contributions by the CPF Board. In recent months there have been frequent reports in the press of the defaults by employers, their failure to pay to the CPF Board not only their contributions to the CPF but also their employee's contributions.

Sir, CPF contribution is part of employee's wages, and it will be tantamount to daylight robbery if an employer, after deducting CPF contributions for his employee's salary, fails to credit the amount to his employee's account. I suggest the CPF Board be more vigilant in the collection of CPF contributions.

I understand that sometimes the CPF Board does not want to press the company too hard for fear of forcing the company into bankruptcy, but action must always be taken before it is too late. I am aware of cases where the CPF Board tried to give the company some breathing space, but other creditors could not wait and proceeded to take action to recover the debt. The employees were therefore left high and dry. I believe there must be adequate provisions in our legislation which accord top priority to the recovery of the employee's CPF. The interest of the employees must come first under such circumstances.

Sir, I would also like to take this opportunity to make two comments regarding some specific provisions of the Central Provident Fund Act. My first comment is, if it is the requirement of the CPF Board that employers must make their monthly payments promptly, why is there a need to have section 6 (1) which authorized the Board to allow an employer to pay CPF contributions at intervals not exceeding six months? Would it not convey to the employers the wrong impression that they can delay payment for as long as six months?

My second point is, in the event that penalty interest is levied on the employers who were in arrears of CPF contributions, I understand that the interest collected is not credited to the CPF members but re- garded as the income of the Board. I think this is not fair to the CPF account holders, and I suggest that a portion of the interest equivalent to what the Board pays to the CPF savings should be credited to the members.

Mr Chai Chong Yii: Mr Speaker, Sir, CPF is a very hot issue. It has been discussed both inside this Chamber and outside this Chamber. I would like to endorse the views expressed by the Members before me, appealing to the Minister to allow CPF funds to be used for education.

Sir, this is part and parcel of the Asian value. I personally think the risk is worth taking. However, if the Minister still thinks that that is not permissible under existing rules, perhaps he would like to consider the alternative of providing a loan from CPF to the children of the CPF members whereby either interest is charged at the same rate of interest paid to the members or no interest at all to show his support to the education programme. 12.45 pm

Sir, I would also like to appeal to the Minister to direct the CPF Board to look into the possibility of providing more information on the statements sent to CPF members every year. At the moment, what we have is only one line under various columns. For those employees whose salaries are variable, whose pay includes overtime, shift allowance, etc, they are in no position to check the accuracy of the amounts contributed. Even for an accountant, sometimes it will take quite some time to really verify the accounts. Printed on the statement is a note saying that should the member have any query on the accuracy, he is requested to inform the Board. The majority of the members are in no position to check and to inform the CPF Board whether the figures are accurate.

Sir, I would like to make this appeal, as quite a number of my constituents have brought this to my attention. I also read about this request in the newspapers. Perhaps the Minister would like to ask his officials to look into this possibility if the cost is not prohibitive.

Mr Chiam See Tong (Potong Pasir): Sir, I have an amendment.

The Chairman: I know that.

Mr Chiam See Tong: The Acting Minister for Labour and also the Member for Toa Payoh have said that the CPF is workers' wages and that the lower the CPF contributions the lower the wages. I agree with the former but not with the latter. I would say it would be the contrary. If you lower the CPF rate, as the Member for Rochore has said and I support him, from 50% to 40%, the take-home pay of the worker will be higher.

As we know, in a tight labour market, the wages for certain skills or professions will reach a certain level. The economists call it the equilibrium point. You cannot lower the wages. If you lower the wages below that point, workers will not work and if you increase above that point, employers will not employ the workers. Take a simple example of, say, a skilled worker earning $1,000 a month. At the moment, at 25% contribution by the employee and 25% by the employer, he has a take-home pay of the balance of 50%. In money terms, $250 contributed by the employee matched by another $250 by the employer to the CPF account of the worker and his take-home pay is $500.

An hon. Member: $750.

Mr Chiam See Tong: I have to clarify myself. The wage must be taken as the total wage from the employer's point of view. When we talk of wages, we have to include, as I have said earlier, the 25% contribution of the employer and another 25% of the employee and the 50% of the take-home pay. We cannot calculate the wage just from the point of view of the worker. The total wage is these three components.

If the CPF is lowered from 50% to 40% that means from a total wage of $1,000, the employer pays $200 and the employee pays another $200 and the take-home pay is $600. The Member for Toa Payoh has said that -

The Minister for the Environment (Dr Ahmad Mattar): The take-home pay is $800.

Mr Chiam See Tong: I am talking about the total wage, The total wage means the three components. For $1,000, 25% comprises the employer's contribution, 25% the employee's contribution and the 50% is the balance for the worker to take home.

The Minister of State, Prime Minister's Office (Dr Wan Soon Bee): Sir, on a point of clarification. I would like to ask the Member for Potong Pasir how he proposes to reduce the CPF by 10%. Take it off the employer's contribution or the employee's contribution?

Mr Chiam See Tong: The 10% CPF will have to come from either side of 5% each.

As the Member for Toa Payoh says, if the employer is unwilling to take off his reduction for the benefit of the worker, then he will lower the wage of that particular sector of employee and the worker will not work. He has to top it up to his former total wage for the worker to work in that sector. As I said, in the tight Singapore labour market today it will definitely benefit the worker and at 40% contribution it will be enough for him to buy a home, Medisave and security for old age. It has been calculated that a worker who starts to earn $720 per month will over 30 years accumulate over $320,000. How can it not be enough?

The Acting Minister for Labour has said, on 19th March, in this House that the Government is able to pay all the CPF contributors because it has enough asset backing. This point has been made in the elections by the Minister for Foreign Affairs and it is not new. When the question was put, I believe, to the Second Deputy Prime Minister whether the Government will pay the whole lot out, he quickly shot back and said, "No. There will be inflation." I agree with him. If we pay out the money in one go, the inflation will shoot up and go through the roof. This is one of the problems of the Government in regard to payment of CPF eventually.

The question in everybody's mouth is whether the Government will pay or the Government has intention to pay. Just look at the proof. The Howe Yoon Chong Report on the Aged, amongst other things, said that there will be a postponement of the repayment of CPF from 55 to 60 and to 65 years. Why is that so? Certainly, the reason given that a person reaching 55 years cannot manage his funds is not an answer. The Prime Minister, on the eve of the last elections -

The First Deputy Prime Minister and Minister for Defence (Mr Goh Chok Tong): Sir, can I just ask a point of clarification? I fail to see the link between the proposal in the Howe Yoon Chong Report to defer the withdrawal age of the CPF holders and the ability of the CPF to pay. There is no link whatsoever. One of the reasons advanced by Mr Howe in the Committee's Report for a deferment is to ensure that the old people can continue working and will have a source of funds to look after them in their old age. That has got nothing to do with the ability of the CPF Board to pay. So I do not see the link between the two. Could the Member please explain the link?

Mr Chiam See Tong: We are not here asking the question whether the CPF Board has the ability to pay. This point has already been dealt with. They said they have enough asset backing. But the question in everybody's mouth is: will they pay? Have they the intention to pay out, in particular, in one lump sum, as promised by the Government? This is the question that we have to ask the Government at the moment and, according to the evidence shown, there is probably no intention of the Government to pay back in one lump sum. As evidence, the Howe Yoon Chong's Report on the Aged is one point.

Mr Goh Chok Tong rose -

Mr Chiam See Tong: If you do not mind, let me continue and produce other evidence.

The Minister for Foreign Affairs and Minister for Community Development (Mr S. Dhanabalan): You should use your mind before you use your mouth.

An hon. Member: Produce evidence.

Mr Chiam See Tong: Yes, I am producing the evidence now. That is one point. The other one is the reply given by the Prime Minister himself. A question was asked: "There is concern among the people nearing the 5Os about the starting point".

'No, no. They don't have to worry about that. we are not worried about people over 50, we are not even worried about people over 45, because their numbers are small. It is not going to be a serious problem.'

Now listen to this:

'The problem will be enormous when the people in their early 40s get old, at 65.'

The Chairman: Where are you reading this from?

Mr Chiam See Tong: This is from the Straits Times, 21st December, 1984, on the eve of the general elections.

'From then onwards, larger and larger numbers will be involved. I can give a categorical assurance that if this is implemented, it will be done in stages. Let's say, we decide it is $25,000. In the first few years, it will be, let's say, $5,000 or $10,000, gradually it is built up until $25,000.'

Here is the evidence.

Mr Goh Chok Tong: Sir, on a very important point of clarification. The Member for Potong Pasir has completely misunderstood the meaning of the Prime Minister's statement, The Prime Minister was not at all concerned with the ability of the CPF to pay because that was never a question. He was concerned with the fact that Singaporeans, especially younger Singaporeans, would have 20-25 years of good life after retirement at 55. How do we take care of that portion of a person's life when he retires at 55? Financial security is very important and the Prime Minister was addressing himself at the question of financial security for Singaporeans when they retire at 55. It has got no link whatsoever with the ability of CPF to pay. The Member for Potong Pasir should not belabour that point when, in fact, answers have been given in this House to prove that CPF has got the money to pay every cent of the CPF depositor whenever he wants to withdraw his funds.

Mr Chiam See Tong: As I have to repeat myself, it is now not a question of ability to pay. Can the CPF Board pay or have they the intention to pay a lump-sum when the worker reaches 55? 1 am producing evidence that it will be paid by instalments, and there are other evidence, other means where CPF is to be soaked up, or siphoned off or locked up. These are all the evidence -

The Chairman: Mr Chiam, your 10 minutes are up. But I will give you another two minutes because of the interruptions.

Mr Chiam See Tong: I am much obliged, Sir.

The other evidence is an article published in 1982 by a university lecturer. In that article, he says that even at 33% it is sufficient as a means of financial security for old age, money enough for home purchase and for Medisave. He went further and said that the accumulation of CPF was large and if you should increase the rate higher it was like a keg. He called it the CPF keg. It was like a time bomb. Of course, he suggested ways of reducing the pressure by liberalization as one of the means.

Our age pattern of the workers will make it in such a way that, about 15 years from today, the number of workers contributing and the number of workers withdrawing the amount of CPF will be about the same. There will be problems then and probably all these measures taken by the Government are only to postpone that event. We know that our M1 or money supply is about $8.2 billion circulating in Singapore. In about 15 years' time or so, the amount of payments will be something like $8-$9 billion. Can you imagine if the Government pays it out in one go? That is the time when the payment is calculated to be about $8.2 billion.

The Chairman: Your time is up, Mr Chiam.

Mr Chiam See Tong: Sir, can you just let me round this off?

The Chairman: You have used up 12 minutes.

Mr Chiam See Tong: I was interrupted by the First Deputy Prime Minister.

The Chairman: Yes, that is why I have given you an allowance of two minutes. I am afraid your time is up.

Mr Chiam See Tong: I am making these points as evidence -

The Chairman: Mr Chiam, I said your time is up.

Mr Chiam See Tong: Yes, I am much obliged to you, Sir.

Mr Goh Chok Tong rose -

The Chairman: One more minute before Suspension time.

Mr Goh Chok Tong: Thank you, Sir. I am pleased to note that the Member for Potong Pasir has now recognized that CPF has got the ability to pay. Earlier on, he has come out with figures to show that CPF did not have the ability to pay. I think it is a concession on his part and we are pleased to note that.

The Chairman: It is 1.00 pm.

Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker: This Sitting is suspended until 2.30 pm.

Sitting accordingly suspended at 1.00 pm until 2.30 pm. Sitting resumed at 2.30 pm