CENTRAL PROVIDENT FUND (Reduction of rate of contribution)

Mr Lau Ping Sum asked the Acting Minister for Labour whether the Central Provident Fund rate of contribution will be reduced; and, if so, to what extent such a reduction will affect those under the Home Ownership Scheme.

Mr Lee Yock Suan: Mr Speaker, Sir, the Government has decided in principle to reduce the rate of contribution to the Central Provident Fund for several years. This temporary measure will assist the economy to recover and preserve jobs. The CPF rate will be restored after the economy has recovered from the current recession.

The details of the temporary cut in the CPF rate of contribution are being finalized. As the main intention is to reduce wage cost to regain our international competitiveness, the employer's rate of contribution to CPF must be reduced. It is also likely that the Special Account will be suspended so that the 4% contribution can go to the Ordinary Account for use in servicing housing loans.

Studies indicate that most CPF members will not have difficulties servicing their housing loans if the cut in the employer's rate of CPF contribution is not too large. A consequence will be that there will be more members whose monthly CPF contributions will be less than their HDB loan instalments. However, a large majority of the additional members affected in this group will have CPF balances which will be sufficient to make up the shortfall for several years. Other HDB buyers who may have difficulty paying additional cash could apply to the HDB to have their housing loan periods extended.

Similarly for buyers of private properties, Credit POSB and other financial institutions will be asked to lengthen their loan periods if necessary. Those who have more than $15,000 in their Medisave Accounts will be able to make use of the excess CPF savings, when it is channelled to their Ordinary Accounts, for servicing their housing loans.

The Government is also considering to move the CPF interest rate towards the market rate. This will be in line with our policy to allow CPF members greater flexibility in investing their CPF savings. The HDB mortgage rate will be reduced correspondingly and this will help to ease the burden on the HDB home buyers.

Mr Lau Ping Sum: Does the Minister agree with the view expressed earlier that the reduction in the CPF contribution should be undertaken only as a last resort, ie, after all the other measures to lower operating costs have been implemented?

Mr Lee Yock Suan: Mr Speaker, Sir, I think I should make clear that the fact that the Government has made this decision does not in any way imply that the economy is at rock bottom, not by a long shot. The fact is that the Government has reviewed thoroughly all the various possible measures that can be taken, some of which like the reduction of rates and charges have already been taken. The Economic Committee will be completing its report shortly and there will be other measures recommended. The conclusion after all these studies is that it is best to cut the rates now on a temporary basis. In the process we will then compress the period of recovery and speed up the process by stimulating the economy to recover as soon as possible. It does not make sense to wait until the market forces work their way through. So it is in that context that we should see this cut. 12.00 noon

Mr Speaker: Question Time is over. Ministerial statement.