PUBLIC SERVICE (MONTHLY VARIABLE COMPONENT AND NON-PENSIONABLE ANNUAL ALLOWANCE) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill is to give effect to the new flexible wage system introduced in the public sector.

In January 1987, a Task Force comprising representatives from Government and the public sector unions was set up to consider how the recommendations of the National Wages Council's Sub-Committee on Wage Reform could be adopted in the public sector. The Task Force's recommendations have been accepted by Government for implementation on 1st July 1988. The flexible wage system recommended by the Task Force will make it easier for Government to adjust wages up or down depending on the performance of the economy.

Under the flexible wage system, the 1982-1984 NWC wage increases are converted into a monthly variable component (MVC) and the 13th month non-pensionable annual allowance (NPAA) becomes variable. The basic wage is retained and a new component by way of a variable bonus (VB) will be built up when justified by economic growth and productivity increase.

The 1984 NWC wage increase has been made variable by virtue of the Public Service (Variation of 1984 Annual Wage Increases) Act 1987. The Bill is introduced to make variable the entire MVC (that is, the NWC wage increase for all the years 1982 - 1984) and the NPAA. The Bill will at the same time repeal the Public Service (Variation of 1984 Annual Wage Increases) Act 1987. It will not involve Government in any extra financial expenditure.

The Bill will cover all employees in the public service.

Sir, I beg to move.

Question proposed.

Dr Augustine H.H. Tan (Whampoa): Mr Deputy Speaker, Sir, I rise in support of this Bill and at the same time to seek some points of clarification with the Hon. Minister.

Sir, during the last recession, it was the large contribution to the CPF on the part of employers of 25% of a worker's wages that enabled the Government to cut 15 percentage points from wage cost in order for the economy to recover very quickly. But once we have made the cut, it is no longer possible to do so in future because we are restoring in small percentages. This year we are restoring 2 percentage points to the CPF contribution. In future, in view of the fact that there is a monthly variable component to wages as well as the 13th month non-pensionable annual allowance component, will the Government forgo any changes in the CPF contribution rate?

I raise this question because the last time the CPF was cut, there were some problems posed for those who had bought houses and incurred housing loans and adjustments had to be made. If the Government does not intend to use the CPF as the adjustment mechanism in future, then a worker would know that out of the wages that he receives, the disposable income that he has, he has to make whatever adjustments in future. Then he can plan accordingly. Perhaps the Minister can inform this House of the intention of the Government in future. In other words, in varying the wage of workers, whether CPF will remain intact and only the wage components which are variable will be changed.

Dr Richard Hu Tsu Tau: Sir, the Member for Whampoa has asked whether CPF will be used in future to adjust for wage cuts necessary in order to sustain the competitiveness of our economy. The whole idea of the Government's intention to change to a flexi-wage system is to try and avoid using the CPF component of wages in order to sustain our economic competitiveness in the future. Sufficient flexibility ought to be built into the wage system, both by the private and public sectors, to allow basic wages to adjust itself to the actual economic condition in each year. That is the whole basis for the Government's wish to encourage not only the public sector but also the private sector to move to a flexi-wage system. It is recognized that during the last cut in CPF, some problems were encountered by house owners who were using funds from CPF for their payments. But I think, by and large, these were overcome by adjustments.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.