CENTRAL PROVIDENT FUND (Reduction)

Mrs Yu-Foo Yee Shoon asked the Minister for Labour, in view of the fact that workers depend on their Central Provident Fund to service housing loans and build up savings for Medisave and their old age and there is already a flexible wage system, whether he will give an assurance that CPF cuts will be allowed only as the last resort.

Dr Lee Boon Yang: Mr Speaker, Sir, the regional economic crisis will affect Singapore's growth this year. Barring further adverse developments, we can expect the economy to grow, at between 2.5% and 4.5%. This is significantly lower than 1997's growth of 7.8%.

However, the situation is unlike in 1985 when we experienced negative growth and had to cut back on employers' CPF contribution rate. Arising from the 1985-1986 experience and with tripartite support, we had implemented a flexible wage system. Today, 76% of Singapore companies practise flexible wage system with variable components accounting for 16% of the total annual wage cost. The flexible wage system was put in place in anticipation of a period of slow growth, such as the current situation. This system enables a company to trim its wage cost in difficult times by reducing the variable components.

Companies encountering difficulties or poor performance should first adjust the variable components in order to achieve wage reduction. They should also look into other cost cutting measures in their operations.

The Government has no plans to adjust the CPF contribution rates. I would like to assure the House that the Government would consider the drastic measure of reducing CPF contribution rates only as a last resort.