RATES OF CENTRAL PROVIDENT FUND CONTRIBUTIONS (Reduction)

Mr Chiam See Tong asked the Minister for Manpower, in the light of the further deterioration of the economic situation, whether the rates of CPF contribution in respect of employers and/or employees will be cut and if so, by how many percentage points.

The Minister for Manpower (Dr Lee Boon Yang): Mr Speaker, Sir, the Government has indicated that if the preliminary estimates for Singapore's second quarter growth shows a further slowdown, off-Budget measures to help the economy will be implemented.

Off-Budget measures including raising Government's expenditure for infrastructure projects and cutting the cost of doing business will be announced by the Minister for Finance later today. A cut in CPF contribution rate is one of the options that we had considered in view of the deterioration of economic prospects.

As this is a drastic measure, we should not rush into cutting CPF. The National Wages Council has recently announced its recommendations urging companies and workers to exercise wage restraint to tide over the difficult period. Although our economy has slowed down considerably, we have not experienced negative growth yet, as in 1985. The wage structure in 1985 was also more rigid, leaving little room for adjustments. However, with the flexi-wage system that is in place today, companies can now reduce their wage cost by adjusting their variable payment, including the AWS (or Annual Wage Supplement) based on the performance of the company. Reduction of the CPF contribution should be implemented only if these cost cutting measures need a further boost.

Mr Jeyaretnam: Mr Speaker, Sir, do the Minister and the Government appreciate that with the downturn in the retail trade, it will be a good thing to put some money back into the pockets of the consumers? For that reason, has the Government considered cutting down the employee's contribution to the CPF, not the employer's contribution? We can maintain the employer's contribution but cut down the employee's contribution to CPF.

Dr Lee Boon Yang: Mr Speaker, Sir, if we cut down the employee's CPF contribution rate, then we will also have a very significant impact on the workers' ability to service their mortgage loan repayments, because many CPF members depend on their monthly CPF contributions to service their mortgage loans. If you cut down on the employee's CPF contribution, obviously many CPF members will have to come out with their own cash to meet the monthly repayment. So it may not be of much benefit in terms of boosting the spending power of the consumer. Cutting CPF should be taken as a cost reduction measure rather than as a consumption stimulation measure. And if we do eventually have to cut the CPF because the economic situation has got worse, then cutting the employer's CPF contribution makes more logic and it is more rational than cutting the employee's CPF contribution.

Mr Chiam See Tong (Potong Pasir): Sir, in 1985, I believe the employer's component was cut by 15 percentage points. Can the Minister now give an indication, if there is going to be a cut, what is the percentage point?

Dr Lee Boon Yang: Mr Speaker, Sir, the Member is correct in saying that in the 1985/86 economic downturn, we cut the employer's CPF contribution rate by 15 percentage points. We will cross the bridge when we get to that point.