COMMITTEE ON SINGAPORE'S COMPETITIVENESS

Order read for Resumption of Debate on Question [23rd November, 1998],

"That this House endorses the strategies and policies set out in the Report of the Committee on Singapore's Competitiveness, contained in Paper Misc. 3 of 1998, as the basis for strengthening Singapore's competitiveness.". - [Minister for Trade and Industry].

Question again proposed.

Dr S. Vasoo (Tanjong Pagar): Mr Speaker, Sir, I am sure for the last few days, you have listened to many colourful speeches. There will be 18 more after me and I hope you will be able to have a keen ear in terms of what would be expressed. I am sure, Mr Speaker, you will be able to write a thesis after that!

Sir, I would like, first of all, to commend the members of the Committee on Singapore's Competitiveness for mapping out a very good comprehensive strategy to meet Singapore's economic and future challenges. The Report sets out the direction and we have got various inputs. The members have indeed done a significant job in compiling a very comprehensive report.

What I would like to also commend is the very effective and immediate measures taken by the Government to implement with immediate effect the cost cutting measures to boost our competitiveness. The measures are very significant and I hope all Singaporeans will rally behind the Government to see how they can support a plan which can be implemented to help Singapore to be viable and to be able to meet the more serious challenges ahead.

Sir, having a plan is not sufficient but I think we will have to examine why Singapore is one of the countries in Asia that is not seriously affected and dislocated by economic problems, unlike many other places. I think most Singaporeans tend to take this for granted, that things are going well and therefore there are less issues that we are challenged with. The Government is able to look after these issues. They are capable people to think of solutions. I feel this is not realistic, Sir. It is very important that we go behind the reasons as to what makes Singapore less affected by the current economic problems. This analysis is very important so that we can understand the fundamentals that can be challenged in future.

Sir, I would like, at the outset, to state that political stability is one of the cornerstones in our capacity to remain afloat, and I see that we have also taken this for granted. We should look at the political mess in many of the countries around the region and the world. There are many so-called democracies which have very good plans, good ideas, but many of these have not been implemented. Many people in these countries are affected and many of them have no capacity or ability to influence such decisions that have been made, and many of these people have suffered grave economic injustices and grave problems and regression in terms of their standard of living. And all these are issues that we need to examine and appreciate in the context of why we have been able to manage effectively.

Sir, what becomes very important when we are faced with a recession is our capacity to maintain good political stability and cohesion. When resources are limited, there is always competition for resources, and the less able will not be able to get the kind of resources which they require for their living. So what is most important in this respect is that I would like to urge employers to seriously examine the approaches they adopt in the employment of workers, in ensuring that their practices are not discriminatory in terms of race, language and religion. This is very important in the context of Singapore, because we are a multi-racial society. If we believe in the principle of meritocracy, then I think employers, in times of recession and economic problems, must be very objective to ensure that we deal with the problems of retrenchment and unemployment on the basis of merit and objectivity. This is very important. Otherwise, we will upset the equilibrium of the multi-racial society that we live in.

Secondly, we also have to look at the whole issue about good leadership in social institutions. Unless and until we ensure that we have good people managing our various social institutions, we may not be able to discharge the kind of plans that we have. And what is important for us Singaporeans is that we have to ensure that we continue to have people with good leadership, good personal integrity and honesty to manage various social institutions. Because these very social institutions, by their nature, are institutions that will make our society viable. It is not sufficient to say that we need good social institutions, but it is important to ensure that we need to nurture and have good people who can manage these institutions. We should induct good people into these institutions so that they can continue to manage them effectively in the interest of the majority.

Finally, we also need to look at a good plan to manage issues ahead. And the CSC Report is an effective plan in that we have been able to mobilise various people to work on it and come up with various ideas that we can marshal and, hopefully, with the implementation of these ideas, we will be able to make a further stride in dealing with the economic problems that we face. So good plans do require good people and good political context to manage and implement them. Without these precursors, the best ideas that we have will not see any fruition and it will not have any impact on the social lives and to solve various social problems that we may face in our society.

Sir, what we need to look at is to see how the CSC Report could address a number of issues which have been left out. I foresee that the issue of prolonged unemployment needs to be re-examined very closely, because we have depended on full employment as a form of social security. This is good as long as full employment lasts, but we never know through prolonged recessions, what impact this would have on people who are less skilled, semi-skilled and others who may not be able to find themselves employable. We need to examine the assumptions of full employment very critically, and in future, if we run into a prolonged recession, there is a need to assess how people who cannot be employed for a long time would still have a way to manage their lives.

Sir, prolonged unemployment is one of the issues that we need to examine and the CSC has not examined this issue fully. We have to look at what can be done, particularly for older workers who would remain unemployable for a long time. We may argue that there are retraining funds available to upgrade them, that special funds would be available and set aside for their training, but I think the issue at hand is their employability. In some circumstances, it may not be possible for them to find employment itself because work institutions may not necessarily take them. I feel that there is a need to look at either the trade union level where some funds are set aside to deal with the upgrading of these workers in order to solve their long-term employment needs and problems.

The other issue the CSC Report has not addressed is the challenge of the older workforce. This would be one of the more serious challenges that we are likely to face in the next decade. And with an older workforce, would we remain competitive? This is a question we need to examine. We may not become competitive, provided they have the capacity to be trained and upgraded and to move into job areas which would deal with information technology. So I feel that with a declining population which is below replacement, the issue will become very grave in the near future, and we have to look at how we can maintain a more robust workforce. This means that we have to recruit more talents, more semi-skilled and skilled workers to enter our workforce. I see this issue requires to be studied more closely.

I am glad that the Government has set up the STAR Committee to look at these issues and, hopefully, it will solve some of the problems of the greying of our workforce.

I would like to give some comments on the Government measures to reduce costs which have been announced yesterday. The measures are comprehensive and will help to stimulate our economy. The measures are realistic because they are implementable and some of them, in fact, have taken immediate effect. Hopefully, with the implementation of these measures we will be able to become more viable. What is most important and gratifying to note is that the direction of the cost-cutting measures which are to be implemented works on the principle of shared burden. I am glad that the cost-cutting measures work on the basis of those who can carry a heavier burden than those who cannot. This is a very good principle and I must applaud the Government for the effort in this direction, because for those who are unable to do so they do sacrifice, but they do sacrifice a little. This, at all costs, will enhance our ownership to the problem. We will be able to promote the sense of commitment to the various issues that we face. This in itself is very important. People feel that they can work towards a common cause and we are all sharing a common purpose and a common destiny, and we all believe that we want to make Singapore viable. Therefore, the question of ownership to these issues that we face has been reinforced.

What I would like to urge is that we should have been a bit more generous with the lower income group. The rebates that have been granted by the Government provide an extension for a further period of time in their relief. But we could have been more generous in increasing the amount of S&C charges and PUB rates. That would have relieved further some of their burdens because many of them are unskilled and low income workers. They will face the greatest impact in terms of the capacity to manage their lives. It is desirable and our responsibility to see that we can do much more than what we have given to them.

The second area which seems to invite attention is the levy. Many working mothers are most disappointed that they have not been given a reduction. All other companies that are employing foreign workers have been given a reduction. I think working mothers employing domestic maids should deserve attention because many of them are working hard in terms of helping to develop our economy and making Singapore viable. I do not see any reason why their case could not be considered.

A very small proportion of working mothers benefit from the tax set-off. A large proportion of them are not benefiting from the tax set-off measures. I think it is not equitable in the sense that we have over the years increased the levy, but when all other revenues are being reviewed, they should in fact be given an opportunity to benefit from the reduction. In that respect, the argument that we want to dampen the demand for more of them to employ maids should be re-examined. I do not think the reason is strong enough to support the argument that no reduction has been considered for them. The issue is that many of them are in the middle class group, which I would call the "sandwiched" families. I feel that they should be considered. This is no real logical reason that I can gather that they should not be given due consideration for reduction of maid levy. There is a very large sector that would be affected in these trying times. I hope that their case could be reconsidered by the Minister for Manpower.

Sir, in the final analysis, the social and economic crisis that we are all facing is our problem. It is important that we have to work together to fix it. Unless we can rally around to work together and find new creative ways, new approaches and new solutions to all these issues, we would not be able to tackle the problem as we hope to do so. So it is very important for us as Singaporeans to commit ourselves to working together. I am sure that all Singaporeans will rally behind the Government to see what we can do in our own ways. Whether big or small, we are all to be counted. Like what our Mr Deputy Speaker has said, small is beautiful. It is not just beautiful, but we are a people of mettle who can withstand and be counted as Singaporeans. I hope we can come together and find ways to weather the storm ahead. By doing so, we will keep ourselves afloat.

Mr Simon S. C. Tay (Nominated Member): Mr Speaker, thank you for allowing me to join in this debate on the motion.

Much has been clarified by DPM Lee's response to the CSC Report yesterday. What the Government will do now, very shortly, is quite clear. Other points, however, remain for consideration - especially with regard to the medium to longer term view, but also on the possible effects of what Government will do.

This is necessary because, as DPM reminded us, competitiveness is much more than cost-cutting. It is not a single attribute, but a combination of different elements. It is not only a question of economics or infrastructure, but it has human dimensions, such as education, skill and know-how, the flexibility of our system and the quality of life and the environment in our city. Competitiveness is not an absolute characteristic but a comparative one.

In this debate, one detail will tend to dominate discussion, whether in this House or in the coffeeshops. This is the CPF and wage cut. The cut will touch us all. It is here and now, whereas many of the recommendations of the Report are for the longer term, and therefore more abstract.

In this context, the CPF cut and wage cut may seem like a magic bullet. I doubt this is the intention and I am sure it will not be the effect. I am glad therefore that DPM Lee has put the cut and other cost-cutting measures in proper perspective. They give our companies breathing space, but only a regional and global recovery will ensure our future growth and development.

As such, in making my comments on the Report, I wish to focus on three main areas. Two are more immediate, while the third is for the medium to longer term.

First, the effect of the cut: can it have unintended consequences? Second, the question of equity: how are the sacrifices distributed? Third, other concerns: what else do we need to do to complement the strategies in the Report for increasing competitiveness?

The cut to wages will make people feel poorer. They would be even more reluctant to spend. Domestic demand may well go down. When our shops are empty, or filled only with window-shoppers, our business confidence will be affected. As such, there is a danger of a deflationary spiral.

Not so long ago, our Senior Minister Lee warned against us over-reacting to the crisis by saving too much and cutting all our expenditure. In the same vein, at the off-Budget measures, a number of us called for greater efforts to stimulate demand. The cut to wages does the opposite. It is akin to an austerity measure for every citizen and wage earner. Even the IMF is now re-thinking of austerity measures.

Economists tell us that Singapore depends two-thirds on external demand and only one-third on local demand. Therefore, they do not advise pump-priming. But even so, it seems to me that many small businesses depend largely or almost wholly on domestic demand - our shops in HDB estates and Orchard Road, our hairdressers and barbers, our professionals and car mechanics, our restaurants and food courts. As such, while the absolute effect may be one-third, it can spread across many sectors and many people and smaller businesses. If so, pump-priming our domestic demand will not help a large amount, but it can help quite a number of people. I would like the Minister's clarification on this point.

We should act to keep people in our shopping centres and restaurants. We should act to keep a bounce in their step. We should keep Singapore a city with a buzz, confident that we will continue to be a centre of opportunity. I believe this proposed cut to wages may unintentionally do the opposite.

It is not a question of "either or". We can do both. We can have the cuts to wages as well as a package to stimulate demand. We can lower cost of living or income tax through rebates. Lowering the cost of living in tandem with lower wages will lessen the pain people will feel. It will leave some spare cash in their pockets. This would feel good for the people and be good for the economy.

The second unintended consequence of the cut that I fear may be our ability to attract and retain talent. Much attention has been given to the cost of manufacturing as compared to other countries in the region. But the Report itself calls for services to be a twin engine of growth. For services, other comparisons may be more appropriate. It is common talk that wages are higher in Hong Kong for some professionals, that the maximum on personal income tax is lower, and the corporate tax is lower. For research and development, another area that the Report recommends, there are other comparisons.

I would like to ask the Minister whether Singapore is competing with the right countries for the right kinds of jobs and the right sectors. Our competitive position should take into account not only the economy as a whole, but the benefit of individuals living here. After all, it is not only investments that can move from one country to another, but also people. Therefore, it is my concern that with the cut, our ability to attract foreign talents here, which the Report calls for, will be unintentionally eroded. Worse, our ability to retain our existing talents may also weaken. We need to have talented and knowledgeable professionals, for these would be the foundation of a knowledge-based economy, and this will mean paying them world class wages.

Let me turn to the second question of equity. Many are concerned about how the cuts and sacrifices are distributed. The statistics show that Government charges are smaller than the wage component, only some 10%. But perceptions differ. The old joke is that the PAP Government means Pay-And-Pay. This demonstrates the strength of that perception. Unless we deal with this perception, people will not willingly accept their share of the sacrifice. Instead, there may be a palpable resentment among some sectors about what they see, rightly or wrongly, as an iron rice bowl in the civil service and in Government.

How do we tackle this perception? Ideally, we need institutionalised monitoring. Unlike the wage cut, there is less immediate impact from other cost-saving measures. This is particularly where measures are given indirectly. For example, where relief is given to landlords, we should know how much of this is eventually passed on to the tenants and others.

Second, we need to check Government influence on costs. Many others have spoken about GST, maid levy, ERP, etc. I will not add to the wish list, since all the goodies we are going to get have already been handed out by DPM Lee. I may want to raise more general concerns. It is a good and timely move that JTC and HDB will re-look at industrial land costs. But what about other types of land, such as offices, retail and even residential property costs? We should benchmark all these against global competition, of course accepting our constraints. Other areas the Government must look into are telecommunications and electricity. Monopolies always have the temptation to extract the maximum amount from their captive audience. We are opening up these sectors eventually to competition. DPM Lee said yesterday, as regards SingTel, Government must honour its commitment for its monopoly licence. Fair enough. But until the day the competition comes, the regulation of these monopolies must serve to bring the costs to competitive levels. This, in the longer run, is for the good of these companies themselves if they are truly to be world class companies, as the Report aspires to.

I can make a more general point from this. How do we grow the world class companies? Our strategy cannot be to grant GLCs or any one else fat monopolies in Singapore, so that they can extract excessive profits here, and then venture overseas with deep pockets drawn from our money. We must ask the companies that wish to be world class to be lean and competitive, so that both their operations here and abroad are world class and give value for money.

A third point is about Government statutory boards. I understand some statutory boards are in the habit of running up surpluses and yesterday I asked DPM Lee if these could be reviewed and cut. He explained that some statutory boards, like the JTC, must make surpluses because they need to get the best value for state assets that they alienate. I agree with him. But there are other boards that are different, and I think DPM also recognised this. I would ask that for such different statutory boards, the surpluses be reviewed. This is particularly for those who are supposed to facilitate business. For such business facilitation, surpluses do not always mean efficiency. Rather, the surpluses may represent costs extracted from businesses and individuals who have little choice but to pay the sums charged. For Government to be a truly good business facilitator, the policy should prefer cost recovery, rather than generating surpluses. We need to ensure that our Government agencies are benchmarked to the best practices. I agree with that. But Government agencies need to add value, not add costs.

My last point on equity concerns the wage cut taken by our political leaders and top civil servants. There is a joke about political leadership and sacrifice. There is a plane with three politicians on board - Gandhi, Churchill and a third leader, Mr X. There are also a number of ordinary citizens on board. The plane is coming to a range of very high mountains, but the plane is struggling to climb high enough to pass safely. The pilot informs everyone that they may crash unless the load is lightened. They dump all the bags and cargo, but the plane is still too heavy.

In this crisis, Gandhi opens the airplane door, shouts, "For My People" and jumps out. With his sacrifice, the plane lightens a bit and climbs a little. But not enough. So, Churchill looks around and goes to the door. He shouts, "For My People" and jumps out. Again, the plane climbs, but still it is not enough. Finally, there is only the third leader and a number of ordinary citizens. The third leader goes to the door, opens it, shouts, "For My People" and throws all the ordinary citizens out.

DPM Lee announced yesterday a 10% cut. I think that this is enough to show that Singapore does not have leaders like the third man in the joke. Still, many will ask, "Is 10% enough?" Percentages do matter and the public will judge for themselves. What I want to ask is more a question of the system itself. Is the system we have of fixing ministerial salaries working? I ask this bearing in mind that this is the second year running in which we have departed from the system. DPM Lee yesterday suggested that it was a problem of time lag. If so, I suppose we can fix by using more "real time" information about wages. But I would like the Government to consider an entire re-thinking of the system. Perhaps instead of pegging to a handful, an elite, should the approach be to broad band? This could be to a larger percentile of wage earners and it could well be more robust and politically acceptable.

Having outlined my concerns with unintended consequences and equity, let me turn finally to other concerns. I wish to outline three concerns that, in my opinion, must be allied to the question of competitiveness.

The first is to improve on natural resource efficiency. Sir, an important strategy in competitiveness is to be watchful over resource input. If you can produce more from less, you are more efficient, productive and competitive. This is particularly true when you do not own or have automatic and guaranteed access to those inputs and resources. There are sound reasons to be watchful over the use of natural resources in Singapore, such as electricity and, especially, water. The Report mentions both. The Report sees water and electricity as utilities that must be optimally managed.

For water, the Report calls for Government incentives to be publicised. As regards electricity, the Report addresses the question of charges for stand-by purposes. For water, there are a few other strategies mentioned such as reducing wastage. But more can and should be done.

While we can better publicise existing incentives, we may actually need to have better incentives to publicise. We also need to re-look at the policy of pushing up the price. Price can encourage greater efficiencies but only if it is undertaken in a context that increases awareness and capacity, and encourages innovation and investment. Otherwise, a price increase on its own simply leads to a price increase, and that will diminish competitiveness.

The same is true of electricity. The cost is of real concern to businesses and households alike. This is especially given the eventual privatisation of Singapore Power. With privatisation, there may come a need to increase profits. If profits are tied solely to the selling of electricity, then there is no incentive for Singapore Power or any other supplier to be concerned about efficiency, productivity and competitiveness. It will simply try to sell more power for more money and profit. This will lead to a less competitive Singapore.

Sir, there are many reasons to embrace policies that will encourage greater efficiency in the use of natural resources. Part of these reasons are environmental. But part of the reasons are also economic. Using off-the-shelf technology, some companies are now reporting that they have achieved what they call, "Factor Four", that is, they double income, while halving resource use. These private sector innovations need to be studied and understood. They can then serve as best practices that we should encourage others to adopt.

The Government has an inter-agency committee to examine energy use in Singapore. I hope that they will have one on water. And I hope that the Government will task this agency to look particularly at the question of competitiveness and efficiency.

The second thing that we need to ally competitiveness to is to increase our cooperation. The thrust of the Report is on Singapore's internal factors of competitiveness. We must not forget, however, the Report is coming amidst a crisis of the region. In fact, it is this regional dimension that has delayed the Report and forced it to focus on reducing costs vis-a-vis other countries. While it is Singapore's right to cut costs, we must guard against an intended perception. This is that we are trying to out-compete other countries in a negative manner. That is to say, we are cutting costs, so that we will steal investments from our neighbours and force them to lower their costs, or to devalue their currencies again.

I do not believe this is our intention. Nor do I believe it is in our interest to do so. We cannot be seen to create a race to the bottom. Our cost-cutting should not be seen as a policy to beggar our neighbours.

I therefore call upon our Government to now re-emphasise Singapore's cooperation, in tandem with the Report on our competitiveness. This aspect of cooperation is a theme in the Report. It recognises the external wing and the need to go global, as well as regional. At pages 62 and 63 of the Report, it recommends the continuation of strategic flagship projects, promoting tripartite cooperation to attract third countries to invest, and using Singapore as a centre for training.

These are important points that bear emphasis in the present times. The crisis has caused many Singaporean companies to lose money in the region. When we talk of going global, some may fear that this displaces our regional interest and focus. Rather, I urge the Government to send a strong signal that our global diversification is not a retreat from regionalisation, but an addition and complement to that thrust. The crisis has also caused some other countries in the region to doubt whether they will prosper from being open to the world economy, trade and investment. There are rumblings of autarchy and narrow nationalism in different countries. This is especially the case in some countries that were newly opening themselves when the crisis hit.

It is well known that we stand for the belief that free trade and a connection to the world economy can help, rather than hurt. Sir, it is timely for us to act on what we believe. We should help steady other countries in the region against those who would close their economies and borders. We can and should do this by helping them better understand economics and the ways of business, and increasing their capacity to cope. We should share our experiences with them, and help train and orientate them.

We should also help these countries to deal with more immediate dislocations caused by the crisis. If asked, we should help our neighbours with problems among their poorer and less well-off. There is just so much a little red dot can do, as our Prime Minister has aptly said, but what we can do, we should do. In this respect, I have asked from the Ministry of Foreign Affairs how much development assistance Singapore had given to its ASEAN neighbours in the last 18 months, that is, since the crisis began. The figure given by the Ministry of Foreign Affairs was some S$11.5 million, under the Singapore Cooperation Programme. I call on the Government to re-emphasise our commitment to cooperation and to a win-win relationship with our friends in the region by increasing this amount.

We should not look to our immediate self-interests in doing this. We need to focus on the longer term interests inherent to win-win policies, and try to truly prosper our neighbours. We need to marry our sense of being competitive with our willingness to be cooperative. If we are tough enough to take a cut during these bad times, we should also be caring enough to give more during these tough times, and this will send a strong signal of our cooperation, and our neighbourliness.

The third and final point I turn to is that of heartware. Last year, PM Goh spoke about the need to develop heartware. The Singapore 21 Committee, of which I am a member, has spent this last year consulting the citizens and thinking about the questions of heartware. Some have wondered why this work should concern Singaporeans now when the crisis makes us worry about the here and now, rather than 21st century. Yet I do not think the question of heartware is important, despite the crisis. Heartware is important because of the crisis.

When I look at the longer term strategies in the Report, I see areas in which heartware is the critical component. One aspect is how we attract foreign talents, while taking care of Singaporeans.

To do this, we must help Singaporeans excel and compete. We must also attract talent from abroad, by being an open and cosmopolitan city-society. By "cosmopolitan", I do not mean we should read Cosmopolitan magazine, but rather that we allow an active engagement and interaction of people and values. We need to facilitate foreign talent to come into Singapore, by easing bureaucratic impediments, and should increase interaction and understanding between Singaporeans and foreign talents that come.

A second aspect of heartware is how we, as a people, strengthen the external wing of globalisation while remaining Singaporean. This requires a sense of rootedness. It requires us to develop a sense of being Singaporean and yet also being "world ready" so that we can go out and compete to "plug-and-play" on any stage in the world. Our companies and families must accept and even promote overseas stints as a feather in the cap of workers and family members. Government should remove hindrances to going overseas, such as the lack of double taxation agreements and concerns over children's schooling. Government agencies should keep in touch with those abroad and foster their knowledge and stake in what happens here at home.

If we develop a Singapore heartbeat, a sense of belonging, no matter where we find ourselves, this will strengthen our economic external wing.

Third, the question of heartware is important to competitiveness because it includes fostering creativity and resourcefulness among our people. We need to be a society in which there is a second chance for people, and in which everyone counts. Only then will people be entrepreneurial, and be willing to take risks, and to be different. And only then can we be truly competitive. Differentiation is important. As one entrepreneur, Y Y Wong, reminded me recently, competitiveness on price matters most when you have the same product. But if you are different, and people recognise your product is different, you can command that extra dollar.

You then compete, but with an edge. And I think that is the competitiveness that Singapore should seek - to be competitive but to be different and to add value.

With these comments and qualifications, I support the motion.

The Senior Parliamentary Secretary to the Minister for Foreign Affairs (Mr Zainul Abidin Rasheed): Mr Speaker, Sir, thank you for giving me this opportunity to speak on the motion.

Sir, speaking on the CSC Report after the grand and masterly intervention by DPM BG Lee yesterday, it is like an anti-climax. It is like coming to a cinema show soon after the hero has swiftly moved in to save the heroine in distress. The saving grace, however, is that after `the hero lai-lo' scene, we can at least still say, "Some money back, please."

What I mean is that, yes, this is a major exercise at cost cutting, as it should be, if we are serious about retaining our competitiveness, but the Government has shown enough care to provide sufficient rebates and reductions in taxes and levies to give Singaporeans the cushion they deserve for their collective sense of sacrifice and effort at overcoming the challenge.

Of course, we all know that this is no laughing matter. In short, this is no wayang. The stakes are high. Our continued prosperity and social well being as a cohesive multi-racial nation depend on whether we can pull our economic strings together.

Mr Speaker, Sir, the CSC understands this fully, as reflected in its approach, strategies and recommendations for both the short and longer term. Competition will grow and we Singaporeans have a lot to lose in terms of our standard of living and quality of life if we were not prepared to face this, in the words of DPM Lee, "gravest challenge since independence" squarely.

Sir, the Chairman of the CSC, Minister for Trade and Industry, Mr Lee Yock Suan, who is also my chief at Cheng San GRC, is very well known for his soft- spokenness. Mr Lee is also a man of few words. He believes in gentle but firm diplomacy. But the CSC Report by him and his respected Committee speaks volumes, and `loud and clear' of what Singapore needs to do to remain competitive. We all know that the challenges Singapore faces in the immediate and longer term future are formidable but if the well-thought-out recommendations were to be implemented, and implemented fast, they should stand us in good stead. PM Goh Chok Tong's positive response to the Report to "ask the relevant Ministries to follow up promptly on these recommendations" is also worth highlighting.

The comprehensive recommendations for the short and longer term notwithstanding, we have already heard voices asking whether the Report had gone far enough to prepare us for the real challenges. Some, as reflected in the media, have even expressed disappointment. These sentiments are not necessarily bad. There will always be those who will want Singaporeans to be pushed to the limits. Such are the demands of the times, especially in this highly competitive world.

An example will be the concern whether enough will be done to produce Singapore's own world class players and corporations. I think PSA is a good example of a corporation which is pushing hard to be one and is making good progress, but can we really see more? More therefore could be done to help produce our world class corporations to compete in this highly competitive world.

Mr Speaker, Sir, I do not intend to go into the nuts and bolts of the Report nor the package presented by DPM BG Lee yesterday, but instead go to the spirit of the matter. I remember, earlier this year, when some of us in this House were pushing for the Government to do more to assist the ailing economy, the latter initially resisted for fear of over-alarming the people. Confidence was and is a premium in difficult and turbulent times. Even when the $2 billion off-Budget measures were announced, some felt that they could be "too little too late".

However, this time around, when the CSC proposed a cost-cutting package of $10 billion, the Government went a step further with another $500 million cut. This must be for good reasons. This will in no doubt emphasise the gravity of the challenge, but not without the `cushion effect' for those that need help most, especially the lower income groups. This is commendable.

It is also interesting to note that the CSC was in fact established in May last year before the July regional meltdown. Here, I am reminded of a Malay saying, "sediakan payung sebelum hujan" (or have your umbrella ready before it rains). This, after all, is true to what Singapore is well-known for: to be forward looking and we always have to be a few steps ahead. We certainly would not want to be caught flat footed. Especially when the thunderstorm clouds (not just rain clouds) were already gathering over the horizon. And if I may add, ordinary umbrellas will not do.

Mr Speaker, Sir, the challenges facing us call for a concerted effort by all parties concerned. I am glad to see, Sir, that it even moved your Deputy and Member for Marine Parade GRC, Mr Eugene Yap, to speak. Almost lyrical, on Monday Mr Yap spoke of the dangers of complacency and endorsed what he called worthy kiasuism. While he used the infamous Titanic' to illustrate, allow me to use the Maldivian dhoni' or boat to make my point.

This modest fishing boat is the saving grace for the Maldivians who know what it means to survive in the atols of the Indian Ocean. I was there earlier this month for the Inauguration of the President, President Maumoon Abdul Gayoom, and I have learnt how they, a population of about 260,000, have transformed the seafaring nation to that of a niche tourist destination known the world over. I think we have two of our companies, Banyan Tree and HPL, having their own very exclusive tourist resorts there. Without even fresh water, each of the major Maldivian tourist island resort has its own desalination facilities to make the industry succeed. Yes, most of them still turn to the dhoni, their own traditional boat, and the sea to earn a living but they also know that those skills alone will not suffice. Air travel and speedboats now rule the waters of the tourist lanes of the Maldives.

Mr Speaker, Sir, many of the proud Maldivians see Singapore's drive and competitive instincts as a source of inspiration. They know what survival means. Our Singapore workers too know what survival means. When sacrifices are needed, they would not hesitate to rally to the call. And this is not the first time the workers have shown their mettle. Yes, to quote DPM BG Lee again, "tough times put our mettle to the test" and our workers were and are the first to show it. Whether it is the cut in employers' CPF contributions, other wage costs and training and retraining, the NTUC and the unions are with the Government and the Singapore people. Difficult as they may be, the workers know the realities, for the alternatives, more retrenchment and unemployment, would even be more painful.

Sir, while acknowledging the workers' sacrifice, I hope the employers would also do their part. Yes, there are enough employers who have shown that they too are responsible. Compliments are also due to those who have shown their care for the workers, for example, Creative Technology, which has promised to return the CPF savings when the company does well. But I hope that there would not be those which are only too eager to exploit, or worse, to abuse the situation. For the latter, I think we should expose them. The Government, together with the NTUC, should monitor the private sector to ferret out such abuses and expose them.

Mr Speaker, Sir, I am sure pragmatic Singaporeans will agree that the cost cutting measures recommended in the CSC Report and those presented by the Government yesterday are necessary. And so are the numerous other strategic measures recommended by the CSC to overcome the crisis. In other words, there is no short cut to staying competitive. Our companies, employers and workers realise that we must be a cut above the others in order to compete. But we have to do it with a collective sense of purpose. Show and convince our workers that the measures taken are equitable and fair. It may be a painstaking exercise but it has to be done patiently.

The problems faced by those workers who are retrenched and terminated are real. While there are ample training and retraining opportunities, the process will take time and there may be practical problems faced by the workers and their families which need careful handling. In short, while the CSC Report and the Government statement yesterday say a lot about what must be done, let us do it with care, with a heart. It is not just a matter of dollars and cents, but a human face too. Equally important to the nuts and bolts of the recommendations and the action lines, is the right spirit to make it work. Our Singapore spirit of success but in harmony.

Mr Speaker, Sir, I support the motion.

The Minister for Manpower (Dr Lee Boon Yang): Mr Speaker, Sir, since Monday, about 35 hon. Members have spoken on perhaps twice as many issues and concerns of Singaporeans arising from this economic downturn and recession.

I rise to speak in support of the motion but I will confine my remarks to areas impinging on the Ministry of Manpower's responsibilities and the recommendations of the Committee on Singapore's Competitiveness where it touches on the responsibilities of my Ministry.

Sir, yesterday, DPM Lee had explained that we are facing the most severe economic crisis since our independence. The drop in demand from our regional trading partners who were more severely hit by the regional economic crisis had dimmed our growth prospects. The regional currency realignment had also affected our share of the global market. Recession is unavoidable.

Sir, the downturn in the economy has led to a deterioration of the employment situation in Singapore. In the first nine months of this year, more than 20,000 workers had been retrenched. This is more than twice the number of workers laid off for the whole of 1997 and is also higher than the 19,500 workers who were retrenched during our last recession in 1985/86. We have also suffered the first contraction in total employment since the last recession in 1985 over the last two quarters. Sir, the total unemployment rate had risen from 2.3% in June this year to 4 1/2% in September this year on a seasonally adjusted basis, indicating an increase in momentum in the rise of unemployment.

Sir, my Ministry has introduced many initiatives to help retrenched workers. We have expanded our Employment Service Department as an additional channel to help retrenched or unemployed Singaporeans to look for alternative jobs. We have also formed a proactive Employment Facilitation Team to reach out to employers in various sectors to determine their manpower requirements in the near future and to help them with strategies to fill their job vacancies with appropriate manpower. In particular, we seek out employers who are still recruiting so as to capture their vacancies in our job bank. In this way, we have been able to provide as many as 80% of the registrants at our Employment Service Department with at least one job referral. If a registrant is not successful in getting the job in the first instance, we have been able to make follow-up referrals to him. We have also created a Retrenchment Advisory Unit (RAU) to help employers cope with the need to downsize as demand for their goods and services shrink. The RAU has already helped employers to introduce alternatives to outright retrenchment, laying off workers directly by introducing shorter work week, temporary lay-off and putting excess manpower on training programmes and also working out how they could reduce wage costs by reduction of the flexible wage component.

However, these measures cannot solve the problem of rising unemployment in this recession. Already the number of registrants at the ESD has exceeded available vacancies, unlike in the past when we used to have more than twice as many jobs as job seekers.

What else can we do in response to this sudden change in economic climate? Obviously, we cannot insulate ourselves completely from the chill winds of recession sweeping through the region. We are already in fact feeling the first twinge of the biting cold brought about by the external forces. Unemployment has, as I said, reached 4.5% in September this year. This is nearly 2.5 times higher than a year ago in September 1997. We have to revitalize our economic engine in order to get us out of the woods. The CSC's comprehensive study has made it clear that our business cost is now too high compared to our competitors, as a result of the regional currency and economic crisis. We are no longer competitive in areas where our neighbours are also vying for market share. We must bring business cost back in line to survive this downturn and to avoid more painful setbacks such as higher unemployment rate.

On 29th October 1998, the Straits Times published a table compiled by the Economic Intelligence Unit (EIU) showing the cost of doing business in Singapore versus Hong Kong, Indonesia, Malaysia and Thailand. The EIU concluded that regionally, Singapore was the "most expensive country to do business in". We were rated even more expensive than Hong Kong. What was particularly striking was our wage cost, which was shown to be as much as 1.7 times that of Hong Kong, 4.4 times Malaysia and 15 times Thailand. The hourly cost of labour in manufacturing in Indonesia was only one-twenty-third of that in Singapore. While Singapore need not compete on low cost labour because we offer investors and businessmen many other advantages for operating in Singapore, we also cannot completely disregard this sudden swing in the region which has severely eroded our overall competitiveness. The decline in demand and the higher costs of operations in Singapore could lead to bigger losses in market share for Singapore. If we do not tackle this problem, it will cause even more retrenchments and higher unemployment in the years ahead.

As DPM Lee has pointed out, total wages and salaries paid to workers are a key component of GDP output amounting to 43%. Whereas indirect taxes paid to Government represent only 10% while profits to companies take up the rest of 47%. So obviously any measure to reduce cost of doing business and to enhance competitiveness must involve adjustments to wages and salaries, apart from reducing the indirect taxes from Government. This is a pragmatic and an effective approach. By doing so, we will be signalling to international investors and employers that Singaporeans are adaptable and pragmatic. We do not cry over spilled milk but get down quickly to build up lost competitiveness and regain market share.

This is the approach adopted by the Committee on Singapore's Competitiveness (CSC). I applaud the Committee for its courage in facing up to the realities and not flinching from prescribing bitter medicines. The Committee had recommended a 10% point reduction in the employer's CPF contribution rate as well as a cut in wages to achieve a total 15% reduction. On CPF, DPM Lee had already announced yesterday that the Government accepts the CSC's recommendation and to minimise the impact on homeowners who are using their CPF savings or contributions to service mortgage loans, 6% point of the cut would come from the Ordinary Account. Contribution to the Special Account would completely be suspended. In other words, the 4% point that goes to the Special Account will be cut off. For example, a person earning $2,000 a month would see a drop of $120 in CPF savings available for mortgage repayment and not $200 which is the actual size of the CPF reduction for a person earning $2,000. As CPF members and their families may need to utilize their Medisave to meet their medical expenses even in an economic downturn, there is no need for us to reduce the Medisave contribution rate.

For older workers above the age of 55 whose current contribution rates are lower, the rates will also be cut proportionately by half as announced by DPM Lee. In the case of employees above the age of 55 to age 60, their employers' CPF contribution rate will be reduced from 7.5% to 4% (a round up from 3.75%). For employees above the age of 60 to age 65, I have previously announced that existing employers' CPF contribution rate will be reduced from 7.5% to 4% with effect from 1st January 1999 as a result of the proposal to extend the retirement age from 60 to 62. Similarly, for employees above the age of 65, their employers' CPF contribution rate will also be reduced from 5% to 4% as a result of the extension of the retirement age. In line with the principle of proportionate cut, the CPF contribution rate for this group of workers will be reduced to 2% from 4%. As announced by DPM Lee the cuts will take effect on 1st January 1999.

Approximately 18% of active CPF members (or 217,057 active CPF members) will have monthly CPF contributions that are less than their monthly housing instalments as a result of the cut. Out of these members, 165,661 are HDB owners, 46,446 are private property owners and 4,950 are concurrently HDB and private property owners.

To help the affected CPF members, the Government will allow the use of savings in their Special Account, apart from the Ordinary Account, to meet the shortfall in their monthly loan repayment arising from the CPF cut. In addition, there will also be separate assistance schemes to help HDB and private property owners tide over the difficulties of mortgage repayment.

In the case of HDB lessees, the HDB will put in place measures similar to those offered in the last economic downturn. These measures will benefit both lessees of existing HDB flats as well as affected applicants of new and resale flats. These will include allowing more working family members to become joint owners, thus using their CPF savings to meet the mortgage repayment. HDB will also reschedule mortgage loans to a longer repayment period, defer mortgage repayment and allowing payment of arrears by instalments for those who have financial difficulties. Applicants for new and resale flats will also be eligible for these assistance schemes. In addition, first-timers with financial difficulties will be allowed to downgrade to a smaller flat.

In the case of private properties purchased before the CPF cut, the Government will offer affected CPF members a Bridging Loan Scheme (BLS) similar to that provided in 1986. The BLS is for CPF members who have depleted their Ordinary Account and Special Account savings for their monthly mortgage repayment. The bridging loan will be made available over a three-year period in the first instance, with the commencement of the first draw down on 1st March 1999. The quantum of the monthly bridging loan drawn down will be capped at the amount of shortfall, which arises directly from the cut of 6% point in the Ordinary Account contribution rate.

To reduce the burden of mortgage repayment of CPF members during this recession, the bridging loan will be offered at a concessionary interest rate based on CPF interest rate plus 0.1%. This is significantly lower than the commercial interest rate for housing loans. The cut-off age limit for the eligibility of the loan will be based on the minimum statutory retirement age of 62 years which will take effect on 1st January 1999. Repayment will commence one year after the end of the three year draw-down period, with full repayment to be made over a period of 10 years or by the age of 65, or upon the sale of the property, whichever is earlier.

The BLS will also be extended to HDB flat owners who are paying market interest rate, and whose flats were likewise purchased before the CPF cut was announced. The market rate currently applies to Permanent Residents, owners of resale flats whose household income exceeds $8,000 a month and third time purchasers of HDB flats. This is a separate group of HDB flat owners who are servicing their HDB loans at the interest rate pegged to that of the Credit POSB's interest because they have already had their fair share of the housing subsidy. As for HDB lessees who are currently enjoying concessionary interest rates (which is CPF + 0.1%) for their outstanding mortgage loans, they need not apply for the BLS as they can apply for HDB's financial assistance package at the same concessionary interest rate. Further details of the BLS and the HDB Financial Assistance Programmes will be released separately.

The Government is also aware that the cut in CPF contribution rate will have an impact on CPF members who have committed their savings for insurance policies which they bought previously or who are participants in the education loan scheme. In other words, they have borrowed against their CPF savings to finance either their own education or their children's education in institutes of higher learning. To ensure that such payments are not disrupted, whether it is insurance or education, members will be allowed to set aside sufficient CPF savings to meet these payments when they apply for the bridging loan or for HDB's assistance.

The CPF cut will result in a wage saving of some $3.9 billion a year to employers. This will help companies and the economy to regain and improve competitiveness in the current economic downturn. The CPF contribution rate will be adjusted upwards when the economy recovers and when a higher rate of saving will not undercut our overall competitiveness.

Foreign Worker Levy

Sir, I next turn to foreign worker levy. But before doing so, I should respond specifically to some points made by several MPs including Mr Leong Horn Kee and Mr Peh Chin Hua. They have suggested that CPF members should be allowed to draw some amount of money from their CPF savings during this downturn. I would like very much to agree with the Members, particularly Mr Peh Chin Hua, who is also my GRC colleague. But on this occasion, I am afraid that I have to disagree with him and the rest of the Members who have made this proposal.

We have always maintained that CPF savings may be released for living expenses if Singapore runs into a prolonged and deep recession. The situation today is certainly not in this category. We are not in a prolonged and deep recession as yet. While the economic challenges are more severe than any that we have encountered previously, we should not quickly turn to the CPF account to support the living expenses for the unemployed. Most CPF members are using their CPF savings to pay for their housing mortgages, as I have just explained earlier on. As it is, with the reduction in CPF contribution by 10% point, many CPF members (217,000 of them) would have insufficient CPF to continue their monthly mortgage repayment. If we in fact allow CPF members to draw from their CPF savings for living expenses, it would mean that more CPF members would deplete their CPF savings faster and that would create a bigger problem in servicing their home mortgages. It may even cause some of the home owners to have to lose their homes in the process.

Mr Peh has made a specific suggestion that we allow jobless Singaporeans to draw $150 from their CPF account to tide them over this period. My response is that if $150 is what a jobless Singaporean needs for himself and his family, the better solution is to help him find a job. We still have a large number of foreign workers in Singapore today, working in the manufacturing and service sectors, earning anywhere from $500-$600 a month, doing many jobs which Singaporeans up to now are reluctant to take on. In a crunch, jobless Singaporeans may be better off taking on similar jobs than relying on their CPF savings to sustain themselves.

We will do our best to help Singaporeans who are prepared to take on such jobs, provided they are realistic about wages and the working conditions. Employers should also consider attracting unemployed Singaporeans by making use of their savings on the foreign worker levy when they employ a local worker. This is, I believe, a far better approach than allowing the unemployed to draw down on their CPF at this juncture.

Sir, the danger of allowing CPF withdrawal at this early stage is that it would give some Singaporeans a false sense of security. They may be lulled into not reacting to the changed labour market situation and remain reluctant to accept jobs which pay less or are more onerous. Some may even become less willing to go for skill upgrading and retraining, thinking that they have their CPF savings that would tide them over this difficult period. This mindset will only delay our recovery and may well result in a self-fulfilling prophesy. In other words, if we allow CPF withdrawal, we induce inertia to change and to work harder. As a result, we remain uncompetitive, recession deepens and more and more people become unemployed. So, on balance, I think it is better for us to help unemployed Singaporeans find alternative jobs, and for unemployed Singaporeans to be prepared to take on more difficult jobs at even a lower pay. The situation has changed. These are difficult times. Tens of millions are unemployed in the region around us. We must be prepared to make drastic adjustments.

Sir, coming back to the foreign worker levy, the Committee has recommended that the foreign worker levy be reduced as a means of cutting cost of business. DPM Lee yesterday also announced Government's acceptance of this recommendation. Let me say that there are now more than 450,000 foreign workers on work permits in Singapore. This means unskilled and at best semi-skilled workers. Many companies are still dependent on foreign workers for jobs which locals do not want to do. In particular, in the manufacturing sector, many companies have to rely on foreign workers to fulfil part of their manpower requirements. However, when we cut the foreign worker levy, we should be careful not to remove the differential between local and foreign workers. We should not cut the levy to the extent that employers are tempted to replace Singaporeans with more and more foreign workers. Cutting CPF for local workers thus gives us an opportunity to also lower foreign worker levy without widening the wage gap between local and foreign workers.

Sir, to recap, the levy for skilled workers will be reduced from $100 to $30 for all sectors with effect from 1st January 1999. This is a reduction coming on top of the $100 reduction which was implemented in April this year. In other words, within a period of less than a year, we have reduced the foreign worker levy for skilled workers by $170. The levy for unskilled foreign workers will also be reduced by $90 with effect from 1st January 1999. This reduction will apply only to companies in the manufacturing, marine and services sectors to enhance their export competitiveness.

The levy for unskilled foreign construction workers will not be reduced. Construction is a domestic industry and is not directly vulnerable to international competition. Overall construction costs have in fact come down for all building types during this period. The weighted Tender Price Index has fallen by 4.5% in the first six months of this year, partly due to falling material costs.

Sir, moreover, the construction sector has remained overly-dependent on unskilled foreign workers. This is the main cause for the very low productivity of the sector. The productivity level of our construction workforce lags far behind those in countries such as Japan and Australia. In terms of value added per worker in the construction industry, Australia is 1.5 times ahead while Japan is three times that of Singapore. For the last three consecutive years, productivity growth for the construction sector has been negative. So far this year, productivity growth for the sector has declined by a further 2.1%. Hence, since 1995, the productivity level for construction had actually gone down by more than 15%. We need to take a determined approach to upgrade the skills level of the construction workforce in order to achieve a breakthrough in productivity. That is why we cannot reduce the levy for unskilled foreign construction workers.

The levy reduction for skilled foreign construction workers and the increase in the levy for unskilled foreign construction workers, which took effect in April of this year, have in fact resulted in improvement in the quality of the construction workforce. The proportion of construction workers who have obtained Skills Evaluation Certification rose from 12% in April this year to 16% in October 1998. To reduce the levy for unskilled construction workers now will undermine the progress that we have achieved in upgrading the workforce and the industry. Instead, we should provide more incentives to the construction industry to upgrade their workforce by widening the gap between employing a skilled and an unskilled foreign construction worker. That is why we are cutting the levy for the skilled construction workers by another $70.

Sir, apart from productivity consideration, unskilled foreign workers are the ones most vulnerable to abuses and malpractices. We are aware of labour suppliers who collude with contractors to cheat ignorant and unskilled foreign workers. These workers had paid agents in their home countries large fees on the promise of well-paying jobs in Singapore. Some end up abandoned without a job and accommodation shortly after they arrive in Singapore. We have already taken various measures such as the introduction of the levy bond early this year and new allocation formula, to stem such abuses. If we were to reduce the levy for unskilled construction workers at this juncture, it could encourage such malpractice to grow, bringing more unskilled foreign workers into Singapore. And this would result in more social and law and order problems for us.

Sir, yesterday, the hon. Nominated Member, Mr Chuang, commented that the levy differential between skilled and unskilled foreign workers had led to an unintended side effect of PRC companies having an unfair advantage over local construction firms. I believe I am correct in this summing up of what he said. He said that because many of the workers on the low levy are PRC workers and they are employed by PRC construction companies which are better able to manage them, and that has given the PRC companies an advantage in Singapore. In other words, our policy has resulted in an uneven playing field.

Sir, I would like to correct the observation made by the Nominated Member, because I do not think that is reflective of the industry overall. It may well have happened that a PRC company with skilled PRC workers had been able to tender lower and therefore won some contracts, but I do not think it is reflective of the industry as a whole. Because I would like to point out that the lower levy applies not only to skilled PRC construction workers but also to skilled workers from all other sources. Our records, in fact, show that PRC workers constitute only a minority of the number of construction workers on low levy, in other words, skilled workers. Most of the skilled workers on low levy come from Malaysia, our traditional source of supply of skilled workers, as well as other sources such as India, Bangladesh, Thailand and Myanmar. Since April this year when we lowered the skilled worker levy from $200 to $100, there has been an increasing number of skilled construction workers from these countries, particularly from Malaysia, our traditional source. When we subsequently implemented the 20% basic skill certificate requirement in August of this year, the proportion of skilled workers from other sources increased further, as new testing centres were set up in these countries. Hence, in the last six months, the proportion of PRC construction workers on low levy had, in fact, gone down.

I would also like to point out that the PRC construction workers are not solely employed by PRC construction firms operating in Singapore. Our records show that there is a sizable number of non-PRC construction companies including local contractors that employ skilled PRC workers. Hence, PRC construction firms do not have an unfair advantage over local companies.

My Ministry has always actively encouraged construction companies to employ skilled foreign workers. If PRC construction companies had benefited from the low levy, it shows that they have heeded our advice and quickly taken up the initiative to employ more skilled foreign workers and to upgrade the skills of their existing workers. Indeed, there is nothing to stop local construction companies from doing likewise. Local construction companies are, in fact, in a better position to tap the pool of skilled construction workers from Malaysia, in view of our historic ties and closer proximity. They can also tap many other sources of skilled workers. It is therefore unfortunate that some local construction firms, for reasons best known to themselves, have continued to rely on large numbers of unskilled foreign workers despite the many efforts by Government to encourage skills upgrading and productivity gains. These companies only have themselves to blame. I would strongly urge construction companies, both local and foreign, to employ more skilled foreign workers or to upgrade the skills of their existing workers, not only as a cost cutting measure but also to raise productivity and standard of the industry.

Sir, contractors should seize this opportunity with the reduction on the skill levy to employ more skilled workers. They would not only enjoy the substantial savings in levy, about $440 per worker per month, but also benefit from the higher productivity of the skilled workers. For Singapore as a whole, it would also be beneficial as social problems are minimised. And this approach is consistent with our long-term goal of reducing the number of unskilled foreign construction workers and to enhancing construction productivity. We are, in fact, conducting a thorough and comprehensive review of how to achieve this objective under our Construction 21 study.

As for foreign domestic workers, many Members have spoken on this subject and many Members have made passionate appeals on why the foreign domestic worker levy should be reduced. DPM Lee yesterday already said that the key point in cutting the foreign worker levy is to address export competitiveness. We are trying to help employers. We are trying to help companies reduce cost of production so that their products can sell well in the international market place and, instead of losing market share, they can regain lost market share. The foreign domestic worker levy will not have an effect on the competitive position of our industries, since the foreign domestic workers are employed by the households. The levy for foreign domestic worker cannot be reduced at this juncture. However, as an offset, working mothers will continue to be able to claim or enjoy the double tax deduction for the foreign domestic worker levy which they pay. Several Members have spoken on this earlier. Dr Vasoo has suggested that during this economic crisis, it is not necessary to use the foreign worker levy as a means of moderating the demand for foreign domestic workers. I am afraid that he is wrong on this score because, as it is, the number of foreign domestic workers has actually increased despite the economic downturn. Yes, the rate of increase is lower now compared to past years. But the increase shows that the demand is still strong. Hence, we still need some measure to moderate this demand to ensure that the number of foreign domestic workers does not grow out of proportion.

Sir, the income of most of the households which employ foreign domestic workers far exceeds the cost of employing a foreign domestic worker, including the levy. It is therefore unlikely that the current wage cut in the end-of-year variable component would seriously affect the employment of foreign domestic workers in many households. Members may be interested to know that more than 80% of the households which employ foreign domestic workers have an income exceeding $4,000 per month, not including the employer's CPF contribution. Even with the 5-8% cut in wages, these households should still be able to retain their domestic workers if they want to do so. There are, of course, some marginal cases, whose incomes are lower. There are also some employers who have been retrenched and are now jobless. But I find it difficult to accept that even jobless Singaporeans are able to continue to enjoy the service of a foreign domestic worker. We have to be practical. Losing a job means making major adjustment to one's lifestyle, including getting down to domestic chores, if necessary. Losing a job may well require us to make sacrifices in other areas. We cannot continue to assume that whether we have a job or whether we have a pay increase or not, we should be able to afford and enjoy the services of foreign domestic workers.

Furthermore, cutting the foreign domestic worker levy will in fact not benefit the vast majority of low income families who are not employers of foreign domestic workers. It is these low income families who are most in need of Government assistance and support during this period of downturn. Government will, in fact, introduce other measures to help the low income families cope with the wage cut, as announced by DPM Lee yesterday.

Sir, in November 1997, my Ministry announced that the foreign domestic worker levy will be adjusted annually. We announced in November last year that we will make regular reviews and announce the changes in November to take effect in the following April. In view of the economic downturn and wage cut proposed for next year, we have decided to suspend the levy revision.

Sir, on the NWC guidelines, DPM Lee has already announced Government's acceptance of the new NWC guidelines for 5-8% wage cut. Sir, our ability to reach this difficult decision with the support of workers will have a major impact on investors' confidence in Singapore. It is a strong signal to investors and employers that our workers are willing to shoulder their share of the burden to help companies retain their cost competitiveness. This willingness to suffer a wage cut will help many companies to weather the downturn. It will preserve jobs for workers and minimise unemployment. The NWC has also recommended that the wage reduction should as far as possible be effected through the variable component of the flexible wage system.

We introduced the flexible wage system in the aftermath of the 1985/86 recession, precisely in anticipation of the kind of problems that we are facing today. Adjustments to the flexible wage system by cutting variable components would have less impact on the monthly incomes of workers and should be easier to shoulder. I urge the private sector employers to abide by the NWC recommendations to make the wage cut in the variable component. I would also urge all employers to follow the Government's example and apply the NWC recommendations to moderate the wage cuts for the lower income employees. Private sector employers should make a bigger wage cut for higher income executives and management staff and a smaller cut for the lower income workers. The lower income employees have less discretionary income and are more likely to suffer greater difficulty coping with wage reduction. Applying the NWC recommendations will help them to better weather this recession.

Sir, the Government has also decided to make a cut in the civil servants' monthly non-pensionable variable payment. This monthly variable payment is missing from the private sector's wage structure. We should study this further to see how the private sector can also benefit from such a monthly variable component to achieve higher responsiveness to sudden economic changes. Incorporating a monthly variable component in the flexible wage system may help to minimise the need for future CPF reduction, which is a much more drastic measure with wider implications because people have committed their CPF savings for mortgage repayment and other long term commitments such as insurance policies. In fact, this has been suggested by Mr Ahmad Magad in his speech yesterday. We will study this further to see how it can be extended to the private sector wage structure to allow for greater flexibility.

While we are grappling with the immediate concerns caused by the regional economic crisis, we must also be aware of the need to build up capabilities and formulate strategies for our long-term competitiveness. If we ignore the challenges that globalization will bring, we will become even more vulnerable in the future.

In this respect, the CSC's vision of Singapore as an advanced and knowledge-based economy provides a sound basis for us to plan our manpower development. My Ministry supports the CSC's two-pronged approach to developing a world-class workforce: firstly, to maximize the full potential of the domestic workforce; and secondly, to attract foreign talent to enhance our capabilities and competitiveness.

Maximize the full potential of domestic manpower

With regard to maximizing the full potential of domestic manpower, my Ministry is working closely with the Ministries of Education and Trade and Industry, economic agencies like the Productivity and Standards Board and Economic Development Board, as well as industry partners, to develop a lifelong learning system in Singapore. This system is critical to maintaining the currency and competitiveness of Singapore's workforce. It would provide opportunities and support for every Singaporean to undergo lifelong learning for their continued employability. In this system, the stakeholders are employers, public and private training providers, unions and community organizations and, of course, the workers themselves. Everyone will play an enhanced role in supporting the in-employment training needs of our workforce. Additional funding will be allocated and new learning initiatives will be developed to encourage employers and workers to engage in lifelong learning. A national skills recognition system will be established to recognize and certify in-employment skills acquisition. New training technologies will be harnessed to support this endeavour.

To kick-start the process of lifelong learning for continued employability, two national programmes have been put in place. These are the Skills Redevelopment Programme (SRP) and the Critical Enabling Skills for Training (CREST). Training under SRP leads to national skills certification and every worker trained is placed with a job, either with his existing employer or a prospective new employer. This ensures that the training is immediately relevant. SRP has been progressing well since its launch in December 1996, as I have informed this House yesterday. A total of about 190 companies have committed to skill certifying more than 10,500 workers.

In June this year, the Government committed an additional $20 million to developing a Skills Development Centre to improve the training infrastructure to support training activities under SRP. I am glad to say that the Skills Development Centre has already started taking in trainees in November this year. CREST is a $200 million programme launched by the Productivity and Standards Board. It is aimed at encouraging the workforce to acquire core skills, which will provide the foundation for skills upgrading in all occupations and sectors. These skills are important in achieving a thinking, learning and innovative workforce.

Sir, the on-going Manpower 21 planning exercise will study the recommendations of the CSC which pertains to manpower development. Apart from establishing a national lifelong learning system, the Manpower 21 Committee will be looking into how we can enhance the workplace environment, upgrade the manpower industry structure, and harness international talent to ensure that the capabilities of our workforce remain a key competitive advantage for Singapore in the next century. We should have detailed proposals from the Committee by the middle of next year.

Enhance the attractiveness of Singapore to foreign talent

On foreign talent, Government agrees with the importance of tapping into global sources of talent to sharpen our competitive edge and overcome our manpower constraints. Foreign talent combined with a highly skilled local workforce will enable us to transit smoothly and rapidly into a knowledge economy. They can help us to raise our attractiveness to more MNCs to locate key knowledge operations in Singapore and thus enhance our economic value-added.

As Singapore evolves into a knowledge economy, the key determinants of success will be the skills, capabilities and innovativeness of our workers. Increasing global competition will put a premium on skilled workers. We will develop our home-grown talent fully with a new strategic manpower blueprint under the Manpower 21 planning effort. At the same time, we must augment local talent with a flow of international talent. This will provide Singapore with the enhanced capacity to generate high value added activities which is in tune with the knowledge era. Examples of such high-value added activities are the areas of e-commerce, wireless communications, automotive components, pharmaceuticals and chemical industries, where our companies today still find themselves short of IT and engineering talent, despite the current economic downturn.

Sir, we must be prepared for the new global competition and change our mindset and mode of operations accordingly. Our vision of Singapore as a globally competitive knowledge economy and a world-class workforce has scope for home-grown talent to realize their full potential. It will also serve as a magnet to attract international talent to participate in the many challenging opportunities which are unfolding with the new economic re-positioning of Singapore. With an augmented talent pool we are in a better position to expand our economic pie and have more gains to be shared by all. We need to grow our stock of talent to excel in the competition which would be brought about in the future. My Ministry will adopt a comprehensive approach to developing our own manpower as well as the recruitment of international talent.

Sir, we must not lose sight of the longer-term challenges because of the current downturn. Attracting foreign talents to Singapore is one aspect which can be easily swept aside during this period of rising unemployment. But if we do so, we will only hamper the growth in new businesses and industries which could play a major role in speeding up recovery.

Conclusion

Sir, when the region recovers from the current economic crisis, there will be intense competition for talent. We must not wait for this to happen and then set out to attract our fair share of talent. In fact, we must try to attract our fair share of talent now and take advantage of the inherent strength in our economy to attract talent at this juncture so as to stay ahead in this race and to better position ourselves for the competition in the future.

Sir, the recession we are experiencing is a consequence of the regional problems. But we must act firmly and positively to deal with the new economic conditions. We have to make adjustments, including those that are painful. The CSC's recommendations to cut business costs, including wage cost, is a sound and viable approach to cope with the loss of competitiveness. However, cost-cutting measures alone will not ensure that Singapore would remain competitive. In the longer term, it is the creativity, capability, productivity and enterprise of Singaporeans which will determine whether we will prosper in an increasingly competitive global environment. As long as our employers and companies, trade unions and workers continue to strive for productivity improvement and skills upgrading, we need not fear.

Through tripartite cooperation and support, we have been able to implement cost-cutting measures to overcome the economic crisis in the 1985/86 recession. Given the close partnership and strong co-operation between workers, employers and Government, I am confident that we will again be able to work hand-in-hand as a Singapore team to meet the challenges ahead, and help our economy recover speedily from the present crisis.

Sir, I support the motion standing in the name of the Minister for Trade and Industry.

Mr Chiam See Tong (Potong Pasir): Clarification from the Minister, Sir. I have two clarifications. Can I ask the Minister, out of the 20,000 workers retrenched, how many of them are Singaporeans? The other is the figure given by Mr Cyrille Tan in his speech in this House. He said that there are 600,000 foreign workers in Singapore. And the Minister has just mentioned that there are only 450,000. There is a difference of 150,000 between the figures of the union and the Government. Which is correct?

Dr Lee Boon Yang: Mr Speaker, Sir, for the first nine months of this year, about 20,000 workers had been retrenched. Overall, when companies retrench their workers, they retrench them in the proportion of their workforce. Companies that have more foreign workers will retrench in proportion to the profile of their workforce. So out of that 20,000, on average, it is about 70:30, because that is the typical profile of the foreign workforce in most manufacturing and service sector companies. So foreign workers will constitute about 30% of those who were retrenched.

With regard to the number of foreign workers in Singapore, my figure obviously would be a more reliable figure. It is more than 450,000.

Mr Choo Wee Khiang (Jalan Besar): Point of clarification, Sir. In view of the economic downturn, wage cut and unemployment, will the Ministry revise downwards the threshold for employment pass applications?

Dr Lee Boon Yang: Mr Speaker, Sir, in September this year we introduced a new work pass framework, PQR framework, whereby the top talent would be under the "P" work passes and "R" for restricted, before the lower skilled workers. The "Q" passes would be for the in-between grades of talents that we need in Singapore. It is a very flexible system. Although there are wage criteria such as $2,000 for a "Q" pass or employment pass, we are prepared to look at the background or the working experience and qualifications of a particular worker and decide which particular pass to grant to the foreigner. So in this case, there is no necessity to further revise the wage criteria, because we have sufficient flexibility within the system to cater to the needs of employers.

Mr Shriniwas Rai (Nominated Member): Mr Speaker, Sir, may I ask the Minister whether he has got any plans for skills training for the foreign workers, because they form quite a substantial workforce and some of them are educated but they are not equipped in English language?

Dr Lee Boon Yang: Mr Speaker, Sir, if an employer wants to send his foreign worker for training, we will look into the particular training requirement. In many instances, it can also be supported. But, of course, in the context of the work permit holders, the unskilled and semi-skilled workers, it will be so much better if the employers make a special effort and recruit skilled workers from abroad, rather than bring in unskilled workers here to be trained. That is why my Ministry has encouraged the construction industry to take up private initiative to set up skill assessment centres in our overseas sources of foreign workers - China, Thailand, Bangladesh, Myanmar. The purpose is for them to screen the applicants for work permits who want to come to Singapore to find out who are the skilled workers and then bring them to Singapore. I think that is a far better approach than to bring hundreds of thousands of unskilled workers into Singapore and then set about trying to train them to upgrade their skills. The skilled workers are available out there. Go out there and recruit the skilled workers. It is far cheaper that way, more effective and efficient for business.

Assoc. Prof. Low Seow Chay (Chua Chu Kang): (In Mandarin): Mr Speaker, Sir, the CSC has made a Report on the economy of Singapore in the past and it has also made recommendations for our present and future economy. It is a rational look at our economy and I endorse the view of the Committee and also support the recommendations.

In looking into the past, the Committee made use of the assessment of Singapore's competitiveness by various economic consultancy agencies, and it came to the conclusion that if not due to the currency turmoil, Singapore's competitiveness was ranked very high. We all know that Singapore is not a cheap place. In terms of wages, rentals and cost of living, it is quite high. So we are able to, in spite of all these circumstances, maintain our competitiveness in a higher rank, as stated in the Report, because of the qualitative factors. It is because we have political stability, we have tripartism and a high degree of transparency and pro-business policies. The announced cost cutting package by DPM Lee is the result of this qualitative factor in our competitive capability as mentioned in the Report.

We all know that Singapore is a country marching towards a developed status. Our cost of production cannot be compared to those in Indonesia, Philippines and Malaysia. Our competitiveness will go through economic transformation towards a knowledge-based economy and strengthen the qualitative factors. At the moment, in this regional currency crisis, because of the realignment and depreciation of currencies in the region, our competitiveness is affected. So for the short-term strategies, the Report has already made recommendations for cutting wages and CPF. I think these should only be short-term measures. When our economy recovers and competitiveness regains, all these should gradually be restored. I hope that the management will be able to make use of these cost-cutting measures to revive their competitiveness and to increase their sales and market share, so as to help the Singapore economy to recover as quickly as possible.

I feel that in the public debate in cost cutting, the people and the unions have already expressed their support for tripartism and they have accepted the wage cut and CPF cut. But some managements have asked for excessive demands. They have asked for pay cuts by 30% and some hope that the pay, especially that of the graduates, be reduced to those prevailing in the Philippines, Malaysia and Indonesia. These are excessive and unreasonable demands and taking advantage of the situation. As a result, the people may doubt their management's sincerity in tripartism. In my view, the wage cuts must be within the bearable level of the workers. For those companies that are not viable after these significant cost cutting measures, in my view, the problems they have are beyond what the Government and the workers could help. If that is the case, we should allow these non-viable companies to wind up, so that the resources can be diverted to the viable companies. Over the long term, this will be better for our workers and Singapore.

On the question of costs, apart from wages, I think there are other charges such as Government charges, cost due to Government policies, efficiency in production and rentals. On wages, whether we like it or not, it must rise according to the higher standard of living, higher standard of education, as well as the progress in society and a higher value added economy. This is inevitable. A society's progress must bring about a better income and a better life. This is progress and advancement of a country that will bring benefits to the people and that is why we are able to motivate our people to work harder.

If we look over the past 10 years, the average wage in 1986 was $1,140 per month per capita, and this has increased to $2,219 in 1995. This is an increase of 100%, averaging about 7.2% per annum. If we go by GDP, the value-added per worker has increased from $32,000 in 1986 to about $71,000 in 1995. That means over a period of 10 years, there is an increase of 8.2% per annum. If we compare the 7.2% wage increase and GDP per worker increase of 8.2%, then the average annual wage increase over the past 10 years of 7.2% is not unacceptable.

If we want to maintain our competitive edge and to satisfy the desire of workers to improve their standard of living, our economy must, as stated in the Report, go through the transformation process towards a knowledge-based economy with better training of workers, better education, more creative innovations and entrepreneurship, so that we can reach for higher value-added of new products. This strategy for wage cut is one measure that we have proposed to tide over the present difficulties. After this storm, we should be able to restore the wages and improve the quality of living of our workers.

Rental is an important component in the cost of operation. Yesterday, I went to a coffeeshop in my constituency. I spent 60 cents on a cup of black coffee. I made a simple calculation. How much does rental cost impact on the price of a cup of coffee? I found that it accounts for about one-sixth, that is, about 19% of the price. Rentals have been rising for many years in Singapore. For one particular year from 1994 to 1995, rentals for factories, offices and warehouses have increased by about 45% to 50%. Such a huge increase in rent affects the cost of operation significantly. The ups and downs of rentals are caused by supply and demand situation and also speculation. I am glad to note the Government is dealing with the over-supply of properties and the downward trend in property prices. On the one hand, the Government is sympathetic towards the developers and it has given them property tax rebates, allow them a longer time to complete their projects and free the Government land sales, but insists on the anti-speculation measures in property announced in 1996. The Government should monitor very closely the price trends in our property market and continue to adopt the anti-speculation strategies, so that when it reaches the bottom we should start releasing lands to meet the demand. By doing so, we will be able to avoid this sudden rise and fall of rentals, thereby affecting our competitiveness.

Yesterday, it was announced that, in response to the one-third drop in land price in the past one year, all rentals of JTC industrial properties would be cut between 20% and 40%. HDB will also cut their rentals for industrial and commercial premises by about 20%. Unfortunately, JTC offers an increase of about 4% of the rentals per annum for those who asked for a fixed rental rate. I think this will give a false impression that future rentals will move upwards.

Other Government measures could also cause some cost increases. For instance, take the construction industry as an example. In the case of shortage in supply of labour, the compulsory requirement for safety officers and resident engineers at worksites will add to the cost, because companies have to employ a lot of non-productive employees at higher than market prices. The Report also referred to low productivity in the building industry. It was suggested that prefabricated concept be used to increase productivity. I think the authorities concerned should look into this very seriously to understand why the prefabricated building process has cost more and the prefabrication factories are unable to survive before going in a big way for the prefabrication concept. Misunderstanding the situation will only add to cost and it is not good for our building industry.

In short, the Government measures are closely related to cost. We have to ensure that our policies are pro-business. I think it is the only way to go. With the cost-cutting package announced yesterday, I am sure the wage earner's ability to spend will be lowered. The businessmen will benefit. I am concerned about those businesses who are providing services to our domestic market, like the shops, transport services, and hawker stalls. How are they going to provide better services and cheaper goods? This is very important. Last week, in one of the programmes on radio, some hawkers were interviewed. Nobody agreed or intended to cut down their prices. If that is the case, the Government should also consider how we can plough back the benefits from the cost cutting measures to our ordinary citizens so that they will also benefit. One way is to ensure that these rebates are not automatic. They must apply for it and show how they are going to reduce prices before the rebates are given. In this way, when the cost-cutting measures are implemented, our consumers can also get some benefits.

In the CSC Report and the announcement of cost cutting measures yesterday, no mention was made to high-tech agriculture. I think this industrial sector should also benefit from the rental reduction from the PPD and property tax reduction from the land office so that they will be able to cut their costs and make their products more competitive in the international market.

Sir, I support the motion.

Mr Zulkifli bin Baharudin (Nominated Member): Mr Speaker, Sir, during the good times, we want to clamour for the five Cs - car, condominium, credit cards, career and cash. Yesterday, we saw DPM Lee giving away five Cs in not so good times, in terms of cash, care, career, credibility and, finally, competitiveness. Let me try and respond in this manner.

(1) Cash. I think the real cost reduction package is much welcomed to businesses. There is certainly no bail-out, no company buy-outs. Those who ask for handouts are certainly disappointed. But I agree with the DPM that the question is not how much more we should give now, but whether there is more to give if the situation worsens.

(2) Care. I am happy that the package contains measures and rebates to help the lower income groups to ease the pain of wage reduction.

(3) Career. I am happy with the Minister for Manpower and the DPM for stating that the package, hopefully, will kick in fast to save jobs. The Minister for Manpower has demonstrated commitment of the Government to retrain workers and help them find jobs. I hope, given the cost reduction, employers remain committed to train their workers.

(4) Credibility. The reduction in Government charges and pay cuts of Government Ministers and civil servants, in my view, are equitable and proportionate, if seen as a whole. I would think that the Minister's salary would be affected two years from now if the formula takes place. But any kind gesture is welcomed. I can only assure the Minister that what he gives in cash, he gets more than equal measure in credibility.

(5) Competitiveness. I think we expect more measures to come in the coming budget. But I urge, and I think I have some commitment that the CSC mechanism can be made part of an on-going process to make sure that we remain competitive now and in the future.

Let me just touch on a few other long-term strategic recommendations covered by the CSC. I am quite pleased that the Committee comprises many people in the private sector. It demonstrates the importance of a healthy state of participation and consultation in decision-making in Singapore from experienced and expert people in the industry. Without participation, any attempt to critically examine current policies and strategies will be futile because it is not only difficult to persuade workers to accept the painful wage cuts, it may also turn out to be a worthless paper exercise. If every citizen matters, we must also accept the value, suggestions or inputs of every Singaporean. But I really wonder how much of this model of private sector participation is present at the implementation level in the Ministries and statutory boards.

The CSC Report quite rightly observed that the current economic crisis highlighted the importance of Government as a business facilitator. But it should go beyond just being the regulatory authority and providing the environment that is conducive to business. It should also promote prudent and sound business practices and initiate change as an ongoing process. Take the case of JTC, for example, where the minimum criteria for investment in building, civil and machinery run counter to the preference and practices of many businesses. Why invest in brick and mortar that do not generate income or not vital to the operating requirements of businesses, compared to the investments in people, plant and machinery and technology? Why use the price mechanism to control design of buildings? Are the architects not supposed to do that? We should instead support industrialists who can extract the maximum return for minimum investment. Industrialists can provide the greatest value adding potential. But this requires private sector experience which, I believe, is quite lacking at certain levels of Government. Perhaps, as a long-term strategy, the Government can try seconding some of its officers to the private sector and encourage more recruitment from the private sector to the civil service and statutory boards. Otherwise, we will hear more calls for committees and commissions. True, I think we need to relook and re-examine our regionalisation process.

I support the CSC's recommendations to extend our external wing. We need to go global. But we need to critically examine our past efforts at regionalisation and our cooperative efforts with Malaysia, Indonesia, China and India where we have presumably had the best chance of success in exporting our software, the Singapore's recipe for success. What can we learn from these challenges? How can we share with other Singapore companies? What happens to guan xi in China? Should we remain engaged in these regions or try to diversify our very limited resources globally?

My fear, Mr Speaker, Sir, is that the crisis may have exposed the myth about our relevance and understanding of our Asian neighbours that we are the best partners or agents for western companies who want to invest in the region. What the crisis had shown perhaps is that Asia is indeed very diverse. Sometimes, we really have very little common with a Thai, Filipino or Cambodian as would an American or European. We behave differently. We do not speak the same language. And sometimes, some of our neighbours are not so quite friendly with us. But we really need to examine this and maximise our similarities and make ourselves more relevant to the region. We can do a number of things to ensure that we really are the best hub in the region, not only in terms of geography, but in our ability to work with our neighbours and friends. For example, having more Asian students studying and working in the country, increasing exchange at all levels of society and Government and introduce the teaching of Asian languages and cultures in our education system and allowing more access of the Asian media, both print and broadcast, into Singapore. We want to be relevant to Asia. But we must first ensure that Asia, its people, culture, history and language are all relevant to everyone of us here.

Next, we must not lose sight and be distracted by the cost competitiveness alone as we benchmark against the newly industrialised economies. We must attract higher value added operations to locate in Singapore and try to invite more foreign talents to this country. But the qualitative factors that help to make Singapore livable becomes also increasingly important. Competitiveness includes more human dimensions, such as good schools, vibrant entertainment, pollution-free environment and the intellectual and creative stimulation, the buzz that is present in any global city. For example, if we want to develop Singapore into a media hub, it is essential that we have a media into and out of Singapore that is accessible, affordable and convenient, that is not unnecessarily obstructive. This would mean easier access to Government information and an intellectual environment that protects and values expression, disagreement and exchange, though not necessarily dissent, and an active civil society and a strong people's sector. In other words, Singapore is not only a home for Singaporeans but a much desired destination for foreigners.

Next, the Minister for Manpower touched on foreign talent. While it is appropriate to expect Singaporeans, including top level executives, to make the symbolic sacrifice in difficult times, we have to be careful that these do not affect our attempts to attract foreign talent that is perhaps even more necessary now to boost competitiveness. They may not come here if the total package of remuneration is inferior to what they get elsewhere. We must be careful and ensure that we do not single them out for not willing to bear the same sacrifices that we, as Singaporeans, shoulder.

Next, SMEs. The crisis has shown a trend for greater orientation towards Europe and America in the way they conduct business. Not only in terms of markets, but global MNCs now require suppliers to adopt corporate discipline and values that are consistent with their attitudes, for example, the respect for intellectual property, labour rights, environmental concerns, free from graft and corruption, absence of age and gender discrimination. If we want to go global and be a major partner to European and American companies, SMEs must be assisted to help them deal with some of these issues which many SMEs may otherwise consider an unnecessary intrusion into their business affairs.

Mr Speaker, Sir, I support the recommendations of the CSC and compliment the efforts of the CSC but also urge that the efforts they put in be made part of an ongoing process. We have heard calls for reformation in Singapore. I hope we have similar reformation in wanting to change mindsets and to ensure that we have to place whatever it takes to put our economy back on track.

With that, Sir, I support the motion in the name of the Minister for Trade and Industry.

The Minister without Portfolio (Mr Lim Boon Heng): Mr Speaker, Sir, consensus building requires trust and patience. To foreign observers, the package of cost cutting measures recommended by the CSC and the reconvened NWC is remarkable, because we are able to reach a consensus on cutting wage costs - no less than $7.5 billion of it. And we have reached this consensus so smoothly, it seems.

Is reaching this consensus an easy matter? Well, just look at Hong Kong. You cannot find a better example of a market economy than Hong Kong. The employers know what to do, but can they effect it? Hong Kong Telecom has been unable to make its bonus payment flexible, linking payment to earnings, let alone implement a wage cut.

Ours is not a command economy, as some Hong Kong officials seem to think, as reported in Asiaweek. Ours is a system where political and trade union leaders have to face their constituents in election by secret ballot at regular intervals.

We have been fortunate in this downturn to have leaders in the NTUC and the unions who went through the 1985/86 recession. From that experience, they know that effective medicine for a severe illness tastes bitter. They are therefore psychologically prepared for tough measures in this downturn and this time, the measures are in fact more severe.

In 1985/86, we cut wage costs from the employers' contribution to CPF. It was a cut in savings for the future. For the vast majority, disposable income was not cut - as we adopted a wage freeze, and not a wage cut.

This time, we have gone beyond cutting savings for the future. Not only are we cutting employers' contribution to CPF, but we are also cutting disposable income. Fortunately, we have, since the last recession, put in place a flexible wage system. It allows us to cut wage costs by cutting bonuses, which is less painful.

Sir, a question was asked yesterday: why is it necessary to state how much we should cut wage cost? Mr Low asked that question. It is a matter of fairness. Workers are prepared to do their part, accept wage cuts to restore our competitiveness, but they need to know how much is really needed. So first, we have to know how much we have lost in competitiveness. If we assess that we need to cut costs by 15%, then workers would be prepared to accept a 15% cut in wage costs. If we do not have such a figure, how are our workers to know that what an employer wants to cut is fair?

This round, we have had to depend largely on figures provided by the Government. One indicator has been the relative unit labour cost, a comparison of our wage cost with selected Asian competitors. Another indicator has been the weighted change in currency realignments, or effective exchange rate. Both pointed to something close to 15% to 20% range.

Sadly, figures provided by employers have been grossly inadequate. When I mentioned this publicly, some employers reacted indignantly, saying that for over a year already, they have said that Singapore has lost competitiveness, and cost cuts were needed. They protested that they have even raised the matter in Parliament. Yes, employers have mostly asked for cuts, ranging from 5% to 30%, but without providing cross-country comparisons on cost items. This is an example of what unionists mean when they complain of a lack of information sharing. Fortunately, some employers have provided information of cost differentials from their factories in different locations, but privately. Some of them provided the figures to us at NTUC, some to EDB and MTI. And these were individual employers. The figures they provided have allowed us to gauge whether the macro figures were largely correct.

I do not raise this now to re-open the exchange. Rather, we should learn from this experience. Employers must appreciate that we have a better-educated, more discerning workforce. They expect greater transparency from employers.

So we need to establish a number, one which, to the best of our ability, we think is right. It then becomes the guide for actual settlements at the workplace. We should expect negotiations at the workplace - so some cuts will be more, others less than 15%. There will be negotiations at the workplace and employers cannot take it for granted that just because we have reached this national consensus, that this is something that will be effected without further discussion.

Where a company is unionised, I am confident that union leaders will settle with management rationally, and they will see to it that the cuts are fair to the workers. In the last few months, we have had a lot of discussions within the union movement. After several rounds of discussions, I reported to the Prime Minister and DPM that they need not worry about the unionised sector, but they should be concerned with the non-unionised sector.

If we do not have a figure, which we make public now, how are non-unionised workers to know whether the wage cut their employers are asking for is fair? Granted management in non-unionised companies can effect any cuts they deem necessary as their employees have little choice, but what about the social discontent generated? To face this downturn, social cohesion is important, as many Members of this House have said. Naming the figure of 15% is thus necessary to serve as the benchmark for all, and remember we have the figure of 30% mentioned once again in this House in the past two days even after we have reached a national consensus in the National Wages Council!

As we move to implementing the wage cuts company by company, let us not forget to maintain fairness. The public sector has shown the way. The cuts in public sector pay that Deputy Prime Minister announced yesterday was reached through discussions between the Public Service Division and the public sector unions. The final figures were agreed to only yesterday morning. I hope private sector employers will follow the example of the public sector - cutting more at the top and minimising the cuts to low income workers.

It cannot have escaped the attention of employers that higher income civil servants are taking a cut in monthly pay, through the monthly variable component. Since the last recession, the public sector has consciously developed a flexible wage system, which includes a monthly variable component. It is made up of unconsolidated NWC wage increases.

If the private sector had been as attentive in wage administration as the public sector has been, they too would have a substantial monthly variable component by now. It would not have increased wage costs, since the monthly variable component is taken out of a total amount of wage increase agreed to under the ambit of the NWC, as a consequence of NWC recommendations. When I suggested recently that we should build up a variable monthly component in private sector pay systems, the reaction from employers showed a singular lack of understanding. It shows how poorly they have paid attention to wage administration. Some were guarded in their reaction, but others almost condemned it! I hope they will now study closely how the public sector has managed its wage system, and understand how they too can build flexibility into their wage systems. Just as we learnt from the last recession and put in place a flexi wage system, so too must we learn from this recession and refine our wage system so as to better meet a future recession. I hope it will not happen but as business cycles go, we know that it will come sooner or later.

Sir, the welfare of workers and their families depends on employment. Employment, however, depends on companies remaining viable. Therefore, the top priority of any Government or union in an economic downturn must be to ensure that workers stay employed. If that requires wages to be cut, we will cut. We have done so in 1985/86 and we are doing it again. This shows how flexible and responsible unions are in Singapore.

This tripartite understanding we have developed is a valuable asset which we must maintain. It depends on trust. Each party must play its part to maintain that trust. The objective of this cost cutting package is to keep companies viable, restore their competitiveness, so that they will continue to provide jobs for their workers. Labour is playing its part by agreeing to wage cost cuts. Now employers must play theirs. No doubt some retrenchments are unavoidable - even in boom times some companies have to retrench. However, we expect the numbers to be reduced. I am glad that some companies have shelved retrenchment plans, because of the cost-cutting package. We have got this information privately. We respect the wish of these companies to remain anonymous, but we are glad that they are acting responsibly.

The NTUC is pleased that two employer groups - the Singapore National Employers Federation and the Singapore Federation of Chambers of Commerce and Industry - have come out with a five-point action plan to explore new markets, develop new capabilities, boost productivity, help the unemployed and implement the wage cuts fairly.

Some economists have commented that the cost-cutting package does not address the demand side of the equation. As two-thirds of demand is external, what we can do is to lower our costs, so that our exports are competitive. This is precisely what we have done. What more can we do? Both the SNEF and SFCCI have said they will be more active in exploring new markets. If we can improve on our export performance, then we will recover. This, in turn, will pull up the domestic sector which seems to be a focus of speakers earlier this afternoon. When we recover, there will be more demand for offices, factories and homes, and help the construction sector. I hope that NMP, Mr Chuang, understands that the measures help him downstream. Some of the measures help construction companies immediately but the full effect comes downstream when we have recovered. So, also the retail sector. When we recover, and the people have more money to spend, then the recovery comes. And I hope the present difficulties will spur the construction industry and the retail industry to finally do something about the appalling low productivity in both sectors and in the case of the construction industry, its heavy reliance on unskilled foreign workers.

Sir, as my colleague, Mr Lim Swee Say, said yesterday, let us forget about painless solutions. There will be pain. It is not only poor company bottom lines, it is also unemployment. Though unemployment has risen, we are fortunate that there are still jobs available and still adequate. Although the Employment Service Department of the Ministry of Manpower has more workers seeking jobs than vacancies, it is not truly reflective of the employment market. The service provided is purely voluntary. Not all employers register their vacancies with the Ministry of Manpower, notwithstanding the proactive efforts of the Ministry to seek out those employers that have jobs. Not all the unemployed register either. We know there are companies still complaining that they cannot get enough Singaporean workers, and many sectors have large numbers of foreign workers. In fact, in my meet-the-people sessions, I still get employers coming to me saying that they cannot get workers and asking the Ministry of Manpower to approve the work permits. Provided workers are flexible in their choice of jobs, they can find a job. Of course, the performance of the job-matching efforts can be improved. And we will do so through tripartite effort.

Having said that, I must point out that older workers find it harder to find a job. Some say that older workers expect higher pay. Yes, this is one reason. They have more commitments, but they will adjust. What I think is an equally difficult problem is the attitude of employers towards older workers. A mindset change is needed. So I call on employers to give older workers a chance, and I hope the employers' organisations will do more to persuade their members to give older workers a chance. I know that many have expressed concern over low income workers out of work. But I think, today, there is also a very significant problem of the better educated executives who lose their jobs and who find it difficult to find re-employment. So I hope that they too will be given a chance.

Sir, it is natural that the focus of Members has been on restoring our competitiveness. Most Members have focused on the current business cost problem. Few have touched on the future, except perhaps the speakers earlier today. But that forms an important part of the CSC Report. The CSC recommendations also map out the future we want. It is a future based on the knowledge economy, of creating higher value, which in turn provides workers with higher pay and not lower pay. Our future does not lie in keeping our wage costs down to the same level as our neighbours. Our ambition has always been to create more wealth per person, to give our people a better life than our neighbours. That is why our wage levels are now higher. If we succeed in moving into a knowledge economy, let us not be surprised that our wages will be even higher, compared with our neighbors. But the important thing is this higher wage level must be supported by the higher wealth we create; in other words, by higher productivity overall and that is what we aim to do. Unfortunately, because of the pressing problems of the downturn, there has not been adequate discussion and debate in this House on the other recommendations of the CSC Report.

Mr Speaker, Sir, I hope that over the next few months, we will have more opportunity in this House to debate on the various recommendations that have been set out. Now that we have settled what we should do, let us go forward, implement the wage cuts, pull together as one nation and come out of this as quickly as possible and then move forward into the knowledge economy.

Sir, on that note, I support the motion.

Mr Low Thia Khiang (Hougang): Sir, may I seek clarification from the Minister without Portfolio? In his speech, he mentioned that there is a need to announce a percentage cut as a guideline, so that non-unionised workers will know how much cut is reasonable. What about some employers who take this guideline as an opportunity to cut, even though the company may still be competitive and there is no need to cut?

The second clarification is: why is there a need to mandate a 10% cut in CPF? Why not leave it to the company as a guideline for a cut in wages rather than a CPF cut?

Mr Lim Boon Heng: Sir, what happens if a non-unionised employer takes advantage? I think a non-unionised employer has to act responsibly. While there may be no effective monitoring system to prevent such abuse, if such employers are shortsighted and take advantage, what would be the cost? I think unhappiness within their companies and a breakdown of trust between employee and employer. When the recovery comes, people will vote with their feet. So whilst we may not have an effective check on such employers, I think it is prudent to sound out a warning to them that if they do so, it is to their own cost in the future.

As regards why it is necessary to mandate a 10% CPF cut, if we want to touch the CPF, it is a blunt instrument. If we do not want to mandate a cut across the board, then we have to rely on cuts purely on the wage system. I think that burden will be too high for our workers to bear. So if we have to cut part of it from the CPF, then we have to mandate this 10% cut in the CPF.

Mr Low Thia Khiang: Further clarification, Sir. How about cutting the employee's contribution in CPF so that they can tide over the period and allow companies the flexibility to decide on the correct percentage of wage deduction that will make them competitive, rather than a mandate across the board of a 10% CPF cut, whether the company is profitable or competitive, it is a 10% CPF cut? Give some money back to the workers and allow companies some flexibility in deciding. Do you not think this would be a better alternative?

Mr Lim Boon Heng: Sir, this has also been explained by the Minister for Manpower. The focus is on reducing costs to the employer. That is why we cut the employer's CPF contribution, and not the employee's. Give money back to the employees by cutting the employee's contribution and give them more disposable income, I think that would only be necessary if we have a far severe recession than now. What workers are now facing is a reduction of disposable income, not 15%, but somewhere in the region of 7%. So I think this is at the moment still bearable. If more companies were to pass back savings which they get from the various cost cutting measures to the consumer, then, in fact, the effect is less than the 7% cut in disposable income.

Dr Ong Chit Chung (Bukit Timah): Mr Speaker, Sir, I rise in support of the motion standing in the name of the Minister for Trade and Industry.

Sir, I wish to thank Deputy Prime Minister Lee Hsien Loong for presenting the Government's response to the CSC Report. It underscores what the international news media and the fund managers are saying: that the Singapore Government has the talent and the vision to deal effectively with the current economic crisis. Our national leaders have amply demonstrated and exercised leadership and statesmanship in handling the economic problems we have. All Singaporeans would, I am sure, join us in thanking the Government for the cost cutting package, including the generous Government rebates and tax cuts.

Sir, I am glad that the Government is refraining from cutting the monthly wages of the junior staff in Division III and IV levels and the daily-rated employees. This shows that the Government is considerate and mindful of the needs of the junior staff and the lower income group. This is indeed a caring Government in action, lest we forget. I hope the private sector companies will also take this into consideration when they do their own wage adjustments, especially for their junior staff.

On the other hand, the Government Ministers will forgo the normal annual salary adjustment for a second year running and instead take a 10% pay cut. Our Ministers are indeed leading by example. We must all be thankful that we in Singapore have such good Ministers, whereas in many other countries they have so many problems with the economy and the leadership.

Sir, we have no choice but to cut costs, in order to be competitive against other competing economies. There is no cure without some pain. But the Government, we can see by this package, is trying its best to cushion the impact, especially for the lower income groups.

4% out of the 10% CPF cut will come from the Special Account, and CPF members will further be allowed to use the balances in their Special Accounts to meet any shortfall in mortgage repayment caused by the CPF cut.

The fact that the Government is trying its utmost to help homeowners can be seen in two other schemes: first, the HDB will allow deferment of mortgage payments, lengthening of the term of the mortgage loans, and inclusion of more working family members as joint owners for the purpose of payment. Second, there is a Bridging Loan Scheme for CPF holders with HDB and private property mortgages at the concessionary rate of CPF interest rate plus 0.1%. This is indeed a very attractive and generous scheme.

Members of the public, I am sure, would also welcome the GST offsets, utilities rebates, public transport rebates and reduction in hospital charges. All these will, I am sure, go a long way to help the lower income groups, especially those in the HDB heartland.

Sir, some are puzzled or may not understand why, when we have retrenchment and unemployment, we are establishing the Singapore Talent and Recruitment (STAR) Committee, chaired by BG George Yeo. They may forget that Singapore is not a big country with a huge hinterland and, in truth, we are a city state, aiming to be a global city.

To move forward and compete, we have to attract the best talents from abroad. In fact, we need more stars. Let there be a star-studded Singapore, whether the stars are local born or overseas inducted. Many of our first generation leaders like Dr Toh Chin Chye, Mr Ong Pang Boon and Mr S. Rajaratnam were indeed inducted from abroad.

Good overseas talents, with their skills, ideas and inventions, will enable Singapore to compete successfully and thereby create more jobs for all Singaporeans. Even a superpower like the United States of America, benefited from wave upon wave of immigrants, who contributed immensely with their ideas and inventions to the American economic growth.

Some businessmen are saying that the CPF and wage cuts are not deep enough. They want another 5 or more percentage cut. I think enough is enough. I am glad that the Government is taking a balanced approach on this. Further cuts, I am afraid, will drastically cut cash flow and our purchasing power.

There will be adverse effects if more and more held back from buying or have their purchasing power curtailed, and there will be a contraction, instead of a multiplier effect. There will be less money to go around. We definitely do not want that to happen. Many people will then say, "Money no enough."

Our social fabric and cohesiveness will also be damaged. In the formula, it is possible to cushion the effects of these cuts with the NTUC package, and the Government measures announced so far.

NTUC has set the pace with a $23 million aid package for workers, especially to help those in the lower income brackets. NTUC Fairprice has cut prices significantly at its supermarkets, while NTUC Income has a $12 million package to help policy holders to tide over their payments for premiums and housing loans.

At the constituency level we, as Members of Parliament, will do our very best to do placement service for those out of job, award bursaries and help out those who are in need.

What are the private sector companies going to do to help the workers to match the measures launched by NTUC? I am glad that the Singapore National Employers Federation and the Singapore Federation of Chambers of Commerce and Industry have announced that they will step up workers' training and retraining and assist in job placement. The question is, can the employers do more?

What the employers do now, or will not do, will settle the long term relationship with the workers and unions. For the sake of our long term competitiveness and our future, the employers must be seen to be proactive in helping workers in this economic crisis. In a way, they will be helping themselves, if they could secure the loyalty and support of the workers, and motivate them to give their best.

Recently, Mr Tan Chin Tuan, the former Chairman of OCBC Bank, celebrated his 90th birthday. His grand-daughter remembered that he taught her that there were principles in making money, and that making money was not everything. I sincerely hope, and urge, all our entrepreneurs and businessmen, to abide by these wise precepts of Mr Tan Chin Tuan, which were forged and tempered by years of experience in both the private and public sectors.

Those at the helm of business should, in times of crisis like this, uphold and cherish our workers, who are making the supreme sacrifices in CPF cuts and wage cuts, and some are indeed losing their jobs. Companies should think long term and try to retain, retrain and redeploy the workers, rather than simply retrench them, if they could help it. If we simply cut, and cut off the workers, we will not retain their loyalty and support.

The entrepreneurs will do well to follow the example of Mr Sim Wong Hoo of Creative Technology, who has pledged to keep the money saved from the CPF cuts for possible distribution as incentive or variable bonus, if the company's targets are met. Mr Sim calls it the Creative CPF Bonus Plan. I hope other employers will also do likewise and do this creatively. I urge companies that do well and are profitable to reward their workers accordingly.

We thank the Government for the cuts and rebates in Government charges, like foreign worker levies, HDB and JTC factory rentals, income tax, property tax, utilities and other service charges. I hope that this will indeed start a trend or habit for Government agencies to review their cost structures, to put all aspects of costs under scrutiny, and examine ways and means of cost savings, eg, higher productivity, automation and lower head counts. The Government agencies can then pass on these savings to the customers and the public regularly.

It is good that we are debating this CSC Report and deciding how best to tackle the economic crisis in a cool and calm manner in this Chamber and not in the streets, unlike in some other countries where there are riots and demonstrations.

This speaks volumes of our tripartite consensus making process, of our internal cohesion, and the clear vision and high calibre of our national leaders. Mind you, this is not self-praise. It would be immodest of us to do so. Praise for Singapore, and our Singaporean way of handling the economic crisis, came from some unexpected quarters, from those who are quick to criticise us and who have been our constant critics in the past. It came no less, for example, from the Far Eastern Economic Review magazine. If I may quote from our erstwhile critic, the Far Eastern Economic Review stated in its September 1998 issue:

"Singapore's quick, organised response to Malaysia's financial shutdown could solidify its place as Southeast Asia's premier financial centre. This demonstrated Singapore's reputation for long-term planning, a trait that complements Singapore's reputation for efficiency."

This is indeed vindication and endorsement of our transparent, non-corrupt, honest system of Government, and our emphasis on talent and meritocracy, where the best and brightest rise to the top in the Government and in business.

Newsweek, an international news magazine, reported, and I quote:

"Singapore, known for its stable, transparent and clean Government, has managed the financial storm . while remaining a player in the global market. The key: unflappable government officials, long term planning and prudent fiscal policies."

According to the South China Morning Post, we compare very well with Hong Kong, our nearest rival. The Hong Kong newspaper contrasted Singapore's free market approach to Hong Kong's decision to intervene in the financial markets. The South China Morning Post commented that Singapore, on the other hand, has won credit for demonstrating a cool, calm and collected response to the region's stormy financial climate and putting in place positive long term structural changes, even as its stock market falls.

Sir, the CSC has done a good job. The question is how to ensure that the economic trends are monitored constantly and new measures are devised to meet ever changing circumstances. We must make sure that this tripartite mechanism and relationship forged in the economic crisis is maintained and indeed geared up to meet any new problems so that problems can be nipped in the bud.

We should not let such mechanism atrophy. We should not wait around for another crisis before calling for a review and another competitiveness report. We should keep the mechanism in place, keep monitoring the trends and be always ahead and be more competitive than our immediate neighbours.

I suggest therefore that the Government consider keeping the CSC or some moderated form of the CSC intact, by emplacing it in a Government agency or a think-tank with a resource panel and capacity for economic monitoring and analysis. From time to time, Sir, crisis will come, but such a mechanism can enable us to mark the trends and gear up to tackle the new issues and devise new strategies and formulas.

Sir, cost-cutting is only half the story. It would not work if productivity is not raised, if workers are not motivated, if business revenues are not increased, if new businesses are not found, and if new markets are not conquered. All cuts will come to nothing. The business itself will be cut off.

The real challenge therefore to Singapore, and Singaporean businessmen in particular, is to find new business, to continue to regionalise and globalise.

We need new ideas, new business, new markets and new niches. We must use this crisis to forge a new spirit of entrepreneurship, of daring to do, of never say die, but to fight and survive in this business jungle. Darwin would say the survival of the fittest in the business jungle.

I believe Singaporeans can do it. We can make it. We can make it happen. Indeed, this economic crisis provides us with the opportunity to jell as a people as we face the problems squarely and overcome them. It bonds the people and the Government together.

We will emerge stronger, with better credit ratings and even more united and determined to make Singapore an attractive place for investment and financial transaction. We are well placed to become the global IT, service and financial hub. So let us rally behind the Government and go forth as one people to triumph over adversity and conquer the new markets.

Sir, I support the motion.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.45 pm.

Sitting accordingly suspended at 3.25 pm until 3.45 pm. Sitting resumed at 3.45 pm