HIKES IN RATES AND CHARGES (Gradual and staggered implementation)

Mr Noris Ong Chin Guan asked the Prime Minister, in the light of the gradual restoration of employers' CPF contribution following the rebound in the Singapore economy, whether the Government will similarly adopt a gradual and staggered implementation of hikes in charges for the use of amenities, facilities and services such as bus/MRT/taxi fares, utilities rates, rental charges, so that the impact of these hikes will be more manageable for the ordinary Singaporeans in general and for those in the lower-income group in particular.

The Deputy Prime Minister (BG Lee Hsien Loong) (for the Prime Minister): Mr Speaker, Sir, when I announced the CPF restoration and the extension of some cost cutting measures in November last year, I had stated that the Government could not hold back all fee increases. Some adjustments would be necessary. However, I gave the assurance that the Government would exercise moderation in revising public sector fees, which it has done.

When the Government cut employer CPF contributions, we did not impose either a wage or a price freeze on the economy. The purpose of the CPF reduction was to reduce business costs and help companies to regain profitability, but without making the labour market rigid or distorted. Now that the economy is recovering strongly, we need to manage the full restoration of CPF contributions, simultaneously with wage adjustments, so that total wage costs do not increase too suddenly. I believe the NWC is actively discussing this issue, and will make its recommendations soon.

On prices, the Government does not approve or disapprove price changes by private sector companies. During the crisis, many firms held back necessary price adjustments, so that now some catching up is necessary. The Government is, however, mindful of the combined impact of individual fee increases on the overall cost of living, and watches price levels to ensure that inflation stays under control. In the case of bus and MRT fares, operators have to justify the fee increases to the Public Transport Council.

MTI estimates that the adjustments to gas and electricity tariffs, bus and MRT fares, and taxi fares will increase the Consumer Price Index (CPI) by only 0.22%. Their impact on the cost of living of lower income groups is slightly higher - 0.25%. But overall, MTI's forecast is that CPI should increase by only 1-2% this year. This is quite modest.

In comparison, 2% points of employer CPF contributions have already been restored in April. Given the tight labour market, we can expect wage settlements to be generally higher than last year. Therefore, allowing for inflation, most Singa poreans will enjoy increases in their real, disposable wages this year. In addition, the Government has given rebates on HDB rentals, town council's service and conservancy charges and PUB charges to lower income households. These rebates exceed any likely impact of inflation on these households. Thus, while consumers will not welcome any new or increased charges, however moderate, taken together these adjustments are unlikely to impose hardship on Singaporeans.

Mr J. B. Jeyaretnam (Non-Constituency Member): Mr Speaker, Sir, when I last asked the question on the bus and MRT fare increases, the Minister of State was unable to answer my question whether he was aware that the bus companies had been making profits. I have now learned that they have been making quite substantial profits. Does the Government still think that it was necessary to increase the bus and MRT fares?

BG Lee Hsien Loong: Mr Speaker, Sir, the Member was not here when I addressed this issue at the last sitting following his exchange with the Minister of State. I explained that all companies have to make profits, because if they do not make profits they will fold up. Are they reasonable profits or are they excessive profits? That is a matter for the bus and public transport companies to justify to the Public Transport Council. They have put up a proposal and members of the Public Transport Council have scrutinised the proposal and they have decided that these increases are fair. I see no reason to challenge that conclusion.

Mr Jeyaretnam: Is the Minister saying then that the bus and MRT transport should be run for profit and not as a public service to the people who need to use them?

BG Lee Hsien Loong: Mr Speaker, Sir, there are tens of thousands, if not, several hundred thousand Singaporeans, who own shares in SBS and there is a reason why we arranged the scheme so that the shares are widely distributed among Singaporeans. That is precisely because it is necessary for all services to run efficiently and one of the measures of efficiency is that you break even and earn a reasonable profit. There are subsidies which we have provided bus companies - roads, bus terminuses, taxes. But given what we have already decided they are entitled to, they have to operate efficiently and the measure of that is that they have to earn a profit.

Mr Noris Ong Chin Guan (Nominated Member): Two supplementary questions. I would like to ask the Deputy Prime Minister if there are any coordinated efforts by the Government, for example, by way of an inter-ministerial committee, to consider the impact and timing of price hikes for public amenities, facilities and services by the various ministries.

The second question is that for the timing of future price hikes within the control of the Government, will consideration be given to take into account the fact that salary increments and bonuses are usually given once a year and that there are still many months to go before the year-end increments and bonuses materialise?

BG Lee Hsien Loong: On the first question, we do coordinate among the ministries. We do not have a formal committee, but we do coordinate among ourselves, because it does not make sense for us to have several sudden adjustments taking place one after the other and causing an unnecessary shock to people when very often, in fact, there is no reason to be shocked.

The second question is whether we should therefore take into account the timing of the private sector salary increases which happen once a year. I would suggest that if we make all our price increases once a year, that might cause bigger shocks, rather than smaller shocks. I do not think all the private sector salary increases take place at the same time. The NWC makes its recommendations in May or June and companies take a few months, and some take many months, before they settle the agreement and then they are paid. Collective agreements come due at different times. Some bonuses are paid at the end of the year and some are paid in the middle of the year. These adjustments are spread out during the year and therefore price adjustments also quite reasonably ought to take place during the year.

The key question, as I have pointed out, is whether the cumulative effect of all these price adjustments is a high inflation rate or a low inflation rate. I have pointed out that, in fact, we have ended up with a very low inflation rate. In fact, it was negative for several years. Last year, it was less than 1% and this year we think it will be less than 2%. CPF has gone up 2% already - that is not take-home pay - but I am quite sure take-home pay will go up by more than 2% this year, because the labour market is so tight. These are adjustments which we have to accept. If inflation goes up 5%, 6% or 10%, then there is reason for people to worry because that is very big and you are unable to plan ahead and maybe if oil prices shoot through the roof that might happen - it has happened before - but that is not the situation we are in today.

Mr R Sinnakaruppan (Kreta Ayer-Tanglin): I would like to ask the Deputy Prime Minister whether there is a possibility of giving off-Budget measures, such as helping the lower-income group. He has just said that the inflation rate might go up from 1% to 2% and, as it has been in the past, for the lower-income workers who I have looked after in the trade unions, their increments are very marginal. So 1% increase in inflation rate could have a serious impact. I would like to know whether there could be a possibility of some off-Budget measures.

BG Lee Hsien Loong: Mr Speaker, Sir, I think we had better understand that we are living in an unnaturally calm state of affairs right now. Inflation of 1-2% is actually, by historical standards, quite low. In Singapore, that is what we have been able to achieve for many years but internationally 3%, 4%, sometimes even 5%, inflation in the developed countries has been quite normal. Maybe the world has changed. The central banks have been careful, governments have been running smaller deficits and, in some cases, surpluses. Inflation has generally come down round the world, also helped by lower oil prices until fairly recently. Because of that backdrop and also because of our prudent policies in Singapore, we have been able to keep our inflation to 1-2%. Despite this, every year, during the Budget, because we have some surpluses, the Finance Minister has been able to scatter confetti all around. We have got utilities rebates, service and conservancy rebates, CPF top-ups. As I have said, they all add up to a significant sum of money for the lower income group. They are not meant to offset and make up totally for inflation, dollar for dollar. That is not possible. But taken overall, I think there is no question that they have enabled lower income Singaporeans to enjoy significant improvements in their standard of living in addition to what they have been able to get because wages have been generally going up from year to year.

Mr Ahmad Mohd Magad (Pasir Ris): Mr Speaker, Sir, in consideration of much stronger than expected economic growth, I would like to ask the Deputy Prime Minister whether it would be reasonable to expect another round of partial restoration of CPF within the year.

BG Lee Hsien Loong: Mr Speaker, Sir, I will await with bated breath the report of the National Wages Council. I have no doubt that this will be a hotly discussed subject in the NWC because we have published our first quarter economic results last Friday and they have been good. There is a basis and I am sure the unions will argue that we should bring forward the restoration, maybe not the full restoration, but certainly to bring forward the restoration to some degree. The question is what we see for the rest of this year, whether it will continue as strong as it is now, or whether there will be any clouds on the horizon. Traditionally, MTI's view in the first half of the year has always been that the second half of the year would be a little bit slower. That is a cautious approach. We do not wish to raise unjustified euphoria and we always want to be a little bit on the cautious side.

If you ask me now whether there is a basis to say definitely that the economy will slow down, I would say no, we cannot say. But are there uncertainties? Yes, there are some uncertainties, because it depends on the US economy, whether it is showing signs of overheating, whether the Federal Reserve Board will be able to moderate its growth without precipitating a recession, which is a very delicate balancing act. It depends on whether the European economy will continue to grow strongly. It is showing signs of doing so now and we hope it continues. We trade considerably with them. And it depends on the Japanese economy, whether it will continue to pick up or whether the beginnings of a recovery which we have seen will peter out again. I see today Mr Miyazawa has said that the first quarter was good, but the second quarter is a little uncertain. Plus, it depends on what happens in our region, Malaysia and Indonesia particularly, which is a matter of considerable concern to us, and what happens in Singapore, whether we are able to sustain the productivity growth and generate the higher output without our own economy overheating. So there are some uncertainties, but I think that, overall, we feel much more optimistic now than we felt a year ago and, certainly, even six months ago. And so I look forward to the NWC making some constructive recommendations in this respect.

Dr S. Vasoo (Tanjong Pagar): Can I ask the DPM whether the economy is really robust because, from the ground, quite a lot of the other sectors are not performing that well. Is the 9% growth which was registered as robust as it seems to be? Secondly, I want to ask the DPM whether he foresees all these concerted price increases will drive up consumer prices and affect the ordinary wage earners.

BG Lee Hsien Loong: The first question is whether the 9% is real. Well, it is there, unless you doubt the number. Does that mean every company is doing well? Not necessarily. I know that some of the small retailers in the constituencies are not feeling as much of the lift as they might if the economy was just generally expanding. But overall, from the macro point of view, it is quite a widely based expansion, because it is in manufacturing, services, trade, banking and finance. The only sector which is not growing is construction. But that is because we have an overhang, a downturn, and that will take some time to turn around. But overall, it is fairly broad based.

His second question is whether we think these price increases will drive up the cost of living. I have given him MTI's estimate which is, despite the cost increases, overall, we think the CPI will go up by 1% to 2% this year. And I think that is acceptable. I do not see a sudden spiral-up in price levels unless we have some significant difficulties, say, with energy prices. Then of course it cannot be helped. And electricity prices are linked to energy prices. If oil prices go up, somebody has to bear it and Singapore Power cannot absorb it indefinitely. So eventually, electricity prices have to go up. What to do - we have no gas or oil gushing out from the ground.