STANDARD OF LIVING

The following Question stood in the name of Ms Irene Ng Phek Hoong -

Ms Irene Ng Phek Hoong: To ask the Minister for Trade and Industry whether (i) the ongoing wage reform and wage cuts will mean that Singaporeans will see their standard of living going down over the next few years, and (ii) the Government is taking active measures to keep the cost of living down.

Mr Charles Chong (Pasir Ris-Punggol): Question No. 3, Sir.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, our standard of living in Singapore will have to adjust to a level which makes our companies and our economy competitive. Wages in Singapore are currently under pressure because of cyclical and structural reasons.

On the cyclical front, the weakness of the global economy and SARS have led to the poor performance of our economy since 2001. The second quarter of this year was particularly bad, aggravated by the uncertainty of the Iraqi War. However, with the war over and SARS behind us, for the time being at least, our economy is likely to be better in the second half. The US economy is also showing signs of recovery with a better than expected 2.4% growth in the second quarter. Many analysts believe that US growth in the second half could be even stronger. Our forecast of 0 - 1% growth for this year implies that we expect our economy to grow by 1.3 - 3.3% in the second half of the year, compared to a contraction of 1.3% in the first half.

While our economy may improve in the coming months, we face serious longer-term structural challenges. The entry of China, India, Vietnam and other countries into the global market place means that the wages of many workers in Singapore will come under strong downward pressure. This pressure is across the board because of the large number of skilled workers, technicians, engineers, programmers and others from these countries who are prepared to do the same work for much less money. Outsourcing has resulted in an increasingly globalised labour market.

However, skill for skill, job for job, our workers and professionals do command a significant premium over their competitors in other countries because of our reputation for quality and reliability, and the efficiency and integrity of the system that we have. The Singapore reputation enhances the value of all Singaporeans in the global marketplace. Hence, we continue to attract large investments in the manufacturing sectors like electronics, engineering, petrochemicals and the biomedical sciences, and in the services sectors like the financial industry, tourism and logistics.

But this Singapore premium is finite. Beyond a point, we are not worth the premium and, if our wages are too high, the investments will flow elsewhere instead, as indeed is already happening in some sectors. It is therefore very important for us to watch our costs, labour being a key component of total cost. We have to make our wage structure more flexible. It has to be more performance-based (less seniority-based), and more responsive to changes in business conditions. The way to reduce adjustment pains is to allow for frequent adjustments in our wage structure and, more importantly, in our thinking. This is the way for us to maintain our competitiveness and safeguard our jobs in a rapidly changing global economy. If we do not adjust our standard of living to stay competitive, the market will force it on us in a more painful way through the outflow of investment and retrenchment.

On the cost of living in Singapore, it has remained relatively stable in recent years. Between 1997 - 2002, the Consumer Price Index (CPI) has risen by only 0.6% per year, and in fact fell 0.4% last year. The Government monitors this index closely.

Ms Irene Ng Phek Hoong (Tampines): Sir, with the wage reforms that are on-going, the basic pay of our workers will be cut. Is MTI monitoring how this might affect those with huge commitments in housing, children's education and car loans?

BG George Yong-Boon Yeo: Various Government agencies are looking at how some of these adjustments can be made less painful. The Government will always make sure that every citizen has a shelter over his head, there is adequate basic health care and the education of the young is properly looked after. But beyond that, adjustments will be necessary and some of them will be painful.

Ms Irene Ng Phek Hoong: Sir, while it is true that cost of living has been quite stable, Singaporeans feel that certain components of it need to be monitored more closely, such as transport. I wonder whether the Minister would consider setting up a committee just to look at how we can bring transport costs down.

BG George Yong-Boon Yeo: Sir, I believe we already have mechanisms to monitor the changes in transport costs to ensure that they are reasonable, justified and affordable.