RETUNING THE CPF

Order read for Resumption of Debate on the Prime Minister's Statement [28th August, 2003].

Question again proposed. 1.49 pm

Mr Low Thia Khiang (Hougang): (In Mandarin): Mr Speaker, Sir, in his National Day Rally speech, the Prime Minister said humorously that he must have suffered from amnesia. I want to tell the Prime Minister that he indeed has amnesia. In fact, the whole PAP is suffering from serious amnesia.

At the last election, the PAP shouted the slogan, "Support the PAP for a secure future." Yet, merely two years after the General Election, the PAP has apparently forgotten its commitment to the people of Singapore. It has forgotten its promise to the people of Singapore that they will continue to keep their jobs and continue to be looking forward to a good future. While the PAP has suffered from amnesia, the hopes of 75% of the voters are shattered. They placed their trust on the PAP, yet in return their income has been declining. Their rice bowl is still not secure. Many workers are helpless to see that the Government is doing nothing to intervene, even when those companies who are doing well are adopting "pre-emptive" retrenchment measure. Where is the security that the PAP was talking about during the election, can they recall?

Even as late as this year's Budget debate, the Government still pledged in all sincerity and seriousness that the CPF contribution rate would be restored to 40%. Yet, merely a few months later, we are faced with a further reduction in the CPF contribution rate. What has happened?

What puzzled me is that: Unexpectedly, the PAP Government is like the hare in the fable of "The tortoise and the hare". Not knowing for how long it has been sleeping, it suddenly wakes up to find that the whole world has changed - the tortoise has overtaken the hare. It was as if only yesterday that the workers in Malaysia, China and India were drawing salaries lower than ours. Overnight, we find our competitiveness lost. Therefore, our CPF contribution and salaries have to be slashed immediately, otherwise we will not be able to retain our rice-bowls.

The Government can choose not to tell the people when it woke up. But it has the obligation to tell us why the workers in the other countries are willing and able to accept salaries lower than ours for the same job, but we cannot. Why is it that the premiums commanded by our workers as claimed by the Government all along can disappear overnight?

The Government compares the Singapore workers' salaries to the salaries of workers in other countries and comes to the conclusion that our salaries are far too high and not competitive, therefore our salaries have to be cut. Why does the Government not compare Singapore's cost of living to that of the other countries? Why does it not compare Singapore Ministers' salaries to the salaries of the Ministers in the other countries? The Government claims that it costs much less to maintain the PAP Government than it costs in the developed countries to maintain their governments. But, how does it compare to the developing countries?

The Government has boasted that every single public service it provides is aiming to attain world class standard, such as a world-class transport system, world-class healthcare system, etc. Of course, the charges are of world-class standard, or even exceed world-class standard, too! Now that we have lost our competitiveness, our workers have to draw salaries of third world level, yet the charges they have to pay here are still of world-class standard. Is this fair to them? Their salaries were reduced again and again, yet for 365 days in a year, from cradle to grave, they and their family have to pay the ever increasing Goods and Services Tax (GST). Do not tell me that this is the kind of better future that the PAP has guaranteed!

The PAP Government claims that there are jobs aplenty in the labour market. It blames the people for not willing to take menial jobs, refusing to accept lower salaries, or not willing to travel a long distance for their jobs. Please do not put all the blame on the people. Has the PAP Government considered the burden of the people? Does it know what kind of an income the workers must have to maintain a basic standard of living in Singapore?

Now, let me talk about the CPF.

The CPF system has been in existence before the PAP became the Government. Its original objective was to ensure that the workers would have some savings for their old age upon retirement. Then, later on, the PAP Government expanded the functions of the CPF, linking it up with public services, such as housing and healthcare. As the PAP Government is one that is very firm in resisting the idea of a welfare state, the CPF has thus taken the role of a social safety net, provided by the people for themselves. It has also become a key pillar supporting a world renowned public housing programme.

Of course, changes that the PAP Government made to the CPF system have some shortcomings, the most harmful of which is that the CPF system has become a tool for the PAP Government to evaluate the purchasing power of the people in setting the charges of public services. They use the savings of the people in their CPF account as a yardstick to determine the affordability of our people in paying for the public services. The prices of HDB flats kept going up when times were good because the Government said that the people had a lot of CPF and could therefore well afford them. When healthcare charges went up, the PAP Government said that the people have enough Medisave in their accounts, so the medical fees were "affordable". University fees went up because the PAP Government said that the people could use their CPF savings to pay for them, and they were again "affordable".

This system has also led to a wrong perception among the people. They thought that the CPF was like a security for their living and they could always use the CPF for their housing and healthcare. To them, CPF saving is something which is beyond their control, something which they can see yet cannot touch. So, even with the charges going up, they are not so concerned, this eventually turned into a mentality of accepting every increase without resistance.

Not long after, the CPF system was used by the Government as a tool for macro-economic control when the economy is in recession. Our CPF contribution rate, at one time, was as high as 50%. But when there was a recession, the Government began to change it. So at this time when the people are having problems making ends meet, they also have to face the impact of the CPF reduction.

Now that Singapore is faced with competition from the other low cost countries, to a so-called far-sighted Government that claims to have created economic miracles, this challenge proves too arduous for their creativity, thus once again the CPF has become the sacrificial lamb of the PAP Government.

Any changes to the CPF policy would have far-reaching repercussion on the cost of living of the Singapore people. Their choices of housing, healthcare services, retirement plans and even the children's university education were to a large extent dependent on the amount of CPF they have in their account. Once the Government resorts to the use of CPF as an economic management tool, a fluctuating CPF rate has become a trap to many people, caught them off guard in their financial planning at the time of change.

On the one hand, the Government wants the people to be responsible for their own financial planning and retirement plans; on the other hand, they keep raising the aspirations of the people and making use of the CPF as a tool in managing the economy, thus introducing uncertainties in people's financial plan and the people are perplexed . For example, many people have believed the PAP Government's propaganda for "asset enhancement". So, they spent all their CPF savings on the purchase of properties. Now that the CPF contribution rate is reduced all of a sudden, they would have problems servicing their loan and be locked in a predicament. Is this the right way for a Government to treat its people? Those who have blind faith in the PAP's myth of asset enhancement are the biggest victims of these changes of CPF policies.

Apparently the Government has run out of ideas in coping with the current difficulties and has to resort to cutting the wages and CPF of our workers, time and again.

Faced with a new global economic landscape of intense competition from developing economies, it is a well known fact that our high land cost is the biggest culprit contributing to our high business costs, but the Government seems to be "sparing the rats to save the dishes". It dares not significantly bring down the land cost for fear that it would seriously affect the assets of the people and they would have to pay a very heavy political price for that.

Of course, currency devaluation is another means that would create a significant and immediate effect in bringing down our business cost, but the Government is again not prepared to do so for fear of political consequences. Taking the lesser of the evils in protecting their political interest, the PAP could only choose to cut our CPF. However, from the perspective of long term interest of the nation and the people, what are the pros and cons of such an option? But the point is: even when the CPF is reduced to 30%, can you guarantee that it would be effective? If it is not, what would be the next move? Will it be a continuous reduction? I think the Government should give us a clear indication so that our people can be psychologically prepared.

Let us look at the actual situation now. Many companies are still making profits despite the poor economy. But the Government is adopting a one-for-all scheme whereby all the companies are entitled to a 3% cut in the CPF contribution. This hurts the interest of those employees of profit-making companies. The Government urges these profitable companies to pass on the savings to the workers in the form of bonuses. However, the Singapore National Employers' Federation has clearly indicated that they do not encourage such a practice. The Government should clearly indicate its stand in protecting the interest of our workers in this aspect.

Furthermore, the Government might even derive some fiscal benefits from these changes too. It could gain from the savings from the CPF cut of the civil servants. On top of this, companies may turn profitable or increase their profit because of these CPF savings, in this case, the Government will be able to collect more income tax. Is this not a case of indirectly transferring the cut in the people's income to the Government's coffers? What is the Government going to do with this income? Is the Government prepared to give it back to our people just like what they encourage the companies which are doing well to do so?

As for the CPF contribution rate, as early as 1994, after analysing the problem of the 1985 recession, the Workers' Party had stated very clearly in our manifesto that the CPF rate should be fixed at 35%, with employer and employee contributing half each. Today, I still believe that 35% should be our long-term target. We should not raise the CPF contribution rate above 35% when the economy is healthy, in order not to repeat all these problems again.

The Government should use the 35% as a fixed assumption in analysing our business costs and competitiveness, and examine the effect of other variables such as the scale of the Government, other costs which are introduced by the regulatory control of the Government and land cost, etc, and cutting them. Together with restructuring the wage system and increased productivity, we can then aim to enhance our competitiveness. By doing this, we can avoid disturbing the CPF and the financial planning of our people.

Apart from that, most people in Singapore are using almost all of their CPF money to pay for their housing loans and the increasing medical charges. The balance in their CPF account is not enough to cater for their old age needs. If we fix the CPF rate at 35%, it would have a better basis for our people to plan their retirement plans, and strengthen our policy in preparing for an aging population.

As for the older workers, the Workers' Party in its manifesto has stated that workers above 55 years should be allowed to decide themselves whether to contribute to CPF. In this way, it would help them to have a better chance of further employment.

On the other hand, following the CPF cut, it is even more important now to seek higher return in investing the money. The current practice of lending the money to HDB so that HDB could lend to the people, thereby earning some very small interest, should be revisited. The Government should consider setting up a centralised CPF investment agency to look into ways and means of earning higher returns. We have yet to see any Government action in this aspect. The Government should make known their plan. Of course, there will be risks in any investment. But we should let the people choose among various investment plans, ranging from high risk high returns, to low risk low returns.

Mr Speaker, Sir, it takes more than one cold day for the river to freeze three feet deep. The predicament of Singaporeans facing both the cuts in wages and CPF of a loss-loss situation could have been brewing for quite some time. The problem could have rooted way back in 1986. The PAP Government has all along been very proud of this Government-employer-employee tripartite establishment. It used to boast of the tripartite system being a triple win situation. But as it turns out, we all know that there is only a sole loser - the workers. They are being sacrificed whenever there is an economic recession. Even though the Government is confident that our economy will recover, if it is a jobless recovery, if the reduction in our business costs is still not able to stop companies from relocating, if the people are facing prolonged unemployment, should not the Government re-look into the possibility of setting up some sort of social safety net?

The PAP has been thinking of themselves too highly when faced with an intense global competition. The PAP Government has been saying all the time that Singapore is enjoying a premium of a good, effective and efficient Government, as well as our first class infrastructure, we are far better than our competitors in many aspects and are holding many world's No. 1 trump cards. It is not a problem in competing with other low cost economies even though our costs are high. When the people complain of high business costs and high cost of living, the PAP always alleges that people are crying "wolf". Then, all of a sudden, we find many companies relocating to other countries resulting in waves and waves of retrenchments, we see the major shipping companies moving to a Malaysian port. Only then the PAP woke up, panicked and started talking about cutting business costs as a life and death matter. But when it comes to cost cutting, it is the workers' salaries that are being cut. To add more burden to our workers, charges in public services, utilities, transportation and education fees are increased at the time of salary cut. People are suffering, in so far as these are the results of an arrogant and headstrong Government.

Prior to the election, the PAP painted a rosy picture and committed to restoring the CPF rate back to 40%, they even put money in the people's pockets. Once the election was over, they cannot wait any further to take this money back through an immediate increase in the GST rate. Now they are asking the people to forget the PAP's promise of the restoration of CPF contribution rate, in a light tone. The PAP Government has acted perfidiously, has broken faith with the people and let down the people. They should apologise to the people of Singapore.

The Minister of State for Foreign Affairs and Trade and Industry (Mr Raymond Lim Siang Keat): Mr Speaker, Sir, in this debate, Members have raised many valid issues and concerns. I would like to comment on some of them.

On entrepreneurship, like Members, I was considerably cheered by the Prime Minister who said in his National Day Rally speech that, henceforth, the Government would set its default key at "Yes" in its dealings with business. I met an analyst, shortly after the National Day Rally speech, and he asked me, "What is the "big deal", because several people had been involved in the entrepreneurship movement and held this position for quite some time." But this is a "big deal" because Mr Goh Chok Tong is the Prime Minister. And as we all know when the Prime Minister makes a pronouncement, it has a wonderful effect of concentrating people's minds and speeding things up.

But Members will be happy to know that the winds of change are already blowing. It may not be as fast or as hard as some would like it but it is beginning to shift old mindsets. Increasingly, our regulators are taking a pro-enterprise approach in their dealings with business. One out of two suggestions received by the Pro-Enterprise Panel is accepted. The Government takes cutting red tape so seriously that it has now set up a dedicated website to do this - www.cutredtape.gov.sg.

I am optimistic about this entrepreneurship movement that we are embarking on. This is because societal attitudes towards entrepreneurs are changing. Recently, I was at the NTU's Technopreneurship Centre and I was told that close to half of the 49 graduates of its inaugural batch in the Technopreneurship and Innovation Programme had chosen to start up their own businesses. Many of these graduates had several job offers but they chose the road less travelled. So we are rekindling this spirit of enterprise in our people. These young people from NTU give us hope for the future as they are practising, what I call, the Nike strategy towards life: "Just do it."

Members have also argued that to keep costs competitive, it should not be confined to wage costs alone. I fully agree. It stands to reason that if we ask Singaporeans to take a cut in their CPF contribution rates, that they have a right to expect that other costs would be kept down too.

The Government has been doing and will continue to do its part. We are getting rid of unnecessary licences and rules, putting them on-line and reducing Government fees and charges as a matter of priority. URA, for instance, recently announced significantly lower charges for businesses that wish to change their trades or alter their premises. The Registry of Companies and Businesses has reduced business registration fees by half. And HDB now allows entrepreneurs to start up small businesses in their own homes, thereby reducing start-up costs.

Besides these ongoing efforts, the Government is seeking to keep industrial rents competitive through its industrial land sales programme. For greater flexibility, JTC introduced shorter-tenure land in 2002 to lower start-up costs. JTC also allows the conversion of existing fixed rate leases to floating rates with an escalation cap to moderate business costs and provide more certainty to business planning. Since 2001, JTC has offered rebates of up to 20%, amounting to savings of $1.1 billion for some 7,000 companies until December this year. JTC also conducts regular reviews of industrial rentals and prices to ensure that they match the prevailing market conditions. The two reviews in January and July this year have resulted in an average reduction of 4% for land rentals and 11% for ready-built rentals. For the industrial property market as a whole, prices of industrial space have slid about 25% since 2001, and rentals of industrial facilities have fallen approximately 13% over the same period. Going forward, the Government will also be looking into international benchmarking to ensure that industrial rents are competitive against alternative locations.

So I agree with Members that we have to keep reviewing Government services, keep looking for more efficient ways of doing things so as to reduce costs, and trim charges wherever it is possible to do so while recovering costs.

But what we should not do is for the Government to come in and subsidise certain public consumption items, such as utilities. I have no doubts whatsoever that there are people with genuine problems paying for their utilities because they have been retrenched or for some other reasons. I meet them every week at my Meet-the-People sessions. But the way to help them is by direct financial assistance rather than to provide for subsidised utility supplies for all consumers.

If we do that, our utility companies cannot recover costs and will not make new investments in the system. Without new investments to match new demand, we run major risks of having to take turns to have our electricity blacked out. This, indeed, has been the experience of countries that subsidise in one way or another to keep electricity prices artificially low. In 2001, the price caps in California that forced their utility companies to sell at a low price to consumers brought the companies there to bankruptcies. Consequently, there were blackouts in California until prices rose to prevent the lights from going off indefinitely. In short, Californians suffered both blackouts and higher prices. No jurisdiction, including Singapore, is immune to this if we distort the market.

I know that, in times of economic stress, there is a great temptation to say that just this once, we make an exception to the principle that we will not distort the consumption of utilities. But you know a principle once breached is often impossible to resurrect. If we go for short-term palliative, we would end up with a long-term headache. So we should stick to our approach of helping people in need by subsidising the users directly - through utilities rebate and direct financial assistance, such as the Rent and Utilities Assistance Scheme (RUAS), rather than subsidising the service or product they consume. This ensures that the overall public interest is safeguarded by a competitive utilities market and at the same time caters to those in need.

Mr Speaker, Sir, this leads me to my next point that we need to constantly review how best we can help those displaced by economic restructuring to make the transition successful. This is so because whilst it is true that labour markets work best when they are allowed to behave just like any other market, there is a huge difference in human terms. An unsold commodity is a nuisance and an unemployed worker is a tragedy.

This is all the more so as we are now living in a different world. Globalisation has compressed space and accelerated time. It has become one world, whether we are ready or not. Some Members, for instance, are quite right to point out that the issue is not just about costs alone. After all, China and India, for a long time, have much lower costs than us. But they were not a competitive challenge then. What has changed is that they are now opening up, part of WTO and in this globalised world, they are competing with everyone else, including Singapore, for the consumer and investor dollar. So, our costs cannot be seriously out of line with our competitors or we will simply be bypassed. But what is going to give us the sustainable edge must be the quality of our people. This is why we invest so heavily in education and continual skills upgrading. Despite the economic slowdown, education accounted for almost 22% of our total public expenditure in FY 2003 as against about 12.7%, on average, in the OECD countries. The OECD figures are 1999 figures, the latest I could find. The Skills Development Fund has increased from $88 million to $115 million in the last five years. In an age of rapid technological changes and porous borders, job security comes not from putting up the shutters and bolting the doors from the world, but from picking up new skills through lifelong learning. So Mr Low is wrong when he said that the Government has been asleep all this while, as the Government has been saying this all along. In fact, many of you would have heard this before, even ad nauseam, but I make no apologies for this, as it is the honest truth.

Our job is not to shield workers from this reality but to empower them to deal with it and to assure them that they do not have to fight this battle on their own. We are a community and not a collection of individuals. And just as we share our prosperity in good times - CPF Top-ups, New Singapore Shares and more HDB upgrading - so too must we collectively help shoulder the burden of adjustment of those dislocated during tough times. Thus, the Manpower Ministry, the National Trades Union Congress, the Community Development Councils and various other organisations are making common cause with those affected to help them make this transition. And we stand open and ready to consider views from all who proffer them, such as that by Straits Times' columnist, Chua Mui Hoong, who argued that we should look at revising our workers' assistance schemes to an employee- rather than an employer-based one. It is a valid point. We have taken some steps here by allowing the jobless to benefit from subsidised training under various schemes. And we will do more as we shift from a world where workers seek security in lifetime employment to that of lifelong employability. The Workforce Development Agency and the Home Ownership Plus Education programme (HOPE) are the latest initiatives in this direction.

Hence, even as we focus on the big picture - to generate growth by embracing globalisation and liberalisation - it is vital that we pay heed to develop equally effective adjustment measures to facilitate the transition and cushion the worst of its effects for those displaced. For whilst the benefits of globalisation are often long term in nature, its adverse effects on those displaced are immediate. And unless we do this effectively, we would not have the national consensus necessary to successfully see through this economic transformation. That is the challenge.

But I have every confidence that Singaporeans will rise to the occasion. Already, initial business feedback is positive because they see us as united, responsive and committed to the need to be competitive. Bob Johnson, the President and CEO of Honeywell Aerospace, which has just announced its decision to set up a key international procurement office in Singapore, had this to say: "Singapore's highly skilled workforce, strategic location and world-class infrastructure are compelling reasons for Honeywell to have a significant presence here." He believes that the measures taken by the Singapore Government to help companies operating in Singapore will benefit them in the long term. Wong Ngit Liong, Managing Director of Venture Corporation Limited feels that the CPF reduction, coupled with continued efforts to improve capabilities and skills, would give a boost to attracting more businesses and investments to Singapore. So we are on the right track. If we work together as we have always done before, then Singapore will continue to hold its own in the First World. And we would have built a better future for ourselves and our children.

Dr Ong Seh Hong (Aljunied): (In Mandarin): Mr Speaker, Sir, Mr Low Thia Khiang said that the PAP Government is having amnesia. I think the one who is suffering from amnesia is not the Government, but Mr Low himself.

In the past 38 years, the PAP Government has transformed Singapore from a third world country to a first world country. The PAP Government has not forgotten its commitments to the people. What we are doing now, such as this debate on CPF retuning, is precisely because the PAP Government knows the needs of the people. It is taking these painful measures to protect their jobs, and even to create more jobs for them. Therefore, Mr Low should go to seek medical advice about his amnesia.

Wage reform is one of the important links in the endeavour to reduce business costs. Prime Minister Goh has announced the reduction in CPF rates and the lowering of salary ceiling for CPF contribution. This is a clear signal to the market that the Government is committed to reforming our economy and implementing wage reform. I fully support the Government in this endeavour.

I would like to raise some observations on the CPF retuning exercise. I hope the Government can determine a clear and specific CPF contribution rate, rather than a range of rates. This is good for workers as well as for companies. Business people would like to have certainty and stability. If the Government does not have a fixed rate, be it 30% or 36%, they would wonder: "When would the Government be raising the CPF rate again?" To play safe, the business would budget and plan, based on the assumption that the CPF rate would be the upper end of the range. This would defeat the purpose of our CPF cut exercise. If this is not certain, the would-be investors may fear that the employer's contribution rate may move back to 36% or even higher, and therefore put away their intention to invest here.

We all know that a cut in CPF rate is never a good mechanism in the lowering of wage cost. The Government should not make use of CPF as a means of intervention. Businessmen and the market should have the means to adjust their wage level. The Government should not micromanage the wage system. The CPF is a long-term safety net for the people. Therefore, there should be stability and certainty in a long-term objective. In this way, CPF members will be better able to plan for their retirement, their choice of housing and healthcare needs. There is a saying that managing a state is like frying a fish in a wok. If we try to stir-fry the fish in the wok, then it would turn out to be awful-looking and not presentable. Therefore, I hope the Government will set a specific long-term rate for CPF.

We should make use of this opportunity to take proactive measures to promote the flexi-wage system, so that businessmen can adjust their wage cost according to the market situation in a more sensitive and responsive manner. The rate has been lowered by 3%, and this will result in total savings of $1.3 billion for the employers. Maybe some of them do not need these savings. The Government should encourage, or even by legislation, companies which are doing well to make use of this 3% saving to reward the employees by way of performance bonus. On this basis, the companies can increase their MVC component to reward their employees according to their performance. In this way, we will be able to allow employers to use this flexi-wage system to obviate the need to revise the CPF rate again.

Secondly, on the salary ceiling for CPF contribution, there seems to be a lack of flexibility. Every retiree has different needs, and we have been encouraging people to depend less on the Government. Can we not allow them greater autonomy in managing their financial affairs? A retiree may have very low income before retirement, and to ask that he should have $120,000 as a Minimum Sum in the CPF, I think, is too drastic. While others may have other retirement benefits, do we want to force them to leave behind such a high Minimum Sum of $120,000? Therefore, I think the amount of Minimum Sum should be determined by the last-drawn salary before retirement and whether there are other retirement benefits, such as pension.

Thirdly, with the lowering of CPF rate, our people's savings in the CPF will be less. I would like to make two suggestions on how to increase their savings in the CPF. Firstly, we should raise the rate of return on their CPF. Secondly, extend their retirement age. At present, the rate for CPF is 2.5%. This is similar to the rate for treasury bonds. I think this is too low for any retirement plan. The CPF Board should help its members earn a higher rate.

Let me give some examples. For a member who has worked for 37 years, ie, from age 25 to 62, and the average contribution per year is $6,000, if the rate is 2.5%, the return will be $358,000 after 37 years. If the rate is 3%, he will be getting $397,000. If the rate is 5%, he will be getting $610,000, which is almost double what is being given now.

As far as the total amount of CPF is concerned, the members' total savings in the CPF as of December last year, amounted to $96 billion. If we can raise by 1% on the rate of return, we will be able to get $960 million for them, which compensates almost as much as the $1.3 billion cut in CPF contributions. Therefore, I agree fully with the Deputy Speaker, Mrs Lim Hwee Hua, that the funds should be managed by qualified fund managers.

The second suggestion is that we should remove the present retirement age of workers. As long as they are healthy, they should be allowed to work, so as to ensure that they are healthy, mentally and physically. The lifespan of our people is 80 years. The Prime Minister said that they are even likely to live to 100. The present legal retirement age of 62 years will mean that they still have at least another 20 years after retirement. We should allow them to continue working. Many jobs do not need physical strength. Age is no longer a hindrance to work. In this way, they will need less resources after retirement. They will continue to contribute to the society and depend less on the State. This will lessen the financial burden on the society and our reliance on foreign workers.

Let me focus on the short-term impact. There was a Lianhe Zaobao reader [Huang Shan Chang] who said that clothing, food, housing, transport and healthcare are our daily necessities. How do we tighten our belts to cope with these needs? The former two should depend on the individual, but the latter three will depend on the Government. We should work with the Government to cope with the new situation. It is inevitable that there will be lower wages and lower CPF contributions. Therefore, our people should make the necessary adjustments. There is a saying in Cantonese: "Eat according to the food on the table." We have to look at the amount of food on the table to see how much we can eat, so that there will be enough to go round. Therefore, we, the people, should be flexible.

I remember when I was young, there was a time when my father lost his job. He had to work as an odd-job worker and as a hawker to support the family. We switched from the Thai fragrant rice to the cheaper rice from China. When we ran out of even the Chinese rice, we had to contend with broken rice.

I can understand that when the people are making such adjustments, they hope that the Government will also take corresponding measures. They hope that the savings, as a result of the lowering of CPF and wages, should be used to help the people, to lower education charges, transport charges, road tax, petrol and diesel tax. Transport companies should also pass on such savings to the commuters. Cost of housing, rentals and property tax should be lowered.

The Prime Minister said "no fish, prawns also can". If we are determined to reform our economy to lower business cost and to reform our wage system, we should be able to raise our competitiveness in the global economy, and attract more investors here to create more and better jobs for our people. By then, we will not only have ordinary prawns, but tiger prawns or even lobsters! And we can then say, "No fish, we will go for good prawns."

The Minister, Prime Minister's Office (Mr Lim Boon Heng): Sir, the CPF changes are fundamental and have long-term impact and benefits. They affect every employee, which means almost everybody in Singapore.

Sir, trade unions have been bearing the heaviest duty of explaining the changes to the ground. After the Prime Minister's National Day Rally speech, 38 of our 64 unions have held discussions by yesterday. My colleagues from the unions have mentioned the ground feedback in Parliament yesterday, and more will do so. I will not repeat what they say. Rather, I will address the question whether our wages are out of line.

In the short term, two groups of people would appear to feel the impact more. They would say they are hit harder. One group are the employees in the 50-55 years age group. The other are the middle-income employees. Yet the changes are aimed at helping them. Let me explain.

I have watched retrenchments carefully over 22 years. My conclusion is that older workers are more vulnerable to retrenchments. They take longer to find a new job. When they do, they took substantial cuts in pay. Data from the Ministry of Manpower clearly shows this. I have asked the Clerk of Parliament to circulate some tables and charts, which I believe Members now have before them. [Copies of tables and charts distributed to hon. Members.]

From the Labour Force Survey of June 2002, those in the 50-59 years age group have the highest rate of retrenchment at about 29 per 1,000. They took almost 22 weeks to find a new job, and three-quarters of them took pay cuts. The charts clearly show that this group is the hardest hit of all the groups that suffered retrenchment.

Throughout the years, manufacturing has borne the brunt of retrenchments. The restructuring is still on-going and it will continue in the future in any dynamic economy. We become uncompetitive in lower-end manufacturing and these are relocated. But the pace of relocation has gone up. Until recently, most of the relocations were to neighbouring countries, especially Malaysia.

From the data obtained from unionised companies, in 1999, out of 7,635 jobs lost, 21% or 1,636 were due to relocation. This is taken purely from our unions. 36 of these jobs went to China, but 1,392 went to Malaysia. So in 1999, when companies relocated, they went to neighbouring countries, particularly Malaysia.

The picture changed dramatically in 2002. Job losses due to relocation rose to 30%, from 21% up to 30%. Out of 2,343 jobs lost due to relocation, 1,060 went to China and only 221 to Malaysia. Therefore, the preferred location now is China because of the more competitive operating environment there due to lower wage costs and lower land costs.

In recent years, retrenchments in services have risen. This is most marked in the financial services sector. Jobs were lost because of mergers and acquisitions, deletion of jobs through the use of technology, and outsourcing of work to cheaper locations. The mergers arose from consolidation of our banks in preparation for the liberalisation of the financial services sector because of global multi-lateral discussions.

Recently, there has also been a significant increase in retrenchment of professional, managerial, executive and technical staff. About 20% of those retrenched in the past five years are diploma or degree holders. The proportion is much higher in recent quarters, as highlighted by the Prime Minister yesterday, as much as 43%.

What do we make of these separate pieces of information? Are our wages too high? Our GDP per capita matches those of developed countries, indicating that our wage levels are at or near their levels. I have also circulated a chart on the per capita GDP of different countries. You would see from the chart that we rank among the developed countries.

But our wage costs in manufacturing are not high compared to the United States and Australia. According to the IMD World Competitiveness Yearbook 2003, the total hourly compensation for manufacturing workers is US$20.32 for the US and US$13.82 for Australia. Ours is only US$7.78. So for manufacturing, our wage costs are lower than United States and Australia.

However, the US and Australia do different kinds of manufacturing. They are of higher value added. Much of our manufacturing work is lower value added compared to theirs. Because of their own high cost environment, they shifted these factories to other countries that are cheaper, including Singapore, and we have been doing those. But just as we do lower value added manufacturing activities compared to US, so do our neighbouring countries, those that are lower value added, compared to ours, because their wage costs are lower. For example, in Malaysia, the hourly rate is US$2.78 and in China, it is US$0.59. But one thing that has happened, in recent years, is that our neighbours have been catching up on skills and ability and, therefore, they attract lower value added manufacturing from us far more quickly. They can do it efficiently and at lower cost. Hence, the relocations. We cannot compete with Malaysia or China in lower wage costs, nor do we wish to. We do not want to earn those kinds of wages. But we do have workers now in relatively low value added manufacturing jobs. If these factories relocate, what would our workers do? They are our older workers. There are two ways. One, move up the ladder. Two, move sideways into another job. The CPF cut will keep the factories here a little longer, giving us more time to adjust.

When we move up to higher value added activities, we need more skilled workers. You take, for example, Philips. Philips used to employ thousands of production workers in Toa Payoh. Today, Philips still employs thousands, but the production workers are mostly in Batam. At Toa Payoh, the majority are engineers.

Can our workers retrenched from the manufacturing sector be converted to engineers? The sad truth is, no, most of them cannot. So we buy some time, through trimming our wage costs, and all other costs. And we have to retrain them for other jobs. That is why retraining is so important. As my colleague, Mr Raymond Lim, said earlier, this is something that we have been stressing on year after year, and have been doing more and more each year. So far from being asleep, we have been very much awake, alive to the dangers that our workers face. Many of the jobs that retrenched workers will have to take will be those that are occupied currently by foreign workers. I hope that our workers will consider them. Other jobs will come from new manufacturing investments, because one-third of those jobs require lower skills.

But in order to match those looking for work and employers looking for workers, we have to bridge a gap of expectations. On the one hand, workers have certain expectations of wages. They also have family needs that have to be taken into account. On the other hand, the employers expect workers to fit into production patterns. I think that the gap really is in these specific areas. So, we have to make a special effort to bridge this gap. The NTUC and the Ministry of Manpower are doing so. I would urge Members of this House, if they can play their part to match these retrenched workers into jobs, they would be doing them a far greater service than by arguing against any cuts or adjustments in CPF.

When we move up in manufacturing, we compete against the developed countries. How does the cost of our engineers here compare with engineers in developed countries? According to the IMD World Competitiveness Yearbook 2003, annual wages of our engineers are higher than many developed countries. Let me cite just a few: Singapore, US$80,000; Australia, US$55,000; France, US$77,000; Netherlands, US$67,000; United Kingdom, US$75,000; and United States, US$92,000. Ours is US$80,000.

So the wages of our engineers are higher than most developed countries. Not only are they well within the top 20% of wage earners in Singapore, they are drawing first world wages. I think it would take some time for people to absorb this fact because many people, including Members of Parliament, were wondering whether the 80th percentile wage in Singapore of $3,700 per month is correct. Those who asked me, I referred them to the CPF's annual report. They made their calculations and they found that the Prime Minister's figure was indeed correct, and that many people who thought themselves poor belonged to the top 20% of Singaporeans. Many Singaporeans, who can relate to these wages, will now know that they are not earning third world wages - they are earning first world wages! Today, with this kind of wages, we have to compete with the first world, as well as the third world.

But the message here is: we have to attract higher value added activities here. To do that, we will need to do many other things, and there must be more reasons for them to find it worth their while to invest here in Singapore. But, at the same time, we have to recognise that our wages cannot be so out of line and that is why if the CPF changes appear to fall harder on the higher middle income, this is one good reason why it should be so, because we cannot price ourselves out of the world market. I do not know how the PERC obtained its figures. But looking at the data that was provided by the IMD World Competitiveness Yearbook 2003, I think, perhaps, PERC was looking at the types of activities that they think Singapore is most suited for, and where do we stand in global competition to attract them here to Singapore.

Let me now turn to services. This sector has been growing faster than manufacturing. But we have to contend with at least two factors - competition from the region and competition from developed countries.

It is quite clear that back-end work will increasingly be outsourced. Let me cite an example. On 17th December 2002, Neptune Orient Lines announced an eight-year contract with Accenture Consulting. Accenture Consulting would take over responsibility for the NOL Group's accounts payable, accounts receivable and accounts reconciliation processes. Accenture has a sizeable practice in Singapore. Now comes the interesting part. What they would do for NOL would not be done in Singapore, but in Shanghai.

So, for lower level work in services, we cannot compete with China, India or the Philippines. So we have to go up to higher value added services. It means that we will have to do the kind of services that developed countries do. Here, our wage levels are similar to Australia, New Zealand and Ireland. I am talking about wages in services. The IMD World Competitiveness Yearbook 2003 shows that the annual wages of a department manager are $37,100 for Singapore, $38,600 for Australia, $34,200 for New Zealand, and $44,900 for Ireland. All these, again, in US dollars. So, our wage level for a department manager is of a similar level as some of these developed countries.

Those in the US at US$69,000 and the United Kingdom at US$47,000, they earn more. But our productivity level in services is significantly lower. Our productivity per person in services is only US$36,100. It is comparable to those of Australia at about US$39,300, but it is much lower than the United States at US$73,900 or the United Kingdom at US$50,300.

So, clearly, if we hope to grow the services sector, we will have to improve our productivity.

There are many factors in productivity, but the key factor is a higher volume of business. In other words, we have to look at the revenue part of the equation. That is what the economic strategy of Government addresses. There is a lot more outlined in the Economic Review Committee's recommendations that many commentators have given credit for. It is now for the employers to show that they are doing their part. As Heng Chee How said yesterday, employers have a lot to do, and workers want to see them doing it. They want to see, for example, the Singapore Business Federation and business Chambers going out to get business, and bringing in more investments. As Raymond Lim says, there are some signals that what the CPF changes are meant for are working. Because some companies say that they will stay in Singapore, some companies say that they will expand their business in Singapore, and some companies say that there will be new investments in Singapore.

But we need to do a lot more and workers will feel a lot more comforted if they can see not just Government, unions and workers playing their part but also employers doing a lot more to show that they are bringing in the business, and raising the productivity of each sector, be it manufacturing or in services. In services, by making ourselves competitive, the business will come. And for that, the CPF changes play an important part - a signal that in the long term, Singapore, its workers and its unions are prepared to make sure that the wage levels are commensurate with the level of economic activity. Then they will come. Then there will be more revenue. And if the employers also show their part to be seen bringing in business, then Singapore will thrive.

In the meantime, what we do is to stem the outflow of jobs in both manufacturing and services by tackling our costs.

Sir, on this note, I support the measures.

Dr Gan See Khem (Nominated Member): Mr Speaker, Sir, the Singapore business sector strongly supports the Government's proposal to begin this business cost reduction process by restructuring the CPF scheme. The business sector also appreciates the effort made by the leaders in the union movement in explaining the need for wage restructuring to their members, and the sector recognises the sacrifices required of the Singapore workforce in this changed process.

Both the local enterprises and the multi-national business community in Singapore whom I have spoken to have expressed strong support for the Prime Minister's proposal for the changes in the CPF structure and contribution rates. Although the business sector had hoped for a straight 6% cut in the CPF contribution rate, it does however appreciate the fine balance that the Government needs to make to take into consideration both the economic need of the business sector to reduce costs and the social need of taking care of the financial commitment and livelihood of the Singaporean employee.

For many of the multi-national companies operating in Singapore, they believe that Singapore is an excellent place for their businesses to operate in. They value the high quality of labour, the outstanding infrastructure, the excellent transportation services and the supportive Government and legal structure. However, the relative costs of running businesses in Singapore have become very high and for many of these companies, costs now outweigh these other advantages. Therefore, many of these companies are being forced to reduce the level of their operations in Singapore and shift them to other countries with more competitive cost levels.

Singapore cannot and should not compete with these countries for the lower tiered production operations. However, we believe a full range of productivity improvements and cost reductions including CPF, overall wage packages, taxes, fees, utilities, vehicle operating costs and real estate are required in order to assure that our companies can continue to base their key high-value operations in Singapore at competitive cost.

Even with these changes proposed in the CPF, we must recognise that existing local and multi-national companies will continue to shift their local operations out of Singapore just as they have been doing for many years. Therefore, it is also important that the Government accelerates its efforts to create the economic and social climate necessary to encourage the rapid development of more innovative driven industries in Singapore. Our highly educated, well trained and productive workforce offers significant advantages to innovative companies.

Mr Speaker, Sir, I have some specific comments that I wish to make with regard to the CPF changes. The CPF is an integral part of the Singapore system. It forces employees to focus on the long term and drive them to pursue active employment and work in order to build retirement income, unlike the tax based social security systems in many other countries. The CPF scheme reduces the social burden on the State and enables companies and citizens to enjoy lower tax rates. The CPF scheme has provided citizens with good affordable housing, provided for adequate medical security and it is designed to support strong family responsibilities and is also tax efficient for the recipient.

However, over recent years, citizens have moved substantial portions of their savings into housing. This contributed to the rapid rise in housing prices a few years ago, and has left CPF accounts significantly depleted as the more recent declines in property prices have stripped away values. Also, the increasing life expectancy of Singaporeans, the smaller family sizes and the ability to withdraw significant funds at age 55 have reduced CPF's value as a retirement fund.

The business sector supports the plan that the CPF be restructured to focus on the retirement aspects of the plan in a way that assures long-term financial resources for the retired worker and also reduces overall cost to the employers. We endorse plans to lower the ceiling income levels for contribution and believe that the reduction of the contribution rate by employers will significantly reduce business cost while ensuring adequate retirement savings for the vast majority of the workers. This action, coupled with the further restrictions on early withdrawals, will enhance the long-term security of the CPF.

An immediate reduction in employer contribution rate by 3% is necessary to send the appropriate message to companies and workers about the urgency of cost reforms, and to provide quick short-term savings to the employers. However, in the long term, the business sector's view is that monthly contribution level should be made more flexible and more new options should be considered.

With the life expectancy increasing and the increasing cost of living and medical care, the current CPF Minimum Sum to be set aside for retirement may not be adequate to serve the needs of the retiree. A possible scenario is that a wider range of private retirement plan options should be encouraged. The CPF should focus on the basic and essential levels of income security while employers and employees should be encouraged to develop individualised programmes to provide for more robust retirement savings subject to their individual financial needs and abilities. Thus, the CPF can allow the flexibility to require a minimum total contribution at, say, a range of 20-25% that could be established in the CPF account to assure that the basic housing, medical and retirement costs are covered. Additional contributions of a further rate of 10-16% can be indexed through relevant performance matrix or can be negotiated as part of the annual wage package to be set aside for subscription to a private retirement plan.

In order to link compensation and employer cost to company and economic performance, contribution rates could be lower for fixed monthly salary components and higher for the variable components. It is conceivable that when the company performs well beyond expectations, such contributions would exceed the statutory requirements and vice versa for years of economic slowdown. This sharing of risk and reward between the company and its employees will bring added benefits of fostering the strong loyalty and bond between the two.

As we move forward, Mr Speaker, Sir, a rising trend for the new economy is that companies in different sectors would increasingly rely heavily on part-time or casual workers who will work on a project on a part-time basis. Different industry sectors and new flexible work arrangements need flexibility in the handling of CPF contributions. The business sector would like to request the Government to further review the provision of more flexibility for employers to increase the take-home portion for the contract remuneration and to negotiate lower or no CPF contribution for part-time or casual employees.

Similar flexibility will also be a necessity as the economy tries to attract more SMEs to focus on innovation and the creation of new businesses. These new firms will need to start with absolute minimum payroll cost and, instead, offer larger potential downstream payouts for successful business. The fixed-rate CPF system will be a significant disincentive to this necessary new business segment in the Singapore economy. For the younger well-endowed part of the Singapore workforce, such flexibility may be challenging, as the risks and rewards will spur the entrepreneurial spirit amongst them.

CPF reform is only part of the equation to increase Singapore's business competitiveness. Other wage and cost reforms that were announced by the Government need further reinforcement. For example, the NWC outline to provide more flexibility in pay structures and to replace seniority-based systems with performance based systems are an absolutely necessary programme to restore competitiveness. This should be aggressively pursued by companies and supported by labour unions and the Government. The key to this reform is in implementing structures with compensation packages based on the relative value of the work being performed and that provides flexibility to adjust pay rates as economic and business performance fluctuates. Relative productivity of Singapore operations is also a critical part in establishing compensation levels. As noted recently in the press and earlier by Mr Lim Boon Heng, the nation's overall productivity versus labour costs is amongst the lowest in the world. Productivity must improve before wages can again increase. Unions and employers must work together to address the fundamental issues of productivity.

Other operating costs continue to be high in comparison to competitive markets. This is especially important for foreign firms evaluating their continued or new investments in Singapore. For example, office rentals, utilities and other operating costs need further evaluation as Singapore seeks to attract more innovation-driven companies to set up business in our shores.

Mr Speaker, Sir, I was most moved by the vivid and simple language used by my Parliamentary colleague, Mr Nithiah Nandan, yesterday, when he voiced his, and the labour movement's, support for the need for wage reform. At the same time, he urged the business leaders to do their part in terms of better management of their businesses to ensure the competitiveness and viability of the Singapore enterprise. I fully agree that the Singapore business sector and their leaders should take up the challenge, both in terms of wage reform as well as improving the business competitiveness and performance of our companies.

The message sent by the Government and the Prime Minister yesterday for the CPF reform sends a strong signal that both the Government and labour are willing to make significant sacrifices and changes to these statutory costs borne by the business sector. The labour movement recognises that without these changes the negative impact on the Singapore economy is likely to be much greater as the shift of company operations out of Singapore accelerates over the coming months.

Earlier, Mr Lim Boon Heng challenges the Singapore Business Federation and the other business chambers to go out and bring more business to Singapore. As a member of both the Singapore Business Federation and the Singapore Chinese Chamber of Commerce, I would most definitely bring the views expressed by Mr Lim Boon Heng to the next meeting and I assure Mr Lim that the SBF and the business chambers will rise to his challenge.

With this note, Mr Speaker, Sir, I support the Government's move to retune the CPF.

Dr Jennifer Lee (Nominated Member): Mr Speaker, Sir, there is little disagreement that we need to urgently address the problem of our wage cost in Singapore and that the CPF retuning that the Prime Minister just announced yesterday will go some way towards this. It is also clear that wage costs are only one component of total business costs and that many other significant components need also to be addressed with equal urgency, if we are to achieve the desired outcome to grow the economy, to safeguard and indeed to grow jobs for Singaporeans. Many of my colleagues in the House have already spoken on various aspects of this and I will not repeat their points.

The need for a package to help Singaporeans affected by the CPF changes in the immediate and short-term has also been brought up, and I am sure that the DPM will address many of these concerns later today. I would like, however, to draw attention to a longer-term perspective, and highlight that, while appreciating that the subject currently in debate very necessarily focused on immediate and urgent matters, we do not lose track in the process of the longer-term retirement needs of Singaporeans. The huge challenge of our ageing demographics that prompted the formation of the Inter-Ministerial Committee on the Ageing Population, not too many years ago, still looms ahead. And the issues identified, in particular, in the area of financial security, stand very much at risk in the current scenario of the impending diminished contributions to CPF.

At $252 or even $378 a month, our senior citizens will be hard-put to make ends meet. Worse still, there are significant numbers of older people right now, and into the foreseeable future, who will not manage to reach the targeted Minimum Sum at retirement on which these calculations are based. For too long, Singaporeans have grown up and grown old thinking that their CPF savings would take care of their retirement needs. Unfortunately, along the way we have been led into using the scheme to achieve other objectives, such as home ownership and healthcare financing, leaving insufficient cash for the original and primary objective. So many needs and requirements have been intertwined into the whole scheme that we can see, even though with so many powerful minds that we have in the Cabinet, it is proving very difficult to implement changes to achieve one end without doing severe injury to other parts of the whole - a clear illustration of the teachings in Economics 101, as they say, that you should use one instrument for one objective.

It is obvious that CPF alone is not enough and Government must look at what can be done to supplement CPF as the only source of retirement income on which people rely on their old age. An analogy I recently heard likens it to drinking from only one well. If that well runs dry, it is a disaster. I would like, therefore, to urge that in our new and evolving circumstances, we rethink to consider a system where we can draw from many other wells, including some such as minimum pension benefits, social security-type systems, insurance-based instruments, private retirement plans, as my colleague, Dr Gan has just mentioned, and other schemes that financial and economic experts can design.

I know we have always in the past responded negatively to any such suggestions. But the circumstances have changed from our heady high-growth full-employment days when we could, with confidence, sweepingly dismiss those who do not put enough aside for their own old age as perhaps people who are not trying hard enough and who should not be encouraged in their grasshopper ways. I believe it is time to pause, and after this quick action, to respond to immediate needs, to do a thorough review of how we need to drill more wells for a more robust system for the retirement needs of our population, not just for the top 20% but for the majority, into the future.

I am just concerned that we will see a repetition of a situation similar to what we are experiencing with structural unemployment. We had actually identified structural unemployment as a concern many years ago, and I remember serving on more than one committee, where the subject was discussed. But because the problem did not seem imminent at that time, we just did not pay enough attention to pushing hard enough for solutions and now we find ourselves unprepared, smack in the middle of the problem. Let us not be caught similarly unprepared with the retirement needs of older Singaporeans when the day comes that the over-65s form 20% of our population. At that time, there will be too many for us to take that case-by-case approach that our Ministers favour currently when we bring up issues of needs of various segments of the population.

Finally, before I end, I would like to pick up one point for a specific group, and that is homemakers - housewives who are dependent on their husbands, and subsequently their children, for financial support because they are not in the workforce. They would, of course, not have a CPF account, and if they do, it would generally be an inactive one with a minuscule balance. They have totally no say in what their spouses do with their own CPF balances and, particularly, after the withdrawal age of 55. I am happy, therefore, that the Minimum Sum will need in future to be topped up before withdrawal is allowed so that at least that amount of money is not unthinkingly spent on pursuit of immediate gratifications.

However, the problem remains that a spouse could will away his CPF balance, leaving his widow without a cent. I, and many other colleagues in the House, past and present, have broached the subject before, without success, of splitting or sharing the CPF account of a person with a non-working spouse. As part of Government's review of the system, may I bring an alternative solution, namely, to require that the endorsement of the spouse is required for nomination of beneficiaries to CPF accounts and for any subsequent changes to the nominees.

Mr S. Iswaran (West Coast): Mr Speaker, I rise in support of the policies that had been announced by the Prime Minister to retune the CPF system. Sir, for the longest time the CPF system has fostered a high compulsory saving regime in Singapore, probably the highest in the world and this policy adjustment that we are going through now, while it is difficult and comes at a time when we could do without it at the individual level, I think it is an opportunity for us at the system level to recalibrate and reposition for the long term.

The first question I wanted to address was what signal this set of measures has sent out to the market in general. It is quite clear that the Government's move from a 40% contribution rate to a 36% contribution rate has been unambiguously understood and received by the market. Businesses see this as a clear signal from the Government that it recognises the competitive pressures that businesses are under in Singapore and they appreciate the readiness of the Government to undertake some painful and tough measures in order to sustain competitiveness. At the level of the individual Singaporean and the worker, that move from 40% to 36% has also communicated the radically different economic environment we are in and the need to moderate our wage expectations, and with it, in a sense to recalibrate our lifestyles. So that move from the 40% to 36% has been communicated and received with relative clarity.

However, the 33% peg for the revised contribution rate and the range the Prime Minister has announced from 30-36% has given rise to some mixed signals. In the case of the business community, some preliminary feedback I get is that while they appreciate the 3% reduction they see this as a short-term reduction in cost because the Government has retained the option to go up to a statutory rate of as high as 36%. So for long-term business planning purposes, they will continue to use the 36% number as their reference point. So if our intent was to signal to businesses there is a lower rate and that should affect their business decisions in the margin, then this may not have been convincingly or clearly conveyed. At the same time, for individual workers, I think our intent was to say we need to adjust, we need to refocus on the basics of how we can compete. That being the case, clearly we did not want them to have an expectation or build their lifestyle on a higher rate of CPF contribution. But the focus now is that, yes, we are at 33% today but, when times are good, it will go back to 36%. And I think that might have an unintended effect in the way they plan their decisions or make their decisions.

Sir, this approach of defining a range for CPF contribution also reinforces the perception of CPF as a tool of economic policy for the Government. As Dr Jennifer Lee and others have pointed out, the CPF scheme has been loaded with many objectives, superannuation, the core, and then home ownership, medical benefits. And it has also been used as a tool to reduce business costs.

The new scheme varies the contribution rate from 30% to 36%, and that variation will depend on the business cycle. Yet, our CPF scheme is designed to help Singaporeans cope with long-term requirements, like retirement, housing where you may take 25-30-year loans, and medical costs in the long run. So there is a mismatch in tenure because, in that timeframe, you go through many business cycles, at least three or four. So there is going to be this variation in the contribution rate and it is going to create uncertainty. So the question is of course why the Government did not prescribe one long-term CPF contribution rate based on its assessment of current economic environment and competitive challenges. I know this is not an easy task, given the dynamic environment we live in and certainly Opposition Members, like Mr Low, would make political capital out of it.

But this Government has never shied away from making tough decisions, and particularly on this one, I thought the benefit of coming out with a clear reference point for CPF contribution would give a lot of certainty to employers and businesses, on the one hand, and also a clear signal to our workforce, in terms of what they should be expecting. This would also allow us to take a very definitive position on constraining the CPF to its core purposes - superannuation, medical benefits and only the residual should be used for housing and allow the adjustments, if any, according to the business cycle, to be from variable wages and discretionary savings that individuals have. So I did feel that the Government could have been more specific in its recommendation of the long-term CPF contribution rate and hope that we will get some clarification on the rationale behind the range approach.

Sir, there is also this question of trust. Has the people's trust in the Government been lost because of this exercise? And I heard Mr Low Thia Khiang speak earlier that this is a breach. I tend to take a different point of view and this is not hypothetical. It is based on empirical data. Last night, I met an individual who works two jobs. He works part time in a printing company and he earns $500 there. He works as a car park attendant and he earns another $500 there. I happened to bump into him in the car park and he said to me, "I heard the Prime Minister's speech and I fully support it. Because I know that when the Prime Minister and the Government do this, they are thinking of the long-term interests of the country and they are trying to look after us." And it is not just one individual's comment, it also came from a dialogue I had chaired two nights ago where the issue was not so much a lack of confidence in the Government or loss of trust, but it was more about, after this, what else can we do in order to achieve growth and bring back the jobs.

That is really the quid pro quo that Singaporeans are looking at. They are prepared to take the sacrifice. They are prepared to absorb the pain. But, in return, they would like to know when would the jobs come back. How would they be created? And what else would be done to lower the business costs so that more businesses would stay in Singapore or come to Singapore. For example, will the reduction be passed through the civil service system to achieve lower costs or charges, or will it be passed on as well to civil servants so that they have their pay increase in order to compensate for the loss of the CPF contribution?

I think, ultimately, the trade-off here that we are looking for is also jobs and, in the meantime, measures to help them ride through the difficulty. The Prime Minister said that these are extraordinary times that require extraordinary measures, and I agree. And the review of one of the core policies, like CPF, clearly indicates the gravity of the situation. But I think this is also a time for us to review some other core policies or philosophies that underpin our policy approach in Singapore.

One example is our attitude towards financial assistance to individuals. Our philosophy has, for the longest time, been underpinned by the desire not to breed a crutch mentality among Singaporeans, not to have the welfare state, and to focus instead very tightly on those who are in real need. So our criteria have been very tightly defined, the processes have been stringently administered so that Singaporeans have to try very hard before they can achieve some level of relief through these measures.

We are in a situation today where I think a review of our approach and a broadening of the group that we seek to help is justified. For example, we have a class of Singaporeans, older but less educated, who are not likely to be re-employed easily when the economy recovers. They are the structurally unemployable, or unemployed. Yet, these are the individuals who made many sacrifices in the early years in building up the country but they may have little savings, both in the CPF and in the discretionary accounts. Another group is the so-called sandwiched group whose incomes are too high for welfare but too low to be able to absorb the shocks through discretionary savings. They are the ones who probably may be earning just over $1,500 a month so that they cannot participate or benefit from the HOPE scheme. They are the ones who may be earning more than $800 a month so they cannot rent an HDB flat. They are the ones who live in 4-room flats with two children going to school who, on a month-to-month cashflow basis, are just barely meeting it so that one adjustment like this would cost them considerable adjustment pains.

Sir, these are not recalcitrants looking for a free ride, people who come with their cap in hand at the first sign of trouble. They are honourable Singaporeans. Many of us have seen them at our meet-the-people sessions and other contacts. They believe in hard work and they swallow their pride when they come and ask for help, not because their work ethic has been eroded but because they have fallen on hard times, and it is beyond their control and they are unable to manage the consequences.

I think the Government must be prepared in this context to come out with both short-term measures aimed at those who need relief during this cyclical period so that they can withstand the pain and when the recovery comes, benefit from it. At the same time, the Government must set in place measures to help the structurally unemployed or those who are going to have long-term issues adjusting to the economy, as it comes out of this downturn. I think DPM's speech later today would be an important one in that regard.

Sir, there is also the issue of another core policy, housing. We have always espoused the goal of universal home ownership, and I think about 90% of Singaporeans own their homes. The question is whether this policy tends to result in an over-consumption of housing among Singaporeans. Do we put too much of our wealth into housing? Do we seek to continue to invest in housing as a form of upgrading? And to what extent is this a result of our general policy to promote home ownership in Singapore?

I think the goal of universal home ownership is valid. It gives a stake in Singapore and we should continue to hold that close to our heart. But how we get there and how we facilitate that is an entirely different question. For example, should Government housing really be focused in providing 4-room and especially 5-room housing? Should we not just focus Government housing at the entry level, or even slightly below for those who cannot afford it, so that we focus on 4-room for those who can afford to buy it and review the issue of 1-, 2- and 3-room flats? The need for rental housing is growing, not just because of an economic downturn, but I think there will be those who may not want to lock up so much of their wealth in a house. But the rental market is relatively tight because of the supply being relatively small. Can we look at freeing up that component of HDB housing so that more can make the choice, instead of buying, to rent?

Tied to that is the issue of whether Government should revisit its policy of not building any further 1-, 2- and 3-room flats. I think we need to calibrate this. Obviously, we do not want to have an over-supply situation for 1-, 2- and 3-room flats when the economy recovers. But we need to look at the longer-term position, in terms of what percentage of the public housing market should really be at this level of rental and 3-room type housing.

So I hope the Government would use this opportunity, not just to stop at the CPF system, but also to re-examine some of these other core policies which have guided us over the last 38 years but, going forward, would need to be re-examined and, where necessary, fundamentally repositioned. And I hope this is an opportunity that the Government will seize.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 4.00 pm.

Sitting accordingly suspended at 3.43 pm until 4.00 pm. Sitting resumed at 4.00 pm