RETUNING THE CPF

[Mr Speaker in the Chair]

Debate resumed.

The Acting Minister for Manpower (Dr Ng Eng Hen): First of all, let me thank Members for supporting these changes.

In crafting these new policies, many civil servants who helped formulate these changes not only used common sense, but more importantly, compassion. They were mindful of the pervasive and painful effects that would result. Varied scenarios and computations were examined. Staff pored through reams of printed data and tables. They tried their best to minimise the pain and recommended spacing out or phasing in changes while still achieving our political, economic and social objectives. Ms Indranee Rajah will be pleased to know that common sense indeed was used in plentiful dollops. The reactions from Members and Singaporeans have reassured me that they have succeeded in some measure.

But, as many Members in this House who rose to speak on these CPF changes have realised and expressed, larger and more fundamental issues underlie these CPF changes. For while the reasons for and pace of CPF changes have been accepted by the majority, this moment at the crossroads has occasioned all Singaporeans to wonder about our future, our needs and our fates. There is even fear among some Singaporeans. They are asking if these changes signal an end to the Singaporean dream; a relegation from our first world status; an end to some aspirations and hopes.

I would like to address these concerns as well as specific queries from Members of Parliament. To me, there is the greater significance of character and nation-building in this exercise. Our responses to these changes should be seen in this context as it signals a people's - a nation's - resolve, to want to chart and better their destiny.

There are some who believe these measures would not work. They say cutting CPF will dampen the recovery as consumer expenditure falls and the property market softens due to reduced purchasing power. A deflationary cycle will follow. Other similar pessimists say that it is too little - it would not make a difference. We are so uncompetitive that whatever we do, companies will continue to pull out or bypass Singapore. The avalanche of cheaper manpower has overtaken us.

Singaporeans need not be despondent or insecure or believe these futilitarians. Mr Tan Soo Khoon quoted some reports about these measures. I did not read the reports but it occurred to me, while he was speaking, that they are conjectured that this was a convoluted way for the Government to make money. They give us more credit than what it is due. He said, and he can correct me if I misheard him, that the CPF cuts would save Government and GLCs $500 million, that the GST would give Government $400 million. I am not sure why, if you are the major employer, you save $500 million; when the GST increases, you also make money. Perhaps someone else can explain the mathematics to me. On top of that, Government now gives a $1 billion package to help citizens and end up with a budget deficit. If indeed this is a convoluted way of Government making money, then Government has immense capacity, more than what people think.

I agree that the future is uncertain and success is never guaranteed. But that is quite different from saying that we are beaten as a nation, and we had best just lie back and play the vanquished.

Singaporeans must have greater mettle and be fully confident. To me, accepting these CPF changes is a decisive response that shows the resolve to do what is needed; to be nimble and to adjust, as Dr Tan Cheng Bock said. It signals a nation on the move, willing to make sacrifices to survive. It is not only about what needs to be done, but that we can do it at all. As Mrs Fang Ai Lian said, the key significance is that we can execute.

Even if some other calamity befalls us tomorrow and sets these efforts back, this nation will bounce back and do more, if that is what is needed to improve our lot in life.

Many Members have asked for a clear economic plan. The Prime Minister will elaborate on this tomorrow. But as many Members also know, where it comes to matters of business, as it does affairs of the heart, it is not so simple. It is not so completely deterministic. There is no magic formula. But we can learn from others. There are some general ingredients for success.

History is replete with examples of countries that were content to lie in the present, resisting change and landed on the slippery slope because they chose not to confront their problems and new realities head-on. On this, I agree with Mr Inderjit Singh that we have to tackle our problems head-on.

China has a particularly venerable history. It boasted inventions such as printing and paper in the ninth century, gunpowder in the 11th century, the compass, porcelain. The Chinese invented machines to spin hemp in the 12th century, some 500 years before the Industrial Revolution began in England. China had the knowledge capital and advantage over many countries. With its inventions, it could have been the first to print books for the masses to accelerate learning. It could have experienced its own industrial revolution. With gunpowder, it could have revolutionised the science of propulsion for industry or military gains.

It could have but then China - the self-absorbed Celestial empire - closed its minds to progress and its own strengths and opportunities and became insular. From the 15th century, other nations pulled ahead. So for the last 500 years, China lumbered along, living on past glory. But the dragon has stirred and all in its wake felt the pounding of its steps when it threw open its doors and chose to engage the modern world.

Japan's income rose from 20% of the United States' in 1950 to 75% by 1998. It is a rise unparalleled in recorded history. This phoenix rose miraculously from its atomic ashes and dazzled the world with its manufacturing prowess. But in the last two decades, when faced with much lesser challenges, it lacked that same resolve to pull itself out of its quagmire.

From 750 to 1100 AD, Islamic science and technology far surpassed that of Europe. In their golden years, the world's greatest scientists wrote in Arabic. Indeed during that period, many Muslims taught science to Europeans, especially at the frontiers like Spain where intermixing occurred. Then something went wrong. Religious zealots denounced Islamic science as heresy. These nations regressed as they chose a parochial emphasis on religious conformity.

Any group or nation - no matter how mighty - that discards knowledge, prefers form over substance, sacrifices future needs for present comforts, resists change, erects barriers to progress, is doomed to fail. Ultimately, these barriers are self-destructive.

Economic historians, such as Stephen Parente and Edward Prescott in their book "Barriers to Riches" tell us that the differences in living standards have little to do with natural resources - or levels of investment. Rather, they see the differences in the intensity that various countries make of the world's existing stock of know-how. Countries that are open to the flow of ideas - and whose laws, customs and institutions encourage wealth creation - can catch up with the old-established "industrial" economies. Japan, Korea and recently China are outstanding examples of this catch-up.

In other words, while all countries will walk through hills and valleys, some walk right into ravines or get mired in swamps. Others stay still and get hemmed in and suffocated by the overgrowth. Those that erect barriers, both physical and mental, will be overtaken. Only those who choose to engage progress wholeheartedly, expand their minds and economic space, survive and thrive.

What about the million dollar question that many MPs have asked? Even if Singapore is willing to change, will these changes be enough? Who does fortune favour? While history teaches us that nations that do not change are often overtaken, it also shows us that "fortune favours the well prepared." Tenacity, diligence, boldness and a cohesive spirit have helped nations, in more dire circumstances than Singapore is today, pull themselves out of the rut. I will give two examples and use city-states for comparability.

Take Ireland as the first example. In 1840, the Irish population was nine million but, a decade later, it was halved: over a million died of starvation; most emigrated; a quarter of those who boarded the ill-fated coffin ships to America died in transit. After emerging as the Irish Free State, it promptly plunged into a civil war that lasted until 1923. At that time, the population included fewer than three million people and was still dwindling. In other words, they lost six million people in 80 years.

To demonstrate economic "self-sufficiency" as well as political independence, Ireland adopted inward-looking, protectionist policies - high tariffs, bans on majority foreign ownership in industry, the establishment of state-owned enterprises in areas such as power generation, shipping, banking and insurance. These policies were pursued well into the 1950s, with increasingly perverse results. The economy stagnated, emigration soared even further, as more than 400,000 people left Ireland between 1951 and 1961. In the mid-80s, the unemployment rate reached 17%, the government's finances were in shambles, and submission to a draconian International Monetary Fund (IMF) programme was considered as a means of getting the economy back on track.

But something happened. At the end of the year 2000, Ireland could look back on 14 years of uninterrupted economic growth, which had accelerated to nearly 10% annually. With this growth came markedly lower inflation, one of the lowest unemployment rates in the European Union, and a growing government-budget surplus. Most dramatic, however, was the return to Ireland, a country which had seen emigration over 100 years, of young workers in increasing numbers to fill new jobs awaiting them at home.

How did they reverse their terrible plight? It was not just due to the luck of the Irish. In the 1960s that tenacious Irish spirit rallied. The government and people decided to adopt low corporate tax rates to encourage foreign investments. At a time when they could least afford, they spent more on educating their people better and establish high-tech industries, especially in info-technology and telecommunications. Ireland joined the European Union. In the 1990s, true to the aphorism that "fortune favours the well prepared", a technological discontinuity, which brought about plummeting costs in telecommunication services, was the chance element that helped start an economic boom in Ireland.

My second example is Finland. Finland is another example of a tenacious people that refused to be beaten down. Tucked away in the northern-most corner of Europe, five million dedicated Finns continue to demonstrate the fierce nationalism that has enabled them to survive an unforgiving climate as well as a turbulent history. It is a land repeatedly fought over through the centuries. Finland underwent a transition from frozen isolation along the Arctic Circle into a centre of high technology, with a population both technologically literate and politically sophisticated.

Twice in the 20th century, Finland had been written off as lost: first, in the "Winter War" in 1939 when the Finns were left alone to face invasion by a Russian army 50 times its size, and again at the end of World War II when Finland was given over to the Soviet sphere of influence. In the early 1990s, the Soviet empire fragmented and the Rouble collapsed. Finland's economy, which was closely tied to that of the Soviet Union, also shrank sharply and unemployment rose. Yet, it has managed to come out of its troubles.

How? Government and industry made dramatic efforts to surge into the world's new information technology, supported by one of the most highly skilled labour forces in the world. Finland, today, is rightly called the telecommunications laboratory of the European Union, with an exceptional hi-tech infrastructure. Many of us know as we use their Nokia phones. This, in addition to industrial production ranging from complex instrumentation for meteorological and environmental sciences, to medical diagnostic equipment, to automated wood-harvesting machinery, to innovative icebreakers and luxurious cruise ships. In the late 1990s, Finland's economic growth rate was one of the highest of the industrialised countries.

Will Ireland and Finland expect to prosper indefinitely? No one knows, and no guarantees exist for any state. All economies are subject to the vicissitudes of cycles and providence. Ireland and Finland face similar problems like Singapore, as a result of slowdown in global economic demand. As do many other countries. We are not alone. We need not be narcissistic. We can commiserate. Who will emerge to prosper depends on how each nation's people respond.

Singaporeans' response to these CPF changes has renewed my confidence. Members of this House should not under-estimate the disasters that await us if we had chosen to stay on our previous course. Neither should they under-estimate the impact and the signals that these CPF changes have achieved. We should not downplay. It is not a simple exercise. These CPF changes herald a critical turning point for the better.

Retirement adequacy will wreak economic and social havoc on those that will not, cannot or have not provided enough. Minister of State Cedric Foo commented on this, and I agree with him. I will elaborate.

The International Herald Tribune on 22nd August this year carried this article under the sub-heading, "The looming clash of generations". I quote:

"Four issues are coming together to create a "perfect storm": birth rates below replacement level, longer life spans, holes in private pension funds and massive government fiscal deficits. The aging generation has been promised much more than can be delivered without dramatically damaging the prospects of future generations. This will be a political battle, a new form of class warfare over scarce resources. Demographic decline is especially apparent in Europe [and I would add, Singapore]. In most countries fertility is far below replacement levels.

Neither the state nor the private sector is in a position to meet the promises made to the aging generation. Tax and deficit levels are already high and would have to rise by huge amounts to fund pension promises. Tough political decisions will have to be taken to change expectations.

Yet such measures are essential to avoid crippling taxes on the declining percentage of people in work. Ideally the state should be reducing tax burdens on young families and taxing pensions for the able-bodied. Whether the long-spoiled baby boomers are willing to concede that such measures are necessary is another matter. They have the votes to defeat any government that would introduce them." In other words, unrealistic expectations, longer life expectancies, medical advances, demographic trends have set up a perfect storm that threatens to disrupt the social fabric as one generation is pitted against another.

Let me illustrate this with an anecdote which occurred in Germany. In August this year, a furore erupted when a young 23-year old German politician, Philipp Missfelder, head of the Conservative opposition youth outfit, criticised politicians from all parties for "betrayal", saying Germany's social system favoured the elderly at the expense of the younger generation. He suggested, among other solutions, that those above 85 years - you heard me right, 85 years - should not expect the national system to pay for their hip implants. He being 23, I assume he said, "Well, 62 years more, if I don't break my hip within that period, and if I break it after that, then I should pay for it."

Older Germans, even those within his own party, threatened to "spank the youngster." The humorous response did not mask the resolve of the older generation to protect their perceived sacrosanct rights, despite this being an untenable situation.

This road has led Germany to the `gloomy valley'. They are stuck! It explains why Chancellor Schroeder chose to wade into the political minefield of pension reform and proposed the biggest shake-up since the current system was set up in 1957. We should not under-estimate these changes.

The CPF changes we are making now will ensure that this Singaporean generation and future generations will remain nimble, still able to respond quickly to fast changing circumstances. We would have averted the perilous situation where one generation's needs can only be met by another's unwilling sacrifice. We would have behaved responsibly by not expecting the next generation to shoulder our burdens by providing for our needs now.

Let me now address specific queries from Members during this debate. Some Members have asked why not fix the rate at a lower level, instead of a range. I acknowledge that a variable rate creates uncertainty, as expressed by Dr Chong, Mr Iswaran, Ms Irene and Mr Tan Soo Khoon, and it disrupts long-term planning. We accept that. But global economic shifts have accelerated and impacted Singapore almost instantaneously. In this fluid environment, we need flexibility, even for the statutory component. It will come under pressure the moment you fix it. And when you are compelled to lower it, the psychological effect is greater. Remember also that even when we had fixed it at 40%, it also caused uncertainty. While we were at 36%, investors and employers calculated decisions based on that higher target rate. Workers based aspirations and lifestyles also on that number, assuming it would be restored.

What this exercise and what this debate have done very successfully is to reset, retune and refocus mindsets to the floor rate. We have shifted focus from the ceiling rate to the floor rate of 30%. So, now investors and employers know that there is potentially some refuge in reduction. We read over the weekend how Singaporeans now plan their homes and spending patterns on 30%. Very quickly, the message has sunk home. Anything above that is an added bonus.

I reiterate that we will give as long a lead time as possible if future CPF rate changes are required. It is not envisaged that rates will be changed from year to year. There is a range but the CPF rate is a blunt tool. We agree. It will be reset when a systemic adjustment is required. It does not have the sensitivity to calibrate according to performances of different companies.

Indeed, many Members of Parliament have called on companies doing well to pass on profits to workers in the form of bonuses or other variable components of wages, and help avoid retrenchments, mentioned by Mr Leong Horn Kee, Dr Ong Seh Hong, Mr Heng Chee How, Mr Nithiah Nandan, Mr Andy Gan, Dr Ong Chit Chung and Mr Ng Ser Miang. I endorse this sentiment, although I would not push for rigid formulas.

But I do want to emphasise the point made by Dr Ong, Dr Gan See Khem, Ms Irene Ng and Mr Arthur Fong that our overall wage structure needs to be more flexible, allowing individual companies to vary their wages according to business circumstances. Companies' wage structures should differentiate performance and reward individuals accordingly, and address the structural rigidities created by seniority-based systems. The Government has initiated a Tripartite Task Force on wage reform chaired by my Permanent Secretary to assist companies in implementing flexible wage structures. I will ask this Task Force to study the suggestions by Members - Mrs Yu-Foo, Mr Chew Heng Ching and Mr Ng Ser Miang - of using tax incentives to encourage companies to reform. The Task Force will be presenting its recommendations at the end of the year, and will consider other proposals which Mr Inderjit Singh brought up this afternoon on retrenchment cost.

Let me now turn to adequacy for retirement and the Minimum Sum. These issues were raised by Mr Chew, Mrs Lim Hwee Hua, Mr Andy Gan and Mr Ahmad Magad.

Having adjusted expectations to 30%, can we still meet the aspirations of Singaporeans? It is a key question. Can Singaporeans still own homes and take care of their medical and retirement expenses? Why not, as some Members suggested, give flexibility in how much we force Singaporeans to save? In other words, tailor savings according to income level. Dr Ong Seh Hong and Ms Irene Ng said we should calibrate savings based on pre-retirement income and income groups. Mr Chew Heng Ching said the increases are too fast and should instead be pegged to Consumer Price Index inflation. Dr Gan See Khem and Dr Jennifer Lee, though disagree, said it is not enough as costs are rising. Mr Inderjit Singh also said not to make it compulsory.

The implication in all these points is that perhaps we should give up some dreams, even home ownership for some Singaporeans. The Minister for National Development has eloquently defended the policy and I will add by saying we need not. The vast majority of Singaporeans can, and should, still hold on to their dreams and homes. I will ask the Clerk of Parliament to now distribute a table (Cols. 2981-2). Adequacy of CPF at 30% CPF Contribution Rate (2981 - 2982)

This is a useful table as it gives a helicopter view of how our current CPF system provides for various needs. I have kept it simple and I want to focus on it. It gives a helicopter view of how our current CPF system helps meet various social needs. I would like us to pay attention also to the quantities in the various accounts, in other words, the Ordinary, Special and Medisave Accounts. In these two columns I have put the 25th and the 50th percentile worker to illustrate, but we should just focus on the 25th percentile worker. The 50th percentile is for Members' reference. As the table shows, for a 25th percentile worker with a starting pay of $1,100 and an ending pay of $1,000, we factored in a number of assumptions, including wage deflation plus some periods of disruptive unemployment - this is not continuous employment - that 25th percentile worker would have accrued $109,000 in his Ordinary Account, Medisave Account of $41,000 and a Special Account of $55,000. So as this table shows, even at the 25th percentile, the wage earner can own a 4-room flat if he chooses. I have put the price range for the 4-room flat in the footnote. On top of that, he would have accrued enough in his lifetime and set aside adequately for his basic medical and retirement expenses.

I agree with Members of Parliament that we should set our CPF scheme to cater to basic needs, not frills. The Minimum Sum must be linked to anticipated consumption and life expectancy. So even at the new Minimum Sum of $60,000 cash component, the annuity payout per month to last for 18 years is $433. It is not a princely sum and we are not over-providing.

But note, as some Members pointed out, that if consumption for medical expenses from the Medisave Account is reduced or if a member chooses to live in a smaller flat, even if he could afford to buy a bigger one, substantial spillover can result into the Special Account. The key column is to look at the Medisave Account and the Special Account. In other words, even with our rules changed, if he does not consume from the Medisave Account, the 25th percentile worker could still withdraw $11,000 at age 55, having put aside enough for his Medisave and Special Accounts. He would have enhanced his Special Account, so more can be withdrawn at age 55 if the Minimum Sum and the Medisave Minimum Sum are met. This is a sensible system which caters to the majority of Singaporeans with varying consumption patterns. There is rigidity for the base requirements but there is flexibility for those who choose to be prudent in housing and medical expenditure. I disagree with Mr Tan Soo Khoon that we encourage blatantly people to choose bigger houses. People did it because they knew that if there was some asset inflation they would reap benefits. And, in case we are being misunderstood, we have all said, "live within your means".

How can we help Singaporeans meet these Minimum Sums, a point which Mr Heng Chee How asked. Structurally, the new changes, the reductions in the Ordinary Account and corresponding increase in the Special Account facilitate this, which means that if members are sensible in their housing commitments, it is likely that some 80% of future CPF members can meet the $120,000 Minimum Sum requirement at a contribution rate of 30%. Let me emphasise that this is not 33%. This is at 30%.

It follows then that when we retune the use of the CPF towards the three objectives of retirement, healthcare and housing, we should not further expand the role of the CPF to be used for unemployment as suggested by Dr Wang, or other purposes such as starting a business, as suggested by Mr Chiam See Tong. Nevertheless, we can explore the idea of voluntary unemployment savings scheme, as suggested by Dr Mohamad Maliki.

Providing better for retirement

Several Members have asked for greater returns from the accumulated sums or to obtain different income streams - points raised by Mr Chew Heng Ching, Mrs Lim Hwee Hua, Mr Low Thia Khiang, Dr Ong Seh Hong and Mr Ng Ser Miang - I agree. Housing is the biggest asset for most Singaporeans and the Minister has announced relaxation on rental rules and it should help. We have explored reverse mortgages before, but the major roadblock has been that insurers are only prepared to offer "fixed term" reverse mortgage. This runs the risk of the elderly lessees being evicted from their flats should they outlive the tenure of their reverse mortgages, which is a likely possibility. Nevertheless, we can always revisit the issue.

The other option is for Singaporeans to sell their properties. It is an option that is available to them today and it will be made easier with alternative housing available in the increase in rental flats. In other words, people say, "Well, they have more than 200,000 rental flats available. Why do I not sell and then rent?" They could. But do we want to actively push this? I am not so sure. We should be cautious as it may result in some being homeless as they sell their homes. All of us, who have meet-the-people-sessions, know the individual stories of some parents being abandoned by children whom they have been persuaded to part with their money.

Members talked about interest rates. Can CPF increase interest rates? The Ordinary Account (OA) rate is currently determined quarterly based on the weighted average of the one-year fixed deposit rate (80% weightage) and the savings account rate (20% weightage) of the three major local banks. It is a basket of weights. But we have protected members under the CPF Act by subjecting this to a floor at 2.5%. Let me quote one example. DBS Bank pays only 0.8% for a one-year fixed deposit of more than $50,000 and 0.25% for savings account deposits. So, if we use this formula, I should be paying OA rate of less than 1%. Hence, the OA rate of 2.5% gives a better return to CPF members at present.

What about the Special Account (SA) rate? In this regard, CPF members are getting more than a fair deal because the Special Account guarantees risk-free at 4%. One year Singapore Government Treasury bills are yielding 0.9% whereas 15-year Government bonds have been yielding less than 4% for the last 12 months and only begin to yield more than 4% recently. So for a person who makes SA contributions over a 30-year period, the 15-year Government bonds are a good benchmark as 15 years would represent the average tenure of his savings.

Going forward, the CPF Board is studying two initiatives. Firstly, the Government has already said that in the long term, the interest rates on CPF savings will have to be pegged to market rates. We need to study this carefully. What benchmarks to adopt will also have implications for HDB housing loans, which are currently pegged at 0.1% above the OA rate. Whatever benchmarks that are adopted must lead to a sustainable interest rate paid on CPF savings. But I agree though that new models will have to be adopted to maximise retirement returns for Singaporeans so that we can better provide for retirement needs - points raised by Mr Andy Gan, Mr Ahmad Magad and Mr Chew Heng Ching. In line with the ERC's recommendations, the CPF Board has begun to explore the role of private fund managers to get better efficiencies. This was suggested by Mrs Lim Hwee Hua, Ms Irene Ng and Mr Ng Ser Miang. The intention is to pool savings to achieve economies of scales so as to lower cost of investments for members, achieve higher returns and greater certainty of income. The CPF Board is currently working to implement low-cost privately-managed pension plans (PPPs) as an additional option under the CPF Investment Scheme. This would give members a better chance of higher long-term returns by investing in a well-diversified portfolio. These PPPs should not require members to make complicated decisions. In other words, we do not envisage a buffet menu. We will keep it simple and understandable. This is to cater to the majority of CPF members who are not investment-savvy.

I also agree with Dr Chong, Mr Ahmad Magad and Ms Indranee Rajah that the CPF Board must educate Singaporeans as part of its mandate. The Board intends to start a process of investor education for its members, structured according to a member's life events. In other words, instead of waiting for you to log on to the CPF Board, we will track and push you information roughly before your marrying age or before the age that you will buy a property or start work, and tell you that these are the sums that you need to calculate. It flags up. It causes you to focus your mind on a particular financial aspect. These modules will be made available to members through the web. In addition, the CPF Board is working with the Monetary Authority of Singapore as part of an overall effort to educate investors because our surveys have shown that while awareness is there, the majority of CPF members are still not taking concrete steps to plan for retirement. With the ageing population, longer life-span and the retuning of the CPF, it is now even more important for Singaporeans to take retirement planning seriously. This includes the promotion of the use of the Supplementary Retirement Scheme, as suggested by Mr Ahmad Magad and Dr Mohamad Maliki.

For specific groups, women and homemakers, suggested by Ms Irene Ng, Dr Jennifer Lee and Ms Braema Mathi, we will explore ways to improve their retirement adequacy.

For part-time and casual workers, the point brought up by Dr Gan See Khem, the CPF Board has already implemented the ERC's recommendation to raise the floor for CPF contribution from the earlier threshold range of $200-$363 to a new threshold range of $500-$750. But I agree with Mr Zainudin Nordin that we should facilitate collection of CPF dues. The late payments form less than 1% of all accounts, but we can still improve by collecting CPF through electronic means. We will expedite this.

Retaining Jobs, Job Redesign, Placements and Training

I agree wholeheartedly with Mr Nithiah Nandan, Dr Wang Kai Yuen, Mr Heng Chee How, Mr Yeo Guat Kwang and Mr Ang Mong Seng that we should use these sacrifices that workers have made to translate to more jobs. The CPF changes will position us well for job creation. At the margins, it already has positive signals and, again, we should not diminish our efforts. For example, Venture Corporations and Philips Electronics Singapore both welcome the changes. Venture Corporations told our staff that together with their efforts to improve their employees' capabilities and skills, these CPF cuts will "give a boost to migrating more businesses and investments to Singapore".

But in the meantime, we must redouble our efforts to place Singaporeans in jobs. We have to work faster to develop sectors that Singapore can be competitive.

Secondly, all of us must do more to place Singaporeans in jobs that are available today - points brought up by Dr Warren Lee and Mr Ang Mong Seng. They said that we should raise again the importance of local workers being willing to take menial tasks. I agree. But we have also seen good evidence of worker attitude changing in the past half year. And I agree with Mr Nithiah Nandan that not all workers are choosy. We must not tar all workers with the same brush. For instance, many cleaning companies have told us that they can now hire locals for cleaning jobs and they do not need to ask for so many foreign workers. This is good news.

But there is much more that we can do. We have come to a point where MOM goes down to the ground - you should allow your policy instruments to do that - but we recognise this is a transitionary period and we want to get a better feel of the ground. During one of our dialogues, a unionist told me that some Singaporeans dare not work in hotel kitchens because they feel isolated, as they are the only Singaporeans there, or that the supervisor is a foreigner and is perceived to be partial to hiring more foreigners. It is unlikely to be true, but it is a perception. We must and will break these psychological barriers down. My Ministry has been working closely with the hotel sector to better understand how to successfully place Singaporeans into jobs in this sector which has so many vacancies. The hotel management assures us that they are committed to help make this happen. In parallel, I have asked union leaders of NTUC unions to get their members to mentor new workers. In other words, let us accept the insecurity and the uncertainty. So, from the over 400,000 members that NUTC has, members can perhaps find mentors that stay in the same estate with the new workers, travel, eat together in the same company so that during the earlier adjustment period, it will tide them over and help them to stay in the job.

And, yes, we should improve the efficiency of job matching and information provision. The Workforce Development Agency (WDA) will be launched soon to give this greater focus. As suggested by Mr Seng Han Thong, we will have to make sure that training is more effective. And I agree with Dr Tan Cheng Bock that we have to upgrade our skills in our construction, retail and restaurants.

Some Members have asked that we look for solutions, in terms of social safety net in force. But when we are in a situation where there are large numbers of foreign workers and jobs available that Singaporeans do not want to take, I believe that we should focus on the message of getting people into jobs, not subsidising people for not working. And the measures that DPM announced on Friday, such as the Training for Employment scheme, the People-for-Jobs Traineeship Programme, the Work Assistance Programme, hold to this philosophy.

I agree also that employers must play their part. And I am glad that the Singapore National Employers' Federation and the Singapore Business Federation have come out in strong support for these cuts. We all understand that the business climate is competitive. But there are many employers that we have come across that are competitive and, yet, treat their workers well. As Mr Ahmad Khalis says, retrenchment should be minimised. There should be less discrimination against older workers, a point raised by Mr Nithiah Nandan. The cost of hiring mature workers would be less because of these CPF changes, and older workers bring value through their experience and networking. They are also likely to stay longer on their jobs.

We have good employers in Singapore. You may have read about Murata Singapore. It has been in Singapore for over 30 years. I visited them at the National Day Observance Ceremony and they told me they had not retrenched a single worker for the last 30 years. I thought they got it wrong. I asked, "Are you sure?" They said, "Yah, we don't. We have not retrenched a single worker." So, in good times, a company rewards the workers well with additional bonuses. But in bad times, they adjust various flexible schemes.

Ms Braema Mathi brought up a point about United Parcel Services (UPS). And she is right. It is a good company with enlightened human resource practices. UPS, led by Singaporean Managing Director, Mary Yeo, has encouraged multi-tasking and emphasised career development for their van drivers. During SARS, workers willingly worked flexible hours.

Mrs Yu-Foo Yee Shoon has highlighted that we should tailor our solutions for older workers to upgrade their skills and find jobs. We agree. Companies must play their part to accommodate older workers who may be able to do the job very well. One HR manager told us that her company had problems with production in some of the plants. This is on a productivity issue. But this observant HR manager noted that workers were standing because of the height of the production line, and that shorter workers had difficulty doing the work because the line was too high for them. Minor adjustment was all that was needed to raise productivity. This sounds simple, but simple things are often not done. So this story should cheer Mr Seng Han Thong who called on companies to help local workers through job redesign. We all agree, and more can be done.

But apart from wages and jobs, at the end of this debate, the question that will still remain in our minds is: will Singapore prosper again? Mr Tan Soo Khoon said that the music had died for him in 1998. Will Singapore prosper again? It depends. It depends on whether Singaporeans think our way of life is worth preserving. It depends if Singaporeans think this place is worth fighting for, not with bullets of steel but with steely resolve, an innovative spirit to capitalise on our strengths, diligence and determination.

Is the Singapore Dream dead? As Mark Twain said, the news of the demise has been grossly exaggerated. Far from it. This doctor has examined the patient and found it well. The patient is not sick. She only needs to shed a few pounds. Too many good years and over-indulgence have added girth. Some weight trimming is necessary and may not be bad for overall health.

Even with the contribution rate at 30%, the majority of Singaporeans can own homes and retire adequately with their medical and retirement needs taken care of, if they are prudent. As I earlier showed, even the 25th percentile worker can still afford a 4-room flat and would have provided enough for his medical and retirement needs till 80. How many countries can achieve that?

Almost every child born in Singapore today can be certain of 12 years of solid education. Mr Ong Ah Heng joked that perhaps the Government should just kelong and give 4-D tickets to Singaporeans. In fact, we have. Let me tell you why. Every student is subsidised about $4,000 for each year in primary school, $6,000 in secondary school, $8,000 in ITE, Junior College or polytechnic, and $11,000 in university. This means that every child born in Singapore receives at least $60,000 in education subsidies. This is not including the housing subsidy. 70% will obtain higher education that is the passport anywhere in the world to further his study. Access to good medical care will continue to be available to the masses, not only to the privileged or the rich. Here, in Singapore, you walk the streets feeling much safer than in many other countries. Children grow up well here. We, the adults, spend half the time debating why we spoil them, and the other half asking why we stress them. The same debate will be continued by our children when they become adults.

Why do I believe so emphatically that Singapore will not only overcome but that we will prosper further? The music has not stopped. Because Singaporeans will not falter. Years of nation building have bonded a people with unique characteristics. Shared pains and gains have created a uniquely Singaporean way, that is, a way of life that is worth preserving - with all its quirks and eccentricities.

I agree with Dr Tan Cheng Bock that Singaporean can do. His ingrained beliefs in hard work, justice, integrity are universal premiums. I travel frequently and I meet many Presidents of Ivy League universities in USA. They tell me that there is only one thing wrong with Singaporean students - that there are not enough of them. They say this even though Singapore students form the largest contingent from any state, including the states of the United States. They want more of us. They wax lyrical about how they wish every freshman performed like our Singaporeans. Of course, in typical Asian humility, I respond by saying, "Well, we have some strengths, but many weaknesses too." But, inwardly, when they tell me this, I swell with pride.

CEOs of multi-national corporations here in the biopharmaceutical and process industry sectors tell that we have among the best technical workers in the world. They have one wish - that Singaporeans would be less driven, because many of them leave to further their education, not content to stay still. But I like this drive.

Singapore companies tell us that two positions, when they go overseas, must be occupied by Singaporeans, ie, the manager and the financial controller. Why? No prizes for those who guess the reason - because they trust Singaporeans. Despite the catch-up of other countries, like China and India, we can still hold our own in technical and engineering skills. Our efforts in educating Singaporeans still stand us in good stead. Do not under-estimate these strengths nor our ability to read these changes.

Am I overly optimistic? Do I not fear the tiger of globalisation, the challenges that Members paint and the companies tell us? Well, when a tiger is chasing you, you need not be the fastest to survive. Just run fast enough so that there is one other person for the tiger to satisfy his hunger. We have built up our strengths in these past years to run well. With these CPF and wage reforms, we would have further lightened our loads. We are well positioned to avoid hazards and pitfalls. If we continue on this new road, expand our minds to see possibilities and capitalise on our strengths and opportunities, we will prosper.

Mr Low Thia Khiang (Hougang): May I seek a clarification from the Acting Minister?

Mr Speaker: Yes.

Mr Low Thia Khiang: Sir, I refer to the table distributed by the Acting Minister. It shows that the 25th percentile of workers should have no problem meeting their housing, Medisave and retirement needs, at the CPF contribution rate of 30%. I wonder why the Acting Minister has chosen the 25th percentile of workers, as I understand the CPF covers from the 20th to 80th percentile of workers. So what is the situation at the lowest 20th percentile? Are they able to meet their needs?

Dr Ng Eng Hen: These calculations hold, which means that even at 30%, 85% to 90% of Singaporeans can own at least a 3-room flat. I have just used the 25th and 50th percentile. If I have put the 10th, 20th to 80th percentile, it will confuse us. But if the Member wants the details, we can distribute it from every percentile at 10 points.

Mr Chandra Mohan K Nair (Nominated Member): Mr Speaker, Sir, thank you for allowing me to speak on this topic of retuning the CPF pursuant to the Prime Minister's Ministerial Statement on 28th August.

The legislative history of the Central Provident Act dates back to the Central Provident Fund Ordinance of 1953 (Ordinance 34 of 1953) and it commenced on 1st July 1955. "Provident" means seeing beforehand and providing for the future; being prudent, thrifty and frugal. Our CPF Act and its predecessor legislation, during and prior to the PAP coming into power, have, in some way, made compulsory saving of citizen's moneys to form the Central Provident Fund and out of which authorised payments are made. On the whole, it has brought a great deal of advantages to our citizens and working population in Singapore. It has also brought a large amount of money to our Government and, hopefully, it has been used to invest and reap some good returns. It would be ideal if these, or some of these returns, could be ploughed back to CPF account holders as a whole.

The website of CPF Board provides that the mission of CPF is "to enable Singaporeans to save for a secure retirement". And its vision is that of "a world-class social security organisation providing the best national savings scheme for Singaporeans to enjoy a secure retirement". The emphasis has always been savings for our retirement. Our Government must guide our people to ensure that, as far as possible, the retirement needs of the majority of our citizens would be met. It would be in the Government's interest to ensure this because, if there is a great shortfall in this CPF scheme, the Government, being a responsible one, would have to lean towards a more "welfare-oriented" and socialist political system which the PAP Government tries to avoid directly as far as possible.

The corporate philosophy of CPF is, and I quote:

"a social security savings scheme jointly supported by employees, employers and the Government. CPF members are employees and self-employed persons in Singapore.

The basic purpose of the CPF is to help members meet primary needs like shelter, food, clothing and health services in their old age or when they are no longer able to work. Benefits offered are to help meet one or more needs of the CPF member in his retirement. They include withdrawals by the member for retirement, permanent disablement, home ownership and medical care. The amounts available depend on how much the member has saved in the CPF.

The CPF Board is the trustee of members' CPF savings. They seek to protect and preserve the value of the savings. They provide fair market returns at minimal risk, while opening avenues for members to seek higher returns on their own after carefully considering the risks involved. The guiding principle is prudence. Any return should contribute towards the member's well-being in his retirement."

Sir, it would appear that the above stated philosophy may need to be modified in difficult economic times. The Prime Minister touched on globalisation and how it has continued to affect our economy. There are advantages and disadvantages in globalisation. The two giant nations, China and India, with over 2 billion people, are and will be, population-wise and business-wise, forces to be reckoned with in the premier league of nations in the global economic arena. Singapore can try but realistically would find it very difficult to be in the premier league because, in terms of population base and business base, production of goods and services, invention and information technology, manufacturing of high-end technological products, production of university scholars, scientists, inventors, engineers, doctors, architects or any professional groupings, political leaders and tertiary professors and, in many other respects, touching on economic and other considerations, it is realistically impossible.

However, Singapore must and will no doubt do its level best to survive comfortably and progress in the face of all the competition from near and far. And since we have reached first-world standard, economically speaking, our citizenry would expect that standard of living in the years to come. Singaporeans would have a tough time trying to aspire to reach this target as the years go by. We have a disciplined and hardworking population that will fight hard to advance as the years go by. We have a good Government, civil service, judiciary, rule of law, caring nation with many voluntary and Government-sponsored community of volunteers. All these good institutions have served us well the last few decades and will continue to do so. But is it sufficient in the future?

The Government should have and must have known all this was coming many years ago. The citizens knew and constantly talked and complained about the high cost of business in Singapore. This is not new at all. On hindsight, perhaps the Government should have acted earlier, even before the General Elections in 2001. At least, we are now trying to make amends. It is never too late. Let us all work together as Singaporeans. I believe our Government is trying hard, but more needs to be done by one and all.

Temporary measures require us to be cost-effective. This means we have to cut down on CPF and all other forms of cost-cutting measures. We have to be lean and fit for a race that is going to be very competitive for the next few years. CPF cuts alone would not be a great help in bringing in more investments from abroad and locally and, therefore, more employment for our people. However, it is a strong signal to the world looking at Singapore, as a country to invest in, that our Government is trying to cut down on business costs. More cost-cutting measures must be put in place sooner than later. And this is essential and is an emergency, as a lot of businesses from Singapore and the ASEAN countries are going especially to China and India. And it is well possible that there would be even more competition in the business world, as Malaysia and other ASEAN countries move on progressively to catch up with the rest of the world.

It is a race between premier league nations, Divisions 1, 2 and 3 and amateur teams, with the same set of rules and there are no handicaps given to small nations. Singapore must find innovative ways to be in the top league. How do top premier league players stay on top? They devise various means, including looking at the world's best players and managers, training them professionally and paying them well. We also need to look at not just the best companies and top-notch entrepreneurs, but also the potential nations as business and economic partners. Our Cabinet Ministers and top Government officials have to be much more innovative henceforth and come up with revolutionary ideas, which is possible only if they are willing to think out of the ordinary and long-practised ways of dealing with the business of governing Singapore. I trust they are looking into various possibilities, as we have a Government that is pragmatic and is a long-term planner. Citizens must assist in this regard by giving innovative ideas, which may be idealistic and/or practical. It is our duty as citizens to help our Government to lead it to the right path of progress.

Our mindset and tactics must, if found necessary and essential, change in order to survive well, to be competitive and to create jobs in Singapore. We are a small nation geographically and population-wise. We do not have natural resources. There are a lot of disadvantages in that sense, compared to many nations in ASEAN, Asia and the world. What can we do really?

Let us think out of the box. Theoretically speaking, one could therefore ask whether being a sovereign nation called the "Republic of Singapore" is the ideal state of affairs in, say, 20 or 30 years. Can we survive as a small nation when ASEAN countries like Indonesia, Malaysia, the Philippines, Vietnam and Thailand are forging ahead at a different pace of economic progress? They are hungry for economic progress, just as we were hungry in the 1960s to the 1990s, and we progressed at a faster pace during this period, as we had to survive, which definitely was an added and essential impetus to survive as a young nation. I am sure we can and will survive as a nation for another decade or two comfortably. However, would we want to consider, and do we have a new vision of joining forces politically, geographically and economically with some ASEAN countries? Is it possible to work together as ASEAN neighbours and let us share the pie as a joint venture company of nations?

We were once part of Malaysia from 1963 to 1965. We became a sovereign republic on 9th August 1965. What would we have been if we had remained in Malaysia? We can only speculate. Historians should write about it and explain to the citizenry. Let us now speculate and perhaps give deep analytical thought on having Singapore, Malaysia and perhaps even some other ASEAN countries merge in some form to create a United States of South East Asia, if not absolutely, then at least economically, and all of us in ASEAN work together and share part of our assets, manpower, time and expertise. It is like forming a holding company, and each participating country being a subsidiary, and all working together in harmony and all reaping the benefits of our collective efforts to benefit all as a family.

Team effort is what is required to match the premier league players. Additionally or alternatively, we should all put on our thinking caps and consider the possibility of joining, in an economic sense, the premier league players like China and India. Our closest relationship as a nation to nation is of course Malaysia, and then comes perhaps Indonesia. At first thought, everything might seem impossible, what with the history of political leadership having had their problems, especially in the 1960s. However, today's generation of political leaders must bury the old differences, even if some of the current leaders in Malaysia, Indonesia and Singapore might be related to the older leaders of these countries. The business community and citizens of Malaysia, Indonesia and Singapore would, I suspect, want as close a relationship as possible, both in terms of political, economic and family ties. Would it not be important, therefore, for the political leaders, especially from these three countries in ASEAN, to work harder and more productively towards this goal of merger as ASEAN has existed for more than three decades.

Let us take advantage of the common factors like race, language and way of life amongst our peoples. We have Malays, Chinese, Indians and Eurasians, just like in Malaysia and Indonesia, and also in China and India, as far as the Chinese and Indians respectively are concerned. I know it may be idealistic and even unrealistic to think of such a possibility today, but we sow the seeds of such thoughts in our young leaders and they have to explore all avenues to survive, and who knows what may come out of this way of thinking for our future generations of citizens, who would be more global in outlook in the years to come. Mind you, this does not mean people who think this way are disloyal but, rather, I believe it is the citizens who dare to think boldly that would make the difference for the betterment of Singapore in 20 or 30 years.

If we want to survive for the next few decades, we need to open up space - have dual or multi-citizenship, and have multi-national partners in business and as nations doing business, and not just companies and Government-linked companies. Politicians need to be more innovative, just like company directors have for the last 30 years or so. Companies are going global. Governments should consider at least going regional politically. The political system needs to be relooked and a new system adopted for discussion at least. Our Government has done well for our citizens and the nation for the last 40 years. We need to do much more, and it is going to be more difficult, because the competition is much keener. It is getting more difficult to grow since we are a first-world nation, and to maintain that in the midst of keen competition is going to be that much tougher.

Article 6 of the Constitution of Singapore states that there shall be no surrender of the sovereignty of Singapore as an independent nation unless it is supported at a national referendum by not less than two-thirds of the citizens who can vote. Academically speaking, for a start, we may wish to consider this in the long-term remaking of Singapore. If the Government has not thought about it, or has done so but it is of the view that it is definitely not possible to have such thoughts to come to reality, I would urge that we get the reasoned paper on why it is not possible in the long term. I know the CPF issue is in the spotlight, but what I have mentioned is food for thought to try and, hopefully, resolve our larger problem of survival economically as a nation. I suppose these must, for the time being, be left aside, but I do sincerely hope that our Government and leaders in the business and academic community would address these issues at some stage in the near future.

For now, let us all unite and come up with cost-effective measures to ensure creation of more jobs and secure reasonable remuneration and contribution into our citizens' CPF, so that all retirement needs, payments like housing and medical care, can be met.

Equally important, sacrifices must be made by the State, Government and civil service expenditure, cooperation from banks and financial institutions, to be more compassionate and not to exercise their legal rights without some care and concern for the plight of citizens. The lifelines to be given by the Government to the poorer sectors of our society who may be most hard-hit by the CPF cuts are to be welcome. This is the usual "Robin Hood" approach of taking - some might call it "robbing" - from the rich and distributing it to the poor. It is noble and should be palatable to Singapore society as a whole. However, the Government should, once in a while, take note of and be caring and compassionate, even if it is to be lip service, to the lower-middle and middle class of citizens who may be complaining that they are often left out.

Land costs, rentals, utilities charges, GST, licensing charges, income tax, property tax, etc, must be reviewed and lowered. Let the State suffer together with citizens. Let us all share in the financial burden. My colleagues in Parliament have addressed these issues several times during the last two sittings last week.

The CPF Board should also consider investing CPF monies wisely and grant members better interest rates. Mr Lee Han Shih, a freelance journalist, had mentioned in his article in Today on 28th August 2003 that the CPF Act should be amended so that members can enjoy higher interest rates by allowing computation of interest on a daily, rather than on a monthly basis. The CPF should look into this and explain why it has not done so.

Overall, I am of the view that cost cutting must cover a wider ambit than CPF cost cutting alone. A holistic approach must be taken to reduce business costs. However, this move to cut CPF rates at this stage is a good sign to investors to have added confidence to remain here and for fresh investors to come to invest in Singapore.

Mr Speaker, Sir, I do support the Prime Minister's call to cut the CPF rate in order to create more investments in Singapore and more jobs for our citizens.