Ong Teng Cheong (Minister for Communications and Minister for Labour) answering JBJ about increase in CPF contribution

Ong Teng Cheong (Minister for Communications and Minister for Labour) answering JBJ about increase in CPF contribution

Parliament Sitting Date: 27-07-1982

Mr J.B. Jeyaretnam asked the Minister for Communications and Minister for Labour what were the compelling reasons for the latest increase in the contributions to the Central Provident Fund exacted from employees and employers and if he realizes that in the cases where the employer does not implement the NWC award the employee will suffer a reduction in his wages.

Mr Ong Teng Cheong: Mr Speaker, Sir, the Member for Anson regards CPF contributions as an exaction. The Oxford English Dictionary gives the following definition of the word “Exaction”:- ‘The action of demanding or requiring more than is due or customary; an illegal or exorbitant demand; extortion; an arbitrary and excessive impost.’

As the Member is a lawyer, one must assume that he chooses and uses his words with care and deliberation. If so, he clearly does not understand how Singapore’s economy works, and how CPF contributions play a pivotal role in our economic growth. I cannot possibly dispel his ignorance of the subject within the time at my disposal. I can only try my best.

The rate of growth of an economy, that is, how fast new jobs are generated and people’s incomes increase year by year, depends to an important degree on capital formation. This means the construction of new factories, installation of new plant and equipment, expansion of infrastructure – roads, ports, telecommunications, etc. building of houses and so on. These desirable facilities do not fall like manna from heaven. They do not come about because politicians preach compassion and talk about a caring society. They have to be paid for in hard cash.

Of course, a government heading for bankruptcy can borrow from foreign banks in the Euro-market, for instance, at exorbitant rates of interest. Worse still, the government can print notes and the result is runaway inflation. Some governments do both these things and the country runs into big trouble.

The PAP Government does not resort to trickeries of this kind. We know that capital formation must come out of savings by people and entrepreneurs. That is why over the years, rates of CPF contributions have proportionately been increased even as we have increased wages. The result has been a high rate of economic growth and an increase of both incomes and savings. That is to say, both take-home pay and CPF contributions have increased.

This has made it possible for Singapore to achieve what Professor Walt Rostow called “the take-off into self-sustaining economic growth”. Very few Third World countries have achieved this take-off. The reasons are manifold but two common features are found in these unhappy countries. First, a lack of effective government and second, an abundance of political opportunists.

In 1981, gross fixed capital formation in Singapore was $11,158.1 million out of a gross domestic product of $27,279.5 million, or 40.9%. This compares with 32.0% for Japan, 31.8% for South Korea, 17.8% for the UK and 18.2% for the US, just to take a few examples. Third World countries generally register 15% or less and hence their poor rates of economic growth.

Our public housing programmes would not have been possible on the scale achieved but for CPF savings. 69% of Singaporeans are decently housed in HDB estates. Further, accumulated CPF funds have allowed large numbers of Singaporeans to own their homes. No less than 228,459 families, or 64% of those living in HDB estates, are proud home-owners. As at the end of 1981, home-owners have withdrawn $3,175 million from their CPF contributions to pay for instalments on home purchases.

As regards the second part of the Member’s question, where the employer does not implement the NWC wage increases, the employee will suffer a reduction of wages, 1% to be exact.

Employers who cannot give wage increases are of two kinds. They may be inefficient or uncompetitive. It is better that they close down and release workers to those who can afford to pay better wages. Or they may be in what the Japanese call “sun-set industries”, that is, industries in which most firms are uncompetitive for one reason or another. Here again, the solution is to let the sun set quietly and as painlessly as possible. The workers so displaced can easily get new jobs elsewhere provided our economic growth is sustained at a high rate.

The Member for Anson does not understand that in an economy short of labour as a result of fast economic growth, wages must rise and employers who cannot afford to pay higher wages should either improve on their performance or give way to more efficient employers.

Mr Jeyaretnam: Mr Speaker, Sir, I am obliged to the Hon. Minister for his long speech in answer to my question. As I understand the Minister, the compelling reason for this increase was the need to find money for the improvement of the economy of the country.

But surely is there not another consideration and, that is, the capacity or the ability of the wage earner to give up so much of his earnings towards the CPF? A man who is earning $500 a month today is giving up $110 of his income every month. That is a hefty proportion.

Mr Speaker: Mr Jeyaretnam, let me have your supplementary question, please.

Mr Jeyaretnam: Does the Minister not think that the ability or the capacity of the wage earner to give up a hefty portion of his wages should also be taken into consideration? And will what is left of it be sufficient for him to meet the rising cost of living?

Mr Ong Teng Cheong: Mr Speaker, Sir, the Member for Anson obviously was not listening carefully to my answer. The CPF contribution is a saving. The employee is not giving it up.

I have explained earlier that this saving is necessary for security purposes -for his old age and to help him to own a home. Without CPF savings, this home ownership scheme would not have been possible. Singapore will not have achieved the housing programme that we have achieved so far.

Mr Jeyaretnam: Would the Minister please say whether or not consideration has been given to whether the wage earner will be able to save that amount without suffering a reduction in his living standard for the present?

May I ask the Minister whether it is not like telling a starving man, “Look, you can’t have the bread today. We are going to keep the bread for you for tomorrow.” Tomorrow may never come for him.

Mr Ong Teng Cheong: Mr Speaker, Sir, I do not see the point. Nobody is starving in Singapore. As to his point about whether, in working out the rate of CPF contributions, the Government has taken into account the ability of the employee to save, my answer is yes, that has been taken into account.

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