Singapore Increases Employer CPF Contribution By 1%
PM Lee credits tripartite spirit, announces increase in employers’ CPF contribution.
PM Lee Hsien Loong thanks firms, workers and unions for working together to emerge on a strong economic rebound.
He also announces an increase in employers’ CPF contribution rate by 1 per cent.
This increase will be done in two stages to give employers time to adjust, and cautiously to remain competitive internationally.
We meet again after an eventful year. Last year’s May Day Rally held in the depths of downturn, and just as H1N1 was spreading round the world. Fortunately we recovered faster than expected, and H1N1 turned out less dangerous than feared. Glad to see happier faces today. But let us learn the right lessons from the crisis, and focus on future challenges
Today I will:
- Review the crisis and our response
- Explain the importance of our long term strategy to raise our productivity
- Discuss what we should do this year, with strong growth and a tightening labour market
Lessons from Crisis
Last 12 months we have been on a roller coaster ride. 1Q last year, GDP fell by 10%. 1Q this year, GDP is up 13% y-o-y; q-o-q SA annualised is up 32%!
Example:
- Last year SIA saw drastic drop in air-travel demand. Flights cut; staff put on short-time and reduced pay. I saw a different situation on recent trip to US. I flew Singapore-Newark non-stop both ways. Both flights were full. Crew were glad to see travellers returning, tracking load factors closely, and looking forward to good bonuses. Glad our measures worked, and we pulled through. What lessons can we draw from the crisis?
First, Singapore is small and vulnerable to global storms:
- This is a dangerous world. Despite our best efforts, we will get hit from time to time. Last year was a major hit. If not for our timely and effective national response, we would have been in deep trouble. Hope Singaporeans now appreciate better how vulnerable we are and why we need to be ever-vigilant.
Second, if we respond intelligently and cohesively, we can deal even with major challenges:
- In late 2008, we saw what was happening in US and Europe, and acted quickly
- Government: Introduced SPUR to train workers. Brought forward Budget 2009. Implemented the Resilience Package, with key programmes like the Jobs Credit
Employers and unions cooperated to cut costs and save jobs. Together we kept unemployment low, firms solvent and confidence up. By holding on to workers, firms could rebound quickly when external conditions improved
Third, we must always save something for a rainy day:
- We funded our programmes without borrowing, because we had reserves, and persuaded the President to let the Government tap on them. Not so for many other countries, which ran large Budget deficits to fund stimulus packages. Several now face serious difficulties.
Next UK government will inherit a major fiscal problem, and be forced to raise taxes and cut spending. US too projects large deficits. Greece is being bailed out by EU and IMF, its credit rating downgraded to “junk”; Portugal and Spain downgraded too. Important that we maintain our frugal ways, and continue to put something away during good years.
The Resilience Package and Jobs Credit were an exceptional response to an extraordinary crisis. We cannot expect to implement such a package every time there is a downturn, which might happen every few years.
We have to preserve such measures for a truly “rainy day”, so we will be as well prepared as we were this time
Fourth, tripartism is a critical advantage for us:
We could respond in this way to the crisis, because of the mutual trust among government, employers and workers. Without this trust, it would have been much harder to get workers to accept sacrifices, or employers to hold on temporarily to surplus workers, or Singaporeans to have confidence that the Government measures would work. Acknowledge the efforts of the many unionists, employers and officials who worked together to pull nation out of crisis
88 individuals and companies received awards on Thursday. But special thanks must go to all who contributed. Let us keep on building the trust between our tripartite partners. You have heard stories of how we stood together in the 60s, 70s, 80s, and came through difficult times
NTUC has put up shows and musicals on those epic events. Our experience in this crisis is just as significant. The downturn was mercifully short. But it has deepened the reservoir of trust. And strengthened us for the next crisis, whenever it comes. The lessons we draw from it should be as deep. Let us learn them well, and pass them on to new generations of Singaporeans and union leaders.
Raising our Productivity
Our 1Q GDP growth is remarkable:
We are justified in congratulating ourselves. But do not get carried away – see it in perspective. A rebound from low base last year. Cannot be sustained for very long. Still some risks in the world economy, which could affect us.
Nevertheless, 2010 should be a good year. We must make use of our strong position to consolidate our lead. Not just to recover from last year’s recession, but to strengthen ourselves for the long term
In the midst of the crisis last year, we formed the Economic Strategies Committee (ESC) to look beyond the immediate problems. ESC report became the basis for this year’s Budget. Key recommendation is to raise productivity growth from 1% to 2-3%, and aim for 3-5% GDP growth over the next decade.
This is a basic shift in strategy:
Necessary because the old strategy is reaching its limits. Previously we could rely on productivity growth plus a growing workforce – first our own population, then foreign workers. In future productivity will bear the main burden, because we cannot grow the workforce (whether local or foreign) as fast as before. We have to switch gears, go for qualitative growth, and thereby transcend our manpower constraints.
We have made good progress over the years – our productivity caught up from less than 1/3 of the best in the world to 2/3 today
Hence Singapore has prospered, and incomes have gone up. But to make further progress, we must become equal to the best in the world in terms of productivity. That is a very tough challenge, which will take many years to achieve. Like running a marathon with no finish line. But let us set the goal, and make a concerted push to build up our skills, capabilities and infrastructure.
Last year productivity actually declined by 4.7% (in terms of VA per worker)
Understandable since companies held on to workers despite lower output. This year with high growth, we can expect value-added per worker to go up, even without any special effort. It will look like we have achieved higher productivity gains. But we will not sustain it, unless we work hard at upgrading ourselves. Does not mean we have to work longer hours, but we must make every working hour count. By working smarter and more creatively, to generate higher value.
Workers need to improve their skills and pick up new abilities:
During the downturn, workers were active in up-skilling, re-skilling and multi-skilling themselves. Now that conditions have improved jobs are more plentiful, but training and upgrading are still important. Enable workers to take advantage of new work opportunities. Low wage workers in particular must put in effort, because the only way to uplift themselves is through continuous upgrading and productivity improvements.
Firms take the key decisions in efforts to improve productivity:
How to structure their operations? What and how much to invest in infrastructure and training? How to grow the business? Firms should take inputs from workers, who have a sense of what can be improved. And they must share the productivity gains with workers.
Some companies doing this:
e.g. Gemalto, which specialises in digital security solutions, such as smart cards. Employees organised into Six-Sigma project teams to improve productivity and product quality. Last year, workers in Singapore completed 129 projects, which saved the company over $12 million. One team developed a special sensor to auto-detect and stop the production machine when a defect is found. This project generated savings of $200,000 a year. Company shares the gains by giving out team bonuses, etc.
Government will support firms:
E.g. with technology grants, tax incentives and training subsidies. Understand that SMEs face particular problems. Government working with them to raise their productivity.
Government must also set the right policies to create conducive conditions for growth, e.g.:
Build up a first class education and Continuing Education and Training system. Foster economic restructuring and upgrading: developing new industries, and allowing older, uncompetitive ones to phase out. May involve painful measures, which are necessary if the economy is to function well, upgrade and become more productive.
One issue Government has to manage is foreign workers:
We are raising the FWL, starting this year, to slow down the inflow of foreign workers. But we still need some foreign workers, both for their numbers and especially their talent.
This year, because of the strong economy, a higher inflow is inevitable:
If the economy grows by 7-9%, we will create over 100,000 new jobs.
Singaporeans will take up many of these jobs. But some proportion will have to be filled by foreigners on employment passes or work passes. If we work on improving productivity, we can reduce the need for too much additional manpower.
I hope Singaporeans will understand this:
If we want the buoyancy and bonuses which go with high growth, then we must accept a temporary inflow of foreign workers. During an upturn they enable us to grow rapidly. In a downturn, they cushion the impact on Singaporean workers, as happened last year. But in the longer term, we will restructure our economy and reduce our reliance on more and more foreign workers.
Unions play key roles in our economic strategy:
Helping workers to understand and cope with the rapid changes, and training them to be more productive. NTUC is working with WDA and employers to achieve productivity improvements. e.g. through Job Re-creation, promoting Best Sourcing, skills upgrading. Participating at the national level on the best way forward. Represent the interest of workers. Propose ideas to add value and raise capacity. Advise and help with implementation.
In US, I saw first-hand how our cooperative approach has benefitted Singapore:
US in a different situation. Unions there take a narrower approach, and demand protection and protectionism. Mayor Daley of Chicago told me about a strike by longshoremen against free trade. Longshoremen are dock workers who load and unload ships.
Without trade, they would have no jobs!
In Singapore our unions take a national perspective. All of us work together to enlarge the pie and share in the gains. US executives are impressed when I told them about our tripartism. One American asked me to send our unions to talk to theirs!
This is why our unions are prominently represented at all levels of the National Productivity and Continuing Education Council (NPCEC)
a. Headed by DPM Teo Chee Hean.
Council just met yesterday. Tailoring plans for each sector and industry. Will also encourage SMEs to improve productivity across sectors. And support the NTUC’s efforts to raise the productivity levels of low wage workers.
CPF Increase
All the unionists are smiling today
Tight labour market – unemployment and retrenchments low. Wage settlements this year likely to be generous. Fair for firms to give workers more, when economy is doing well. But firms must do so in ways that preserve their fundamental competitiveness. Apply flexi-wage, moderate built-in wage increases, and pay some of the increase into the variable component. Remember economic conditions may change quickly again.
In such a year, we should also consider increasing the CPF. CPF is fundamental to our system of social safety nets
Gives each worker an individual savings account, to see to housing, medical and retirement needs for himself and his family. One of the best systems in any country
In 2003, after SARS, we lowered CPF to 33% (20% + 13%), and set a target range of 30-36% for the total CPF rate
We managed to raise it back up to 34.5% in 2007. With wages rising, we should take the chance to raise CPF contribution
Mr Lim Swee Say suggested this recently, after the 1Q figures came out
- Unions support proposal
- Employers concerned about raising costs, but they too give cautious support
- Employers understand that when times were hard, workers made sacrifices to keep firms afloat, so in good times, it is fair to give back some to workers
- SNEF (Stephen Lee) supported the CPF restoration, but urged for the restoration to be implemented gradually with enough notice
How to adjust CPF?
- Current allocation (for employee of age 35 and below) :
- Ordinary Account – 23%
- Special Account – 5%
Medisave Account – 6.5% (higher for older workers) Analysis
- Ordinary Account – enough for housing needs
- Special Account – need to build up a bit more, so seniors can get more monthly payments from CPF LIFE, and have less need to cash out on their homes
- Medisave Account – need to build up a bit more as well, to prepare for rising healthcare costs and lengthening life expectancy
Hence Government has decided to increase CPF contribution by 1% this year
- Employer’s contribution to go up from 14.5% to 15.5%
- Overall contribution to increase from 34.5% to 35.5%
Doing this in two steps
- 0.5% in September, paid into the Medisave Account
- Another 0.5% in March next year, paid into the Special Account
- Give companies more time to adjust to the higher rate
This will bring total CPF contributions to 35.5%, near the top of our target range of 30-36%
- If the economy continues to perform well, we should be able to reach 36% within another year or two
- But we need to watch our overall costs, and make sure we stay competitive internationally
Workers and employers have to see the wage package in totality
- CPF is workers’ money
- The additional 1% is part of basic wage and will add to the total wage bill for companies
- Therefore it must be fully taken into account as part of the wage settlement
- Hope the National Wage Council (NWC) will make this as one of its recommendations
Conclusion
All in all, Singapore and our workers are doing well
- We overcame a very major crisis together
- We emerged with a clear edge over other countries
- We must now organise ourselves to adapt to a new environment
- Improve our workers’ quality, upgrade our enterprises and transform our economy
- Confident we can move Singapore to the next stage, and continue to progress and prosper
Topics: Asia, Australia, business, Central America, corporate sector, CPF Contribution, debt securities, economic development, economic growth, Economy, EU, Europe, FDI, FEI, finance, financial sector, Foreign Assets, Foreign Direct Investment, foreign equity investment, foreign investors, foreign parent companies, GDP, Governance, government, growth, infrastructure, Investment Abroad, investors, labor, Lee Hsien Loong, loans, Malaysia, manufacturing, market, monitor, Netherlands, news, North America, Overseas Investment, portfolio investment, Products, recession, Singapore, South America, stock, Switzerland, technical, transport, United Kingdom
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