Sunday 12 February 2012

Any CPF rate increase must be gradual: PM Lee at pre-Budget 2012 dialogue with Labour Movement

Rates for older workers 'need to go up', but Govt mindful of rising costs
By Cai Haoxiang, The Straits Times, 10 Feb 2012

PRIME Minister Lee Hsien Loong has given the Government's clearest indication that employer contribution rates for the Central Provident Fund are likely to go up for older workers.

He did not give a specific date, but said any such change would have to be 'gradual' as the move would result in higher costs for employers.

He made the point at a pre-Budget dialogue for 450 union leaders, employers and government officials last Thursday.

Video footage of the session was made public by the National Trades Union Congress (NTUC) on Wednesday.

At the dialogue, Singapore Interpreters' and Translators' Union president Daniel Ang asked for 'good news' on whether the Government plans to change the practice of cutting CPF contribution rates for older workers turning 50.

Mr Lee said the practice had helped employers to rein in the cost of hiring older workers. Any increase in employer CPF contributions will thus have to be 'step by step' and not too sudden.

However, Mr Lee agreed with Mr Ang that 'we do need to push the CPF rates up for people in their 50s'.

'This cost question doesn't go away so quickly... We have to do it gradually, unions have been discussing with employers, and I hope they will have something to announce when they are ready to announce it,' Mr Lee said.

The Government will announce next Friday its Budget for the year ahead. Economists think Mr Lee's words hint that an announcement about the CPF issue is on the cards.

Currently, the employer CPF rate is cut from 16 per cent to 12 per cent when a worker turns 50. It is cut again at age 55, to 9 per cent, and at age 60, to 6.5 per cent.

In the past year, the labour movement has pushed for a review of the practice, prompted by concern that as life expectancy rises, Singaporeans will not have enough for medical and retirement needs.

The Government announced a review last October. In December, NTUC said it had submitted recommendations to its tripartite partners that age 50 is too early to implement the CPF rate cut.

Nevertheless, employers are reluctant to support a rise in rate because of the uncertain global economic outlook.

Singapore Business Federation chief executive Ho Meng Kit said raising the rate for older workers would affect businesses, particularly smaller ones.

He urged the Government to help defray the costs for companies that re-employ or hire older workers.

In addition, he said firms must be given ample notice of any such rate increase.

The dialogue was also attended by Deputy Prime Minister Tharman Shanmugaratnam, Minister of State for Manpower Tan Chuan-Jin, NTUC secretary-general Lim Swee Say and Singapore National Employer Federation president Stephen Lee.

It featured hot-button topics such as reducing Singapore's reliance on cheap foreign workers through higher productivity, retirement income adequacy and the need for more social spending.

PM Lee said the Government's goal to raise real wages by 30 per cent over the next 10 years is a 'very ambitious stretch target' because Singapore is already at a high level of development.

Productivity has risen by 20 per cent in the past 10 years, and real wages, 11 per cent.

Over the next 10 years, the Government is aiming for a 30 per cent jump in productivity, and an equal rise in wages - 'if we are lucky', Mr Lee said.

If not, a wage rise of 20 per cent is 'something which is possible'.


More revenue needed as social spending rises
By Rachel Chang, The Straits Times, 10 Feb 2012

WITH social spending expected to rise as Singapore ages, the Government will have to look at ways to raise more revenue.

Prime Minister Lee Hsien Loong told unionists on Thursday last week that he was confident about the Government's finances for the next five years. But beyond that, as spending - especially on the elderly, the poor and broken families - goes up, it would need to think of ways to boost revenue.

Experts interviewed yesterday said that each of the Government's options - whether raising taxes or spending more of the returns from the investment of the nation's reserves - will come with costs and consequences.

Raising the goods and services tax (GST), for example, would be in line with the Government's philosophy of moving away from taxing income to taxing consumption, but would be a political challenge.

When rumours of a GST hike surfaced during last year's general election, Deputy Prime Minister Tharman Shanmugaratnam said the GST would not be raised for at least five years, but did not rule out its going up in the longer term.

Experts say raising income or corporate tax might be a better option. Although Singapore's corporate tax rate is 17 per cent, the host of tax incentives and perks the Government offers to companies to build certain industries brings it effectively down to 7 or 8 per cent, said PricewaterhouseCoopers Singapore tax partner David Sandison.

'And if the 'hub' strategy has worked, companies will still need to be located here even if there are fewer tax incentives,' he said, referring to the Government's goal of making Singapore the regional centre for certain industries.

Bank economist Chua Hak Bin pointed to the possibility of raising income tax on wealthy foreigners. 'This would be in line with a 'Singaporeans First' message,' he said.

Other taxes face obstacles. 'Sin taxes' on alcohol and cigarettes may already be at a level that encourages smuggling; the tax levied on the two casinos cannot be raised for about 10 more years.

What is left are the national reserves.

MP Liang Eng Hwa, deputy chairman of the Government Parliamentary Committee on Finance, said the bigger the portion of returns put back into the reserves, the more returns the reserves will generate, up to half of which can be used for spending.

But others, like economist Leong Wai Ho, said urgent and growing social needs argue for a less conservative approach.

'We have always been saving for a rainy day. One might say the proverbial rainy day has come.'

A better deal for older workers
Editorial, The Straits Times, 14 Feb 2012

IT IS a tough ask to begin with, particularly at a time when the global economic outlook is uncertain. Yet bosses here should be the least surprised by the momentum that has been generated since last year, when the labour movement pushed for a review of the employers' Central Provident Fund (CPF) contribution rate for older workers. That has gained traction with Prime Minister Lee Hsien Loong's comments at a recent dialogue with unionists that 'we do need to push the CPF rates up for people in their 50s'. But he was quick to add that any such move must be gradual. It would appear that the question now is not if, but when and by how much. All eyes will be on the Budget, which is out on Friday, to see if details are forthcoming. Few can fault the National Trades Union Congress' reasons for its call. For one thing, there is a need to boost retirement savings as people live longer and face higher housing and medical costs. It also believes a higher CPF rate will coax older workers to continue working. Currently, when a worker turns 50, the employer's contribution rate is cut from 16 per cent to 12 per cent; then down to 9 per cent at age 55 and 6.5 per cent at age 60.

There is a strong basis for NTUC's concern. Analysts, too, agree that lower rates resulted in under-funding of the retirement needs of older Singaporeans. Latest available figures show that only two in five active CPF members who turned 55 in 2010 had the Minimum Sum of $123,000 in their accounts - a mandatory amount they must set aside for old age. Many who met the requirement actually pledged their property for up to half the amount. A new re-employment law in place this year to underpin the national push to keep older workers on the job, will not ease anxieties about the adequacy of retirement savings - not if contribution rates continue to taper off with age.

The concerns which employers have that a rate hike will add to their costs, eat into profits and could be passed on to consumers is not without merit. And it is not being ignored in the ongoing discussion. But they would do well to abandon ageist attitudes and think about the fact that with restrictions on foreign labour and a tight labour market, their older employees - and others available to join the workforce - are a ready-made and viable alternative that they can well afford to turn to. Any change to contribution rates will certainly be measured and phased in gradually, with an eye on keeping businesses solvent and competitive - and providing employees here with adequate means to safeguard their future after work.

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