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Speech at Press Conference

Dr Ng Eng Hen, Minister for Manpower, MOM Conference Room

CPF Restructuring and The Workfare Supplementation Scheme - Progressing Together.

2001 to 2003 were difficult years. Episodic brakes on our economy – SARS, BBB. We were confident that we could ride out the rough patches, the cyclical changes, but our eye was really on the more fundamental undercurrents that were afoot.  Globalisation had brought down the last wall for factors of production. What we had seen with the ease of movement in Capital flows and technology transfers, was now also occurring to labour markets. China, India, Cambodia, Myanmar, Laos, Vietnam, Eastern Europe, and Latin America added over a billion workers into the global labour market. Government was watching closely what impact these structural trends would have on our workers when our economy recovered. As the confluence of factors increased productivity globally, would the impact be worse on low wage workers (LWW) within each country?

2.   2004 – 2006 proved instructive – allowed us to form firm conclusions. Global markets recovered, Singapore's economy rebounded and powered ahead in tandem. Our restructuring efforts paid dividends. But would the benefits of economic growth filter down quickly to all workers? The answer was mixed as countries all over – USA, UK, even China -  reported similar observations. Wages of LWWs were stagnating. For Singapore, it was a similar picture.  2006 data showed that with persistent growth, more workers within households found jobs and household incomes rose which offered some respite. But, even then, wages for the lowest 10th to 20th percentile was held down because workers elsewhere were still earning much less for the same type of work. For instance, in Vietnam – minimum wage, skilled workers - $55 per month. The Government's assessment was that these trends were structural and would take a while to ameliorate – 10 to 15 years - before the wage gap of other developing countries closed up with Singapore.

Medium-Term Challenges and Goals.

3.   It is a two fold challenge to respond to globalisation and its uneven effects on society. One, and the most important, is how to continue to be competitive and grow – without which we would not have the means to help. Second, to ensure that all workers have a stake in our progress to maintain that social compact which was forged in our rapid phase of growth from the 1980s.

4.   The Inter-Ministerial Committee on Low Wage Workers was set up by PM in 2005 to address these challenges. We submitted report in Jan 2006. These issues were discussed in depth and a raft of measures introduced to address these concerns. Beyond specific measures: a realisation that we needed systemic responses to ensure that all Singaporeans were brought along as we progressed. What could be done? It was clear what we did not want – welfare, because it would erode the very work ethic which was the bedrock of our success and, wage equality which was not the economic system that encourages drive, innovation and growth. We were after equity and opportunities – where a worker could benefit from growth if he tried.

5.   Workfare and the Workfare Bonus Scheme (WBS) were the solutions recommended then as one-off because while we were agreed on principle, we were exploring and testing with the methods. Help schemes should be easy to administer, not distort labour market unduly and have their intended effects. We did not have the means to pay for it as a long term scheme. Therefore, it was one–off and contingent on a budget surplus and given out as cash. But the first tranche of the WBS did give us confidence that we could implement it as a long tern feature provided we had the means. The rise in GST now provides resources to commit to this long term.

6.   PM announced that Workfare would be the fourth pillar linked to work and centred on CPF. Why CPF? The CPF is a sound and virtuous system of our social security. It has enabled us to progress together as a nation. It has provided social stability and wealth. It has given every family a stake in Singapore. It has tangible effects which meets needs across the spectrum of a life cycle: birth, marriage, homes, health and retirement. 3 pillars based on it – Housing, high home ownership (90%); Affordable and good health care (Medisave, Medishield); and Retirement (a stable source of income when they retire). It is premised on sound principles which are aligned with our ethos as a people– self reliance, mutual support from family, Government assistance after that.

7.   With Workfare as a long term feature, we could also structurally alter the CPF for LWW without compromising their long term needs. The aim was to increase their take home pay by reducing CPF contributions, made up for by Workfare. The main target group – those that needed the most help: the lowest 15th percentile ($1000) ; 45 years and older, regular employee earning between $500 to $1000. But workers up to the 30th percentile ($1500) would get some help too.

8.   Examples of cases have been circulated. Generally, the benefits are more for older workers. As a result of CPF changes and the WIS, the take home pay will go-up by 4% to 8% for the target groups. Their CPF will go up by about 3% to 8%. Effects will be tangible, significant and felt. It will be a sustained help and long term programme to make work more rewarding. We are committed to improving the lives of LWWs through Workfare. The commitment is long term, but the specific schemes will be reviewed after 3 years to ensure that our objectives are met. MOM will be closely monitoring the effects of these CPF changes and the WIS.

9.   Caveats – Workfare must not weaken the CPF system. It must not incentivise employers and employees to abdicate their responsibility of saving into the CPF. If we do this, we would have undermined the very objectives that Workfare intended, to ensure social security through work. More will want Workfare – and we will have to reduce benefits or take from other important programmes to spend more, and with less effect. We must not diminish personal responsibility to set aside for our own needs, the core of our CPF principle. Even those who earn very little should set aside something. This is the reason we have reduced rates for the self-employed and informal workers.

10.   As others have pointed out, Workfare is not the complete solution for equity and opportunities for LWW. It is not a scheme that we aspire for any Singaporean to spend his whole working life in. In tandem, we must continue efforts in skills upgrading, economic restructuring to higher value add jobs. Individual effort would still be needed to save enough for one's own needs, to upgrade and earn more. I think that is the right approach. We do want people to graduate from Workfare to better things.

11.   But for those who need help for some period, Workfare with growth, and jobs available, will encourage Singaporeans to find, stay and improve on their jobs. With Workfare, they will take home more pay and be assured that they have put aside something for their housing, medical and retirement needs. We would have ensured that this generation of Singaporeans will continue to progress together.