Other tools available with Singapore's flexible wage system
By
Zakir Hussain
'We have learnt from past recessions that the use of the CPF cut is a blunt instrument,' said Mr Lim. -- ST PHOTO: STEPHANIE YEOW
FORMER labour chief Lim Boon Heng has ruled out cuts to Central Provident Fund contribution rates for now, saying that a range of measures already in place can be used to trim wage and business costs here.
Chief among them is the flexible wage system, which allows firms to keep salaries in line with economic conditions and avoid layoffs by adjusting the variable components and bonuses.
He told some 800 unionists on Friday that the wage system had been made more flexible precisely to help firms and workers in dire times like the present.
'We have learnt from past recessions that the use of the CPF cut is a blunt instrument,' said Mr Lim, who is Minister in the Prime Minister's Office, referring to how employers' contribution rates had been slashed in previous severe downturns.
His remarks, released to the media yesterday, came after the National Wages Council (NWC) said last Tuesday that in the light of the worsening global economic crisis, it would reconvene next month to revise guidelines it set earlier this year.
That announcement prompted speculation among some economists that measures such as a cut in contribution rates to the CPF, the national social security savings plan, might not be far behind.
'I have a view on this,' Mr Lim said when he quashed speculation about a rate cut at the 27th anniversary dinner of the Singapore Industrial & Services Employees' Union (Siseu), the second-largest union here with 55,000 members.
A flexible wage system had been developed over the years, he noted. For rank-and-file workers, 20 per cent of their annual pay was in flexible bonuses and 10 per cent was in the monthly variable component (MVC) that can be cut in difficult times.
For executives and managers, the flexible component is even higher, he noted.
'Therefore, there is already a lot that can be done to trim wage costs. Apart from using the flexible wage system, companies can also use a shorter work-week,' he argued.
'We developed this flexibility so that we do not need to use the CPF cut. We should therefore see how the flexible wage system works in this downturn. A CPF cut is not justified at this point in time.'
The total CPF contribution rate for employees aged 35 and below is 34.5 per cent, with employers putting in 14.5 per cent.
Thereafter, contribution rates on both sides vary according to age and income.
The last time the employers' contribution rate was cut was in October 2003 after the Sars crisis. It was reduced from 16 per cent to 13 per cent. This was then restored to 14.5 per cent in July last year.
Mr Lim acknowledged that companies need to trim costs to survive the downturn, but said Singapore was fortunate to have built up a flexible wage system.
'Bonuses can be cut. The MVC can also be cut if needed. Other measures include a shorter work-week with corresponding reductions in wages,' he said.
'This is our advantage. There is no other country I know that has such a range of options open to employers, with unions that are willing to support such measures.'
His view on CPF cuts was acknowledged by Siseu general secretary Lim Kuang Beng, and Singapore National Employers Federation executive director Koh Juan Kiat.
Siseu's Mr Lim, addressing the point that a CPF cut was a blunt instrument, said that when employers' contributions were cut previously, workers had to fork out extra cash to pay their mortgages, while others saw a shortfall in their retirement savings.
'Cutting CPF does not make sense. In fact everything will go haywire especially in a recession,' he said.
Mr Koh said that the variable components now constitute 'a significant portion' of total salaries: 'We have built these up over the years precisely for times like these.'
According to the NWC, 84 per cent of private sector workers are under some form of flexible wage system.
Citigroup economist Kit Wei Zheng said policymakers were more aware that while past CPF cuts may have saved jobs, they can hurt consumption even more because homeowners who rely on CPF for their home loans would have to use more cash and thus have less to spend.
