Thursday, December 25, 2008

Better some business failures than to cut CPF

Dec 25, 2008

ANY cut to the employers' Central Provident Fund (CPF) contribution rate to give temporary relief is not justified by the facts, now and in the foreseeable future. The Straits Times should like to say 'forever', but only a healthy respect for the curvature of the horizon restrains us. What is known thus far is that the more distressed economic conditions get, the greater must be the mandated social protection for Singaporeans, not less. As it happens, this comes only from the CPF, not just to facilitate home purchases but also for paying large medical bills and providing retirement income. At current cumulative rates, the Minimum Sum will already fall short of projected need for more and more retirees as Singaporeans' lifespans lengthen.

Working people will be considerably cheered that Prime Minister Lee Hsien Loong and former NTUC chief and People's Action Party chairman Lim Boon Heng have both discounted CPF reductions as a means of averting mass business failure. Mr Lee stated his position to Singaporean media late last month, while in South America for the Apec conference. In the brief period since, employment prospects in industrial nations as well as the outlook for big business have darkened further, though not precipitously. Both the PM and Mr Lim took the precaution of adding the obligatory qualification, 'for the immediate', to their comments. No matter: The 'no cut' disclaimer is strong enough a message to companies that they have to make much better use of the protections built in over the years, and not clamour reflexively for CPF cuts as a habitual concession from the Government.

The flexi-wage scheme has not been exploited fully as a shortstop. It is notable that firms which have cut or frozen wages to reduce operating costs are the big ones, whereas mid-sized companies which have less margin to adjust to cost pressures have held back. It would be praiseworthy if they have desisted out of consideration for their workers, but no NTUC official will accuse these companies of being callous if they have to cut wages to be viable. All factors considered, the flexi-approach will have failed if the Government has to lower CPF rates in addition to, say, giving tax and rent relief.

Mr Lim described a CPF cut as a blunt tool. It is more insidious than that: Hurting the long-term interests of the entire working population so that some sectors or a number of companies can keep going does not make much sense. It is far less harmful to social calm if non-viable firms are allowed to fail, with some job losses no doubt, than to do irreparable damage to the nation's social security by paring back protections that are quite minimal.

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