| 110. Some have suggested a few
other ways to help vulnerable workers. One is
to have tax incentives for companies to hire
older
workers. It is possible but I am not in favour.
I will tell you why. A tax incentive is, in principle,
no different from a Workfare Bonus which is paid
directly to the workers, except for this - it
goes through the company and the company has
to make
a profit before it can take advantage of the
tax incentive. I would rather pay this directly
to
the worker. Also, if I make a tax incentive which
extends to all older workers and not just the
older lower-income workers, then there will be
a lot
of deadweight loss because I will be granting
tax exemption on many people who really do not
need
the tax incentive. It is more straightforward
to give a direct grant to workers, like through
this
bonus. In fact, that is how other countries which
have earned income incentives do it - direct
payments.
111. Mr Inderjit Singh suggested providing more
retrenchment protection through increasing compulsory
CPF savings or having a national unemployment
insurance scheme. It is also one of the items
in the Workers’ Party manifesto. The same
question applies to both - which is, who is to
pay for this protection? Who is to pay for this
unemployment insurance? If you raise employee
contributions to CPF, then you reduce workers’ take
home pay. Are you prepared to do that?
112. If you raise employer contributions, then
you are going to increase business costs and
lower competitiveness. In fact, since the ERC
recommendations, we have been working hard to
adjust the CPF contribution rate to be at a sustainable
level to lower cost and yet have enough for retirement
requirements, for housing requirements, and for
medical requirements. Quite a number of MPs,
including Ms Penny Low and others, have pointed
out that we must make sure that we have enough
money for retirement. Every additional item you
take out of the CPF means $1 less from somewhere,
from retirement needs or from housing needs.
You might say: Decide the principle, then we
can figure out how to do it later on. But I think
we have to look at the practicality and the practicality
is: who is to pay for this?
113. Also in Singapore, most workers already
have some form of retrenchment protection. MOM
did a survey two years ago in 2004 - 96 percent
of private sector establishments with at least
25 employees paid retrenchment benefits to their
local employees who had at least three years
of service. So there is already some kind of
unemployment protection which is in the retrenchment
benefits scheme. If you are going to introduce
a new layer of unemployment insurance, is it
going to be on top of retrenchment benefits or
in lieu of retrenchment benefits? I think you
have to consider carefully because if it is in
lieu of retrenchment benefits, you have to take
away a well-established scheme which is more
or less working. We can improve it but it is
a scheme which has worked out and people have
accrued retrenchment benefit rights which are
very important - as I am sure Madam Halimah will
confirm. If it is going to be on top of the present
system, is it wise to have double provision for
unemployment protection at additional cost and
with additional negative side-effects?
114. What are these side-effects? Straits Times
today had a timely article: “How the next
welfare state must work?” It is an article
from the Ifo Institute for Economic Research
in Munich and it is by the Director, Professor
Hans-Werner Sinn, who is an eminent economist.
The research institute is a well-respected European,
German, think-tank. They produce Ifo Business
Surveys which track how the European economy
is going. Their article today says how the next
welfare state must work and what is wrong with
the present welfare state. I read from the article: “In
Western Europe, the welfare state helps these
people by paying replacement incomes in the form
of social aid, unemployment benefits or early
retirement benefits”. Unemployment benefits
- so it gives you replacement income. In other
words, if the market does not provide you with
a sufficient income from your labour, the state
will provide an income without requiring you
to work - which is what unemployment insurance
is about. He goes on to say: “As humane
as this policy is meant to be, it is largely
responsible for the mass unemployment from which
Europe suffers. The reason is simple - replacement
incomes are wages for doing nothing.”
115. Then he goes on to explain this is an old
problem but it is worse now because of China
and India, and now wages have to adjust. So,
another way European companies have tried to
fix this is with a legal minimum wage, to prevent
wages from falling. He explains why a legal minimum
wage is also not a sensible approach. He says
Europe’s welfare system based on replacement
incomes and minimum wages will not survive globalisation.
Because, if you go for minimum wages, you are
actually pricing yourself out of the market.
You are encouraging other people to come in to
work - to take the work away. You will not survive
globalisation and there is no way to turn back
the tide of history.
116. So what does he propose? He proposes wage
supplements, which means paying people to work
- the way we are doing Workfare. He says even
wage supplements is expensive, because you have
to pay everybody - you have to pay all those
who are working and not just those who are not
working. But he thinks if you do the sums, it
probably will be less expensive than going for
unemployment benefits and minimum wages.
117. I think the most important thing is, whether
we call it wage supplements or Workfare, we are
encouraging people to work, we are encouraging
people to take care of themselves, and we are
ensuring that they have a reasonable standard
of living. At the same time, we let the market
do its work so the economy can restructure, can
grow, and in time they will upgrade, retrain
and be able to do better for themselves.
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