4.7 Older low-wage workers are the ones most affected by the changes in our economy. They find it harder to learn new skills and upgrade themselves, they find it harder to get re-employed if they lose their jobs, and their families find it more difficult to make ends meet. We will therefore introduce Workfare to supplement the wages and savings of older low-wage workers, and modify the CPF system to complement the Workfare scheme.
4.8 Many other developed countries have addressed the problems of the low income group often through extensive social welfare programmes. But Welfare has drained fiscal resources and, more damagingly, eroded the work ethic and encouraged an entitlement mentality. The more successful model of assistance has been Workfare — which seeks to supplement the incomes of low-wage workers on the principle that the best way to help people is to help them find work and stay in work.
4.9 Wage supplements are new to Singapore, but the concept has been tried with some success in other countries. In the US, this is called the Earned Income Tax Credit. This acts like a negative income tax for low-wage workers; in other words, it supplements their earned income instead of taking away from it. The UK has a Working Tax Credit which is similar. These schemes have helped to reduce poverty and encourage work. But they are not without problems — they are not cheap, and they potentially weaken the incentive for workers to upgrade themselves and earn more. That is why we have to consider the design of the scheme very carefully and move cautiously. We introduced the Workfare Bonus as part of the Progress Package last year, to test out the concept amongst Singaporeans. We are now ready to take a step further by making Workfare income supplements a long-term feature of our social security system — the fourth pillar.
4.10 We will move in parallel on both the CPF and Workfare for low-wage workers. We will reduce the CPF contributions for these workers, while introducing Workfare income supplements for them. This will achieve three objectives. First, workers will contribute less CPF, so as to increase their take-home pay. Second, employers will also contribute less CPF, to make the workers more employable. Third, the Government will give workers Workfare income supplements, mainly into their CPF accounts, so as to help them to build up their savings. Workfare provides more incentives for individuals to work, and for employers to hire them. With Workfare, low-wage workers will end up with more in their CPF. With Workfare, the State is stepping in to share the burden of social support with the individual and his employer.
4.11 The principal target group of Workfare will be older full-time workers aged above 45 years who earn $1,000 or less. This group will receive the highest Workfare benefits. However, Workfare benefits will also extend to a wider group — those above 35 years who earn $1,500 or less, but at a lower rate. This is so that we do not miss any deserving cases, and also so that workers whose earnings increase beyond $1,000 do not suddenly lose all their Workfare benefits. I will go through each of the measures in turn.
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