Speech by Mr Tharman Shanmugaratnam, Minister for Finance and Chairman, Council of Advisors of The Singapore Industrial and Services Employees' Union (SISEU), at The Quadrennial Delegates' Conference Dinner on Wednesday, 9 July 2008

My Parliamentary Colleagues

Members of the NTUC Central Committee

SISEU Council of Advisors

Newly-elected Executive Committee of SISEU

Delegates, Union Leaders

Management Partners, Guests and Friends

1. A good evening to all.

2. Let me first congratulate the delegates who were elected into the next Executive Committee of SISEU this afternoon. They include a good mix of old and new members. The Exco is the apex of the SISEU's leadership, which has the responsibility of bringing the union forward. I am confident that the new team will build on the strong foundations laid by the previous Committees and advance the well-being and benefits of all our members.

3. I met many of you at the SISEU Dinner and Dance held in November last year. The Singapore economy was doing well then. We had GDP growth of 7.7%, low unemployment and wage growth of about 6% on average in 2007. This was the highest rate of wage growth since 2000.

Economic Outlook

4. However, I also shared with you then that the global outlook was very uncertain. The storm clouds around the world have since become larger. What began as a financial recession caused by the US sub-prime crisis, is now threatening to become an economic recession in the US, as credit has become less available, consumers face a double-whammy of declining home values and rising fuel prices, and their spending falls. No one can say with confidence how long this weakness in the US economy will last. We have to be prepared for the possibility that it could extend well into the next year.

5. Growth in Europe and Japan have slowed down as well. In Asia, China, India and the ASEAN economies are expected to continue growing. But even they are affected, and their growth this year is now expected to be lower than was forecasted just 6 months ago.

6. In Singapore, our export-oriented sectors, especially manufacturing, are being hit by deteriorating economic conditions in the US and Europe. This is likely to continue in the coming months, and the weakness in manufacturing will act as a drag on overall GDP growth. However, other parts of the economy such as construction, domestic spending and the financial sector are still growing. Overall, although we have to expect a fair bit of volatility in the monthly and quarterly GDP numbers, we continue to expect GDP growth to average 4 to 6% this year.

7. While growth is slowing, inflation has also picked up sharply. The main reason for this rise in inflation around the world has been the dramatic increase in oil and food prices. Oil prices have gone up by 50% since the start of the year, and by about 100% compared to a year ago. Food prices globally are now 40-60% higher than a year ago.

8. Every country therefore faces higher inflation this year. Inflation in the Asian economies (excluding Japan) is now expected to average 6-7% this year. (Even in the Middle East, where they are earning much larger revenues because of higher oil prices, CPI inflation is now above 10% and increasing.)

9. Singapore depends more than any other country in Asia on imports. We naturally cannot avoid the effects of higher oil and food prices. Prices of food imported into Singapore are 10% higher than a year ago, and prices for petroleum products are 64% higher (in Singapore dollar terms). This is the basic reason why our CPI inflation has been so high this year.

10. As it stands, we expect inflation to be between 5-6% on average this year, with inflation being lower towards the end of the year. Food prices in the region have stabilised in the last two months and rice prices have fallen a little. We also expect inflation in the second half of the year to be lower, because the effects of last July's GST increase on inflation will wear out. However, the recent sharp rise in global oil prices will add pressure on inflation. And no one can rule out further increases in oil prices in the second half of the year. We are monitoring this and the impact on prices of the goods we import and on our CPI inflation, and will decide if the inflation forecasts for this year need to be revised.

11. Singapore addresses the problem of inflation mainly through our exchange rate policy. At its last monetary policy review, the MAS announced that it would allow a slightly stronger appreciation of the Singapore dollar. In fact, since the beginning of 2007, the Singapore dollar has appreciated by 11% against the US dollar^[1].

12. However, there is a limit to how much we can allow the Singapore dollar to rise to fight inflation that is caused by higher oil and imported food prices. It will require a dramatic strengthening of the Singapore dollar if we wanted to do this. But it will hurt our exports and economic growth badly. The right approach therefore is to keep our Singapore dollar policy focused on controlling inflation over the medium term and not to try to offset the immediate effects of higher oil and food prices. The rise in oil and commodity prices is a new reality in the world economy that Singapore like every other country has to adjust to.

Avoiding a Second Round of Inflation

13. What we have to do however is to prevent a second round of inflation in Singapore, following the first round of price increases due to food and fuel prices. This is what our Singapore dollar policy is aimed at doing. But this second round of inflation can come about if wages move up to offset the increase in inflation. It will lead to a wage-price spiral, and continued high inflation in Singapore, which everyone will lose from. It would also affect Singapore's competitiveness, and our ability to create jobs. In this regard, the tripartite partners comprising the Government, the Labour Movement and the Employers, have worked well together to help workers adjust and mitigate the second-cycle impact of inflation.

14. The National Wages Council (NWC) raised the concern that pushing up wage increases solely to keep pace with the high inflation rate will undermine our competitiveness and will not be sustainable over the longer run. However, the NWC has asked employers to provide one-off lump-sum payments to help their workers in these difficult times. Several of SISEU's management partners have already paid the lump-sum payment, and many more are in discussion with the union.

15. There is however another reason why wages do not need to rise to offset inflation this year. The Government has also provided assistance to help Singaporeans cope with inflation in the form of $500 million in GST Credits and Senior Citizen Bonuses, and the sharing of its budget surplus. The assistance has been targeted especially at low-wage workers and older workers, as well as families with children.

16. Take the example of a low-income family consisting of a woman in her late 40s earning $1,200/month, living in a 3-room flat, and supporting her two retired parents. Assuming inflation for the year is say 6% this year, their annual spending would increase by about $1,100 for the year. However, the family would receive three times this amount, $3,300, from Growth Dividends, GST Credits and Senior Citizens Bonus as well as rebates on their utility, S&CC bills. The breadwinner would also receive $350 in cash through the WIS scheme and another $850 in CPF to help her save for her retirement. Taking together the assistance in cash and government top-ups to the families savings in CPF and Medisave, the family would receive $5,000 in all.

17. Or to take another example, a middle income family - a middle-aged couple, both working and with two secondary-school aged children. The family's combined household income is $4,900 - the median household income last year. The estimated impact of inflation on expendit ures would be about $3,000 for the whole year. This is about $2,000 more than if we had a normal rate of inflation of about 2% this year. However, this family would receive $3,600 in total benefits from the government this year, comprising $1,600 in cash and top-ups to each child's Post-Secondary Education Account (PSEA) to help pay for their post-secondary education.

Enhancing Productivity and Employment

18. The lasting solution to inflation is to press on with the efforts to help workers upgrade their skills, to improve their productivity and to earn better wages. We can also help our experienced mature workers stay employed and help home-makers get back to work. This would not only raise the income of households, but would also help our companies cope with the tight labour market.

19. The Government has already put in place the Workfare Income Supplement Scheme and will continue to invest in Worker Training. However, partnership with the unions and management partners is critical to helping workers, especially older workers stay in their jobs, and to get more women back into the workforce.

20. I am pleased to note the progress made by SISEU and its management partners in this regard. Close to half of the branches of SISEU with Collective Agreements already have Re-employment clauses, well ahead of the re-employment legislation that comes in effect in 2012. For example, Mr Goh Leng Choon, 64 years old, retired in 2005 but was re-employed by Singapore JAMCO to develop a programme to train new aircraft cabin painters.

21. Several companies such as Wing Tai Group and Singapore JAMCO Pte Ltd have worked with SISEU to improve the working conditions for staff, including introducing tools like motorized equipment and training programmes. This has also enabled the companies to offer employment to older workers. One fine example is Madam Teo Ah Wee who has been providing such outstanding service at Yoshinoya, one of the companies managed under the Wing Tai Group, that she was awarded the Excellent Service (Gold) Award. Mdm Teo is a very youthful 75 years old!

22. SISEU has also been actively working with companies like ST Aerospace, to convert casual and contract workers to permanent hires or fixed-term contract workers. 70 year old Mr Heng Kai Leng was a casual labourer with a cleaning agency before he joined ST Aerospace Engineering Pte Ltd as a Hangar Assistant on a yearly contract in 2006. He was awarded the May Day Model Worker Award this year and is still working after his second contract renewal.

23. SISEU also partnered with companies like Transit Link Pte Ltd and Wing Tai Retail, to help homemakers get back to work through training and Flexi-Works programmes. Ms Chitra Devi, for example, previously stopped work to look after her baby but has now returned to work as a Customer Service Assistant at Transit Link. Madam Janet Lee, a part time Sales Coordinator at Dorothy Perkins under Wing Tai Retail has taken advantage of the Flexi-Works programme, to strike a balance between family and work.

24. These workers are with us tonight. I applaud them for the efforts they have made to stay employed and to return to the workforce. They are role models in showing us that as long as one is willing, the government, the union and employers would provide help to enable the person to continue working and be productive.

25. This is our Singapore approach which will enable us to overcome difficulties now and in the future. We adjust to changes in the world, such as high oil prices, and do not postpone the problems by subsidizing prices. The government assists those most in need so as to help them make the adjustments. We work together - unions, employers and government - to help every worker stay in a job or re-join the workforce and keep upgrading their skills so as to improve their future wages. This is our culture - continuous adjustment but constant effort to help those in need so that we can move forward together.

Conclusion

26. Our union leaders have attuned themselves to the needs of their members. This is evident in the case of Madam Lim Yek Gek from Sime Darby Management Services (S) Pte Ltd. SISEU understood the difficulties that she and her husband were facing to provide for their son's education. The couple are visually impaired. Thus, in 2006 and 2007, SISEU awarded Madam Lim's son the SISEU Bursary Award to ease the family's burden.

27. The theme for today's Quadrennial Delegates Conference is "SISEU DOING WELL, DOING GOOD, DOING TOGETHER AND DOING MORE". The achievements of SISEU and its management partners reflect the serious commitment and hard work of union leaders, both at the branch and EXCO levels. Union leaders not only have the delicate tasks of balancing their work, home and union duties, but also have to strike a good balance between advancing their members' well-being and the companies' interests.

28. On this note, I invite all of you, to join me in extending our best wishes to the new committee and SISEU.

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^[1] Jan 07 average vs Jun 08 average