S'pore needs more than just CPF cuts: analysts http://business-times.asia1.com.sg/sub/latest/story/0,4574,91420,00.html?SINGAPORE - A plan to cut company contributions to Singapore's state-run pension fund should slow down retrenchments and boost corporate savings, but more cost-reducing measures are needed to sharpen the Republic's competitive edge, analysts said on Tuesday.
The struggling property sector, once a pillar of the local economy, is expected bear the brunt of the proposed changes to the Central Provident Fund (CPF), which Singaporeans use to fund home purchases, they said.
Prime Minister Goh Chok Tong in a speech to the nation on Sunday said the government has no choice but to push for CPF reforms in order to save jobs as the country faces a mounting challenge from countries manufacturing the same products at cheaper costs.
The proposals, including a cut in the amount companies are legally required to contribute to the CPF for each employee, is expected to be tabled for debate when parliament sits on August 28.
Touching the CPF has always been an emotional issue for Singaporeans because the fund -- whose three million members had a combined balance of more than US$55 billion (S$96.2 billion) at the end of 2002 -- is the cornerstone of the so-called nanny state's social compact with its citizens
CPF funds are used to buy homes as well as pay for medical bills and children's education, with enough money left for retirement. Part of one's CPF savings can also be put into approved investment schemes like unit trusts.
But current contributions totalling 36 per cent of a worker's monthly salary -- 16 percent from the employer and 20 per cent from the employee -- has also helped make the cost of doing business in Singapore higher and if left unchanged could divert investors to other countries.
The government wants to cut the total package to as low as 30 per cent.
Paul Schymyck, an economist with research house IDEAglobal, said the proposed pension cuts could help companies go slow on job layoffs and boost corporate earnings.
However, this would not be enough to make Singapore competitive in terms of costs.
'At the end of the day, no matter how much you cut the CPF, your wage cost here will remain higher than China and India,' he told AFP.
Mr Schymyck said corporate taxes which have earlier been reduced to 20 per cent remain high.
Other costs such as transportation, consumer taxes which are to be raised to five per cent next year from the current four per cent, and industrial land rentals are higher compared to neighbouring countries.
'I think they should address the entire cost structure,' he said.
Mr Goh in his speech made a stark illustration, saying that for every manufacturing worker hired in Singapore, a company could employ three in Malaysia, eight in Thailand, 13 in China and 18 in India.
The Singapore Manufacturers' Federation described the proposed cuts as an 'important step in the right direction,' but said it hoped the government 'will implement more measures in the near term to reduce business costs further.'
It said rents, taxes, and administration or service fees paid to government agencies form a 'large portion' of business costs here.
Kenny Yap, executive chairman of ornamental fish exporter Quian Hu Corp who welcomed the proposed cuts, said his company employs more than 100 staff in Singapore and 300 in China, but its wage cost is 20 per cent lower in China.
'I think it has come to a point where the people have to decide for themselves how much they want to save rather than rely on a government structure to do that,' he said.
Low Ping Yee, an economist with United Overseas Bank, said the proposed cuts should ease retrenchments but would not result in new hirings.
'But what it signals to investors is that our wage system is becoming more flexible and that will make it more attractive for foreign investors over the long term.'
Kim Eng Securities said the proposed cuts 'should help reduce the economy's cost structure and help accelerate the nascent economic recovery,' but is likely to dampen consumption demand in the short term.