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MVC Over CPF - A Case of Little Gain All Pain

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    From: Law Sin Ling 1 June 2006 MVC Over CPF - A Case of Little Gain All Pain Sg_Review In May 2006, the Singapore National Wages Council (NWC) picked up their
    Message 1 of 1 , May 31 11:26 PM
      From: Law Sin Ling
      1 June 2006
      MVC Over CPF - A Case of Little Gain All Pain

      In May 2006, the Singapore National Wages Council (NWC) picked up
      their sales pitch from last year on the Monthly Variable Component
      (MVC) by once again exhorting employers to adopt it as a matter of
      voluntary prudence.

      Integrating the MVC scheme into the pay structure will mean that a
      specific percentage (the government recommends 10%) of a worker's
      monthly salary will fluctuate according to the business whims of his

      The government's flexi-wage policy aims to have up to 30% of a
      non-managerial worker's annual net pay package (salary, bonus and 13th
      month allowance) converted into a variable percentage.

      To allay the discomfort of employees over the characteristic poor
      outcomes which accompanied every government labour policy in recent
      years, the NWC, together with the NTUC (the `Lord of All Unions'
      symbiotically-linked to the PAP government), had strategised to
      encourage employers to hand out to the doubting workers a handsome pay
      rise incorporated as a MVC.

      This is a shrew tactic which attempts to lubricate the acceptance of
      the MVC, as well as induce a measure of temporary amnesia over a PAP
      promise which is now 2 Prime Ministers and an electoral mandate
      overdue - The restoration of the employer's component from 13% to 16%
      and (wishfully) 20%.

      But restoring CPF (employer's component) now would be suicidal when
      persistent high oil prices and elevating US Federal Funds Rate (which
      experienced its 16th consecutive increment up to 5.00% on the 10th May
      2006) could well retard the overall world economy at an indeterminate

      As a result, more companies may yet quit Singapore, taking with them
      job opportunities. The government wants to avoid another mass exodus
      at all cost when that future arrives. However, without an alternative
      nut to turn, it would once again have to tinker with the CPF
      contribution rate by cutting the employers' component.

      Further CPF cuts will mean lesser money for retirement and housing
      loan repayment, an unthinkable proposition which will translate to
      more cuts in electoral points for the ruling PAP in the next election.

      Expectedly, the government employs a quick and easy trick by
      encouraging employers to put more liquidity into the pocket of
      workers, and thus allowing the latter more disposable money.

      This creates a fictitious win-win situation.

      For the workers, they become financially empowered to spend on
      essentials (such as utilities payment and repayment of arrears) and
      non-essentials (such as betting, gambling, purchase of an
      over-publicised HDTV, and amnesic indulgence in the Great Singapore Sale).

      For the government, the implementation of the national high definition
      TV services and the attainment of a favourable GDP, to name a few, are
      given a positive impetus.

      More importantly, the money in the workers' hand will create the
      illusion of an ephemeral narrowing income gap.

      However, it should not be lost to income earners that the combined
      factors of lesser CPF (from employers) to act as a tax buffer (tax
      relief) and a higher take-home pay will may result in more of their
      income becoming eligible for taxation.

      Nevertheless, the government wants to nudge companies into adopting
      the MVC and for employees to accept the scheme as a trade off for not
      further manipulating the CPF contribution rate. A lot of good faith is
      entrusted upon companies to evoke the clauses of the MVC as a first
      option during economic downturns, instead of the apocalyptic strategy
      of retrenchment and relocation.

      CPF applies to all earned component of a worker's pay cheque. For
      employers, a calculated raise via the MVC is thus mathematically more
      advantageous with a lower CPF rate.

      The Prime Minister Lee Hsien Loong once assessed that "People support
      CPF cuts because there are no protests outside parliament." And the
      deputy secretary-general of NTUC Lim Swee Say confidently reaffirmed
      that workers prefer not to have CPF restored since "They prefer to
      have whatever rewards in the form of cash because they can access it."

      The policy-makers are missing the point.

      The rhetoric does not adequately address clear and present problems
      which may arise or remain unresolved. And worst case scenarios may
      still materialise.

      (1) Actual Raise

      Previously, the CPF was used as an instrument of persuasion to attract
      companies to settle and stay in Singapore. But that approach has since
      given way to the urging of pay hikes structured through MVC.

      Unlike a CPF increment, a raise is not gazetted. Employers are not
      compelled by law to give their employees one. This distressingly means
      that even as the government trumpets the marvellous economic digits
      and accord itself generous remunerations (including bonuses), ordinary
      workers may not reap anything substantially meaningful, if any is
      given at all.

      This does not do justice to workers, and it spares employers the
      burden of accounting for any good business turnover.

      Employment disputes over annual increments, bonuses, and the validity
      of any subsequent dismissals and retrenchment may drive employers to
      refrain from hiring more local workers, or offer low starting salaries
      with steep performance indices.

      Pushed to agitation, the government may simply take side, shifting the
      burden of proof of entitlement to aggrieved workers.

      (2) Retirement Fund

      Responsibly educated workers place a premium on a higher CPF payout.
      Their feedback on CPF suppression would have sounded clamorously
      contrary to what Lim Swee Say had picked up.

      After all, it concerns their retirement fund and even life-saving
      MediSave money.

      And workers derive scarce delight from working through rickety legs
      and squinting through failing eyesight just to earn enough NOT TO RETIRE.

      With little in their CPF, workers will be compelled to work beyond
      their retirement age until their last breath just to sustain
      themselves (and their families) on the rudiment.

      Many Singaporeans depend on their CPF for retirement and saving.
      Continual depression of employers' contribution together with an
      inexorable upward movement of the Minimum CPF Sum quantum (affecting
      how much of his total CPF a person can withdraw) will hurt workers.

      Coupled with the higher stipulated age at which CPF money is released
      piecemeal to contributors, workers will have little choice but to
      labour on incessantly.

      And the unreliable property price may not swing to their advantage if
      they should need to sell their lodging to recover their CPF
      `investment', not that it is a preferred choice.

      This is a time bomb which is set to explode in the face of the
      government when the population of senior citizens without job and
      subsistence reaches a critical level in a future scenario.

      But in Singapore, retirement is not a given. And the government has
      been most insistent that citizens should work beyond their retirement age.

      On a more sinister note, there is the Advance Medical Directive (AMD)
      (legalised euthanasia) which the government (through the brow-beaten
      press) would soft-sell from time to time to the old and incapacitated
      as a fast-track option out of their misery when they are passed their
      economic usefulness to the State.

      The government had even viciously suggested sending the economically
      invalid out of the country to settle down in overseas retirement
      villages to permit them to stretch their meagre savings.

      (3) Cost of Living (COL)

      It is almost an infrangible reality that the COL does not decrease in

      Minister of Health Khaw Boon Wan once concluded that if "You want low
      cost of living, that means you want low wages", implying that if COL
      descends, so will wages. By that sacred wisdom, if wages are low, it
      should follow that the COL will need to be low if consumer economy
      (spending power) is not to be doomed.

      But reality is not a GLC (Government-Linked Concept).

      Increasing the wages even on a short time scale relieves the pain from
      the burden of a high COL temporarily without actually dispelling the
      persistent COL.

      The government might take the propaganda of an increased wages a step
      further to declare that Singapore workers are now better remunerated,
      and can hence AFFORDABLY absorb a tide of inflationary hikes in GST,
      transport fares, education fees, and much much more.

      And the government would not hesitate to leverage on this excuse to
      reduce financial aids to the marginally `enriched' needy.

      The presence of flexi-wage through MVC will mean that when a push
      comes to a shove (economic downturn), employers will depress the MVC,
      leaving workers to bear the brunt of an invariable high COL and lowed
      spending capacity.

      To all intent and purpose, the promotion of MVC and the suppression of
      CPF is simply a policy to hurriedly pass the bull's eye from the
      government to the employers.

      This is the curse of Singapore's 'Nanny Economy' - Where gainful
      employment is largely dependent on job opportunity presented by
      employers from Multi-National Companies (MNCs) and Government-Linked
      Companies (GLCs); And decades of micro-management by a government
      assuming duo role as both regulator and player has distorted the
      natural maturing of Singapore's economy; And an education system which
      continues to be driven by short-term economic needs.

      And it will remain a perennial vexation as long as Singapore workers
      remain docile believers in the legendary notion that their elected
      government is a sacrosanct God in disguise.

      (Mr) Law Sin Ling

      Other pertinent articles on CPF and Wages can be found in "Obscene
      Salaries; Cutting to the Heart of Issues" at
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