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Oral reply to PQ on Cost of Living

Oral reply to PQ on Cost of Living

Question

Mr Liang Eng Hwa: To ask the Minister for Trade and Industry (a) whether the general cost of living in Singapore has increased significantly and is a cause for concern; and (b) what are the measures that the Government will take to address further cost increases and minimise their impact on the low and middle-income households

 

Oral Answer by Minister for Trade & Industry Mr Chan Chun Sing

  1. The Government understands and shares Singaporeans’ concerns with cost of living issues. This is a multi-dimensional issue.
    (i)          There are absolute measures of how the prices of a particular basket of goods and services change over time.
    (ii)         There can also be relative and evolving interpretations of what constitutes an essential basket of goods and services for different groups of Singaporeans.
    (iii)        Yet, “cost of living” pressures can also be an expression of the gap between one’s aspirations and one’s anticipated means to fulfil them.

  2. Different groups of Singaporeans have different concerns, needs and wants. Elderly Singaporeans, retirees and their families will be more concerned with healthcare affordability. Families with young children and infants may be more concerned about the prices of milk powder and educational programmes. Yet other families may be aspiring to buy their dream house or car. No single measure will express an individual’s “cost of living” pressures fully, given the different needs and wants, the evolving aspirations and the potential gap between aspirations and anticipated means.
  3. Furthermore, we are also aware that some price items, while not the biggest in absolute impact, can have a disproportionate psychological impact on consumers. Water and transport fares are such examples because they are items consumed daily. The “bunching” of price increases, like the increases in water and electricity prices this month, can also have a disproportionate psychological impact.

    Absolute Measures

  4. Mr Speaker, may I have your permission to distribute the first set of charts to members of the House.
  5. Our Consumer Price Indices capture the absolute price changes of different baskets of goods and services for different groups of Singaporeans.
  6. Last year, the Consumer Price Index (CPI)-All Items inflation was +0.6%, lower than the average of +2.3% between 2007 and 2017. In fact, inflation over the past 5 years (between 2012 and 2017), at an average of +0.6% a year, was significantly lower than the preceding 5 years (between 2007 and 2012), which averaged +4.0%. If we consider the CPI-All Items less imputed rental, the figure was 1.7% for 2017.
  7. The 2017 inflation figures for the various household income groups with their respective baskets of goods and services were -0.1% for the lowest 20%, +0.5% for the middle 60%, and +0.8% for the top 20%.
  8. For retiree households, it was -0.4%. However, if we strip out the imputed rental for owner-occupied accommodation from the CPI, inflation for retiree households was +2.1% last year, higher than the other household income groups. We know that inflation is a concern for retirees with no active income from work. This is why the Government has focussed much attention on help schemes for our seniors, starting with the Pioneer Generation Package. In addition to transport and healthcare subsidies for the elderly, we are also encouraged to see our social enterprises and businesses stepping up to help ease cost pressures on them by giving our seniors additional discounts.
  9. We also monitor the inflation for key categories of goods and services, for example, food, healthcare and utilities because they can have a big psychological impact on the daily lived experience of Singaporeans. In the graphs, members will be able to see that the inflation rate was lower over the recent five-year period between 2012 and 2017 for all household types, as compared to the five-year period from 2007 to 2012. Inflation rates were also lower for the key components of food, health care, and utilities and fuel for these household types. The sharp pick-up in inflation rate for utilities and fuel last year was largely due to higher oil prices.
  10. CPI-All Items inflation is expected to remain low this year, between +0.5-1.0%. However, rising global oil prices is projected to increase fuel costs and electricity prices. This, coupled with an increase in global food commodity prices, could impact domestic food prices. Consumer prices could also rise moderately alongside a faster pace of wage growth and pickup in domestic demand amidst improvements in the labour market. Accommodation costs are expected to continue to decline with a sustained fall in rentals, thereby dampening inflation.

    Other Factors that Influence Prices

  11.  We closely monitor prices to ensure that Singapore remains an affordable home for Singaporeans. There are some factors not within our control. And there are other factors that we have to work hard to constantly manage.
  12. As a small and open economy that imports most of our items, we are subject to global economic forces. Electricity and fuel costs which are influenced by global oil prices is one such example.
  13. The prices of certain products are also affected by our market size. Major companies determine their pricing strategies based on the purchasing power and relative bargaining power of different markets. The price of certain medicine for example.

    Singapore’s Multi-Pronged Approach to Manage Cost of Living

  14.  To manage the various pressure points, we must adopt a multi-pronged strategy.
  15. First – Keeping the Economy Competitive. At the macro level, the Government will aim to establish the conditions for companies to create good jobs with sustained real income growth to outpace inflation. Over the last five years, resident households’ income had risen faster than consumer price inflation. Median resident household income from work per member grew by 4.2% per annum in real terms between 2012 and 2017, while that for the lower income deciles rose between 4.2% - 4.6% per annum.
  16. In the long run, real wage growth is determined by our ability to raise productivity. Schemes such as the Productivity Solutions Grant aim to help companies do so. Other schemes like the Special Employment Credit support employment opportunities for low-income and older Singaporeans, while the Workfare Income Supplement (WIS) Scheme helps low-wage workers supplement their incomes and build up their retirement savings. We also need to closely monitor the wages of workers in industries facing disruptions. The best way to help workers facing low or stagnating wage growth is to equip them with new skills to take on new jobs ahead of time, and the Adapt & Grow initiative is an example of the Government’s efforts in this area.
  17. Second - Managing the Singapore Dollar. We carefully manage our reserves and the strength of our dollar to contain imported inflation. MAS’ exchange rate-centred monetary policy, through a gradual appreciation of the trade-weighted Singapore dollar in line with the economy’s underlying fundamentals, helps to preserve our purchasing power.
  18. Third - Diversifying our Sources of Supply. We do so, from food and water to fuel and raw materials for production, to ensure that we are not held ransom by any source. This bolsters the security and resilience of our resource supply chains, and avoid sharp price hikes when there are disruptions to our primary sources.
  19. Fourth - Promoting Competition in our markets and lowering the barriers to entry where possible, to allow Singaporeans to enjoy competitive prices for comparable products. For example, the Energy Market Authority of Singapore, or EMA, has progressively opened up the electricity market to competition since 2001. In April this year, EMA commenced the soft launch of the Open Electricity Market in Jurong, allowing 108,000 households and 9,500 small businesses the option to buy electricity from a retailer with a price plan that best meets their needs. Consumer feedback so far has been positive, with thirteen electricity retailers offering a good range of competitively priced plans. EMA is working on extending the Open Electricity Market to the rest of Singapore from the later part of this year.
  20. Another example is the market for mobile telecommunication services, where the Infocomm Media Development Authority’s regulatory measures to facilitate greater competition in recent years have led to an increasingly vibrant and competitive mobile market. New mobile operators are offering competitive and innovative mobile plans, including plans that allow for unlimited data, or start from zero dollars.
  21. Fifth - Managing the Cost of Doing Business. We must continue to simplify our processes and reduce business cost to minimise the pass through of costs to consumers. To keep domestic sources of inflation contained, we will continue to carefully manage domestic supply-side constraints. For instance, the Government will ensure an adequate supply of residential, industrial and commercial space to relieve price and rental cost pressures as demand grows. We will also carefully monitor property market trends and take necessary actions to avoid sharp price changes that are not supported by market fundamentals.
  22. As a general principle, we price services fairly to recover costs and discourage over-consumption. However, our government agencies are also frequently reminded and are committed to keeping our costs under control to avoid imposing additional burden on businesses and consumers.
  23. Various agencies are now using the price quality model for tender evaluations to moderate the excesses of pure price competition. This can be seen in the case of new hawker centre tenders. Since 2012, the National Environment Agency, or NEA, has removed reserve rental in the tender for stalls in hawker centres, and 52% of stalls are awarded at bids below reserve rental today. The NEA has also announced that 20 new hawker centres with approximately 800 stalls will be built by 2027 and the managing agents appointed to run these new centres, some of which are social enterprises, will be required to provide affordable food options. Another example is the Early Childhood Development Agency’s use of the Anchor Operator and Partner Operator Schemes to provide quality early childhood care and education at affordable prices.
  24. The Pro-Enterprise Panel will also work with businesses to find meaningful and effective ways to help lower regulatory costs for businesses, which include improving regulatory efficiency, simplifying processes and removing unnecessary licences.
  25. Sixth - Focusing our Help Schemes to do more for those with less. This is an accepted principle by most Singaporeans. But we also understand that various groups of Singaporeans would like to see more being done for them – be it in education, housing, healthcare, transport or other policies. Ultimately, we must forge a social consensus of how much we want to tax the general public, to support the desired groups in a targeted manner.
  26. For example, we do not subsidise electricity or petrol prices upfront. That would disproportionately benefit wealthier households as they tend to consume more. Instead, the Government provides U-Save rebates, with households living in smaller HDB flats getting a higher amount. In Budget 2017, the Government announced a permanent increase to the GST Voucher U-Save rebate to offset some of the increases in utility bills for lower- and lower-middle income households following the water price increases. With the additional U-Save rebates, one- and two-room HDB households, including most three-roomers, will not see an increase in overall water bills on average.
  27. While this strategy is economically and socially sound, it comes with two challenges. First, by not subsidising prices upfront, consumers may experience a “higher sticker price”. This may create a disproportionate negative psychological impact because the back-end subsidies to help lower income groups reduce the actual prices paid, is not as obvious or visible. Second, it is always politically more difficult to carry the ground when different groups of people receive varying levels of assistance because they are assessed to have different needs. Regardless of the method of needs assessment, it will often be fraught with debate and challenged by those who receive relatively less help. However, the alternative to give the same help to all without discrimination also cannot be the wisest way to expend our finite resources to help those who need more.
  28. Seventh - Enabling Consumers’ Choice. We will work with NTUC to strengthen CASE’s capabilities to better promote consumer awareness and empower consumers to make informed purchasing choices to stretch their dollar. One way is to improve price transparency on common household items like groceries and cooked food so that consumers can be more informed. Today, with technology and crowd sourcing platforms, consumers should be much better able to make informed choices on where are the best deals in their local neighbourhoods. We will work with NTUC and CASE to see how best to bring about such platforms for our consumers, tapping on local networks. We will also work with NTUC and CASE to establish a panel comprising relevant stakeholders such as merchants’ associations, unions and grassroots leaders to help oversee this effort, and look into ground feedback to help consumers stretch their hard-earned dollar, while deterring unfair pricing of consumer necessities.
  29. Eighth – Leveraging our Social Enterprises. The Government will continue to work with social enterprises like NTUC to benchmark the prices of various essentials. This was the origin of the WELCOME supermarkets for groceries many years ago. NTUC FairPrice continues to expand its House Brand product range of affordable value-for-money alternatives. We will work with NTUC to establish more NTUC FairPrice Shop stores in our neighbourhoods to make affordable products more accessible to all. NTUC Social Enterprises has over the years extended its offerings to include basic insurance, childcare and eldercare services, and cooked food to meet the evolving needs of Singaporeans. By helping to moderate the prices of essential goods and services, social enterprises such as NTUC play an important role in benchmarking prices across the board.

    Conclusion

  30.  Cost of living pressures will always be present in various forms. Managing the challenges is never ending work. There are many factors that drive price changes. There are also real and perceived gaps between Singaporeans’ aspirations and anticipated means to fulfil these aspirations. Most importantly, we recognise Singaporeans’ evolving aspirations for a better life for ourselves and our families, and the associated stress of achieving real income growth in a volatile economic environment.
  31. The Government remains committed to helping all Singaporeans manage and achieve their aspirations. Beyond creating opportunities for Singaporeans to enjoy real wage growth to meet their aspirations, the Government is also committed to help Singaporeans stretch their hard-earned dollar. At the same time, we are also cognisant that with finite resources, support must first and foremost be given to those most in need.
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