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29 Feb 2020  (945 Views) 
Economic downturn

Loan to cover loss of income
A good way for a business to survive the economic crisis is to cut down on expenses, of which a large part is on wages. They should encourage their workers to take no pay leave.

The workers will suffer a loss of income, but remain employed. There is no need for the business to retrench any of its workers. 

Some workers have savings and can cope with the loss of income. But some cannot. They have financial commitments.

The government can provide a loan to these workers up to the amount of the loss of income, as certified by their employer. For example, if the worker earned $4,000 a month and takes no pay leave resulting in a loss of 25% of the regular income, the loan can be $1,000 a month. This loan will continue while the worker remain on the no-pay leave arrangement.

This loan can be provided by, for example, the Central Provident Fund. It an carry an interest rate of 2% p.a. 

The worker can repay the top up loan at any time when they are able to do so. Any remaining loan will be deducted from the CPF savings at the time of withdrawal or on the sale of a property that is mortgaged to CPF.

As this is a loan which has to be repaid, it will overcome the problem faced under an retrenchment insurance scheme where it may be difficult to decide if a claim should be paid under certain questionable circumstances.

If the worker has savings, he may choose not to take this loan. 

Some workers may be unable to repay the loan prior to their retirement. The government may have to face the write-off of the loans of these workers. This can be handled separately and be treated as a cost to the state of provided income support. 

When the business recovers, the employer may put the workers back on normal work. The "loss of income" loan can ceased at that time. The business has the advantage of keeping the skill and knowledge of these workers during the downturn. It saves them on cost of training new  workers. 

While on no-pay leave, the worker has the choice of spending the time to learn a new skill, or just to take a break with the family. 

The "loss of income" loan can also be given to self employed workers, like taxi drivers. The amount of the monthly loan can be fixed at a certain percentage of the average income for that occupation.

I find this arrangement to be better than an unemployment insurance scheme.

This scheme has a similar effect to an earlier suggestion from me to allow the CPF member to withdraw his savings to meet living expenses. I have now decided that this loan scheme is more comprehensive, as it allow other workers to have access to the loan even if they do not have CPF savings that can be withdrawn. It is also easier to administer one scheme.

Minister Heng - I hope that you take this idea. It is free for you.

Tan Kin Lian


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