If Minimum Sum increase was “moderated”, why not electricity prices?

In Political governance on 04/07/2012 at 5:08 am
Last Saturday, it was reported that electricity tariffs will decrease by an average 2.5%  for the next three months, beginning July 1: the price of fuel has gone down. Sounds good to me who doesn’t have a wage increase that compensates for the rise in inflation.
But the government’s response to a question on the cost-of-inflation increase in the CPF’s Minimum Sum has me wondering if its formulae for various “automatic’ price adjustments of services etc are not that “automatic”.
But shume background first. Uncle Leong (TOC used to carry his articles*, but now they only appear on his website) often asked pointed questions about the way electricity tariffs were calculated. The non-answer response of the authorities was to say “it’s the formulae”, and imply that it was a mechanical process: there were no attempts to tweak or adjust the formulae without first letting us know.
But we now know that the increase in the Minimum CPF Sum was “adjusted”: the formula used was tweaked (see letter below to ST’s Forum from the Manpower ministry). And worse: if a member of the public had not grumbled publicly about the inflation rate used to calculate it, the tweaking would not be publicbecause I don’t recall reading about the “moderated’ change when the new Minimum Sum was announced.
Now this “moderation’ raises the following issues:
— What other formulae have been manipulated without our knowledge?
— Will we never be told unless we ask? And if so why the secrecy?
— Waz the point of using formulae when they can be adjusted in secret? To con us?
— If the Minimum Sum amount was “moderated”, why wasn’t the electricity tariffs “moderated’ given that world gas prices have collapsed, while S’pore continues to pay above market prices because of long-term contractual obligations, among other reasons?

Increase doesn’t fully reflect total inflation

MR YOUNG Pak Nang inquired about the use of the headline consumer price index inflation rate to adjust the Central Provident Fund Minimum Sum (‘CPF Minimum Sum should reflect ‘true’ inflation’; last Friday).

As he noted, increases in imputed housing rentals on owner-occupied homes and certificate of entitlement prices for private cars contributed to higher-than-normal headline consumer price index inflation last year.

For the majority of retirees, these are not items that would lead to increased cash expenditures.

The Minimum Sum is aimed at providing for CPF members’ basic retirement needs.

The original target, adopted in 2003, was for the Minimum Sum to increase in real terms to $120,000 (in 2003 dollars) by 2013.

Further, besides this real increase, the Minimum Sum has to keep pace with long-term inflation trends.

The Minimum Sum has therefore been increased each year to meet the required real increase and to take into account inflation.

However, this year’s Minimum Sum increase was moderated, and hence did not fully reflect the consumer price index inflation that occurred over the last year.

This year’s increase in Minimum Sum, by $8,000, was one-third less than it would have been if we had followed the usual formula for Minimum Sum adjustments. With the moderated increase, we have stretched out the 2013 target to 2015.

Some of the factors that have led to higher consumer price index inflation in the last year are cyclical, and likely to even out over the long term.

For example, imputed housing rentals on owner-occupied homes have significant short-term impact on the consumer price index, but tend to even out over time.

Over the 15-year period from 1996 to last year, which like most such periods saw the property market fluctuating in both directions, headline consumer price index inflation averaged 1.6 per cent.

This is comparable to the average inflation of 1.5 per cent over the same period if imputed rentals on owner-occupied homes were excluded.

We thank Mr Young for his useful query.

Farah Abdul Rahim (Ms)

Director, Corporate Communications

Ministry of Manpower

*Update after posting: Juz found out via S’pore Surf that TOC carried an article from Uncle Leong dated 2 July. Funny not among the Main Stories.

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