Thursday, February 22, 2024

Singaporeans feel ‘psychological pinch’ due to GST hike in 2024 even with government’s easing measures

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Earlier this year, Singapore released a budget focused on social policy, with a number of measures aimed at protecting young families, the elderly and gig workers from inflation and the GST.

Singapore’s core inflation rate, which excludes private transportation and accommodation costs, was 3.2% year-on-year in November, down from 3.3% in October. The overall inflation rate for the same period he fell from 4.7% to 3.6%.

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Economists said the impact of the second 1 percentage point hike in GST could be mitigated by other factors such as government benefits, wage growth and employment growth, but the increase in daily expenses would be He said it would be a painful memory for consumers.

“I don’t think anyone wants to raise salaries any more, but there are still opportunities for employment and wage growth, so that helps. “Even if you’re receiving rebates, cash transfers, it’s not going to be perfect because somehow it doesn’t feel the same when your daily payments increase.”

“This is partly psychological, but it can be managed if you have a steady job, a steady income, and maybe even a rebate to help offset your utility bills.”

Selina Ling, chief economist at OCBC in Singapore, said that although headline and core inflation had subsided, consumers were still “feeling the pinch” due to higher price adjustments for transport, housing and electricity. “There is a high possibility that this will happen.”

“Given that this is a two-step process, businesses will be better prepared for the transition. However, consumers may be resigned to facing increased pass-through costs due to the GST hike. The question is whether wage growth in 2024 can continue to keep pace with inflation,” Lin said.

Shoppers exit the Sheng Siong store in Singapore.Photo: Shutterstock

Many retailers are offering attractive year-end discounts to encourage consumers to spend before the tax increase, while others have announced plans to absorb the tax increase.

One such store, IKEA Singapore, told shoppers last week: “As the cost of living rises, we want to ensure that home furnishings remain affordable for many Singaporeans.” , announced that it will absorb the 1 percentage point increase in GST.

The Swedish furniture giant had run a similar promotion ahead of the first phase of the two-step GST hike on January 1.

Supermarket chain Sheng Siong has rolled out a “1 percent anti-inflation discount across all stores” for the first three months of 2024, except for some products such as infant formula, tobacco and medicine.

Furniture retailer Home Living on December 30 promoted ‘Midnight Fiesta without GST’ on its Facebook page, offering ‘1-for-1’ deals and supposed ‘factory direct prices’ on furniture.

Other small businesses, such as bookstore Bookbar, will absorb an additional 1 percentage point increase, but their profits will fall by 5%, further shrinking already thin profit margins.

“We have to pay GST to almost all of our suppliers, and we also have to pay GST on rent and utilities, which means we’re probably losing about 5% of our business profit every month,” the co-founders said. Alex Chua said. “It’s going to have a big impact considering the margins on books are already so thin.”

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But Mr Song said that, overall, the initial GST hike to 8% based on aggregate consumption levels had been “well absorbed”, and Singaporeans could also expect further government benefits and mitigation measures next year. said.

However, the ruling People’s Action Party (PAP) government’s main rival, the Labor Party, has consistently voiced its opposition to the GST hike since it was first announced in the 2018 budget, and has instead suggested that the Republic’s It calls for adjustments to the reserve framework.

Singapore Affairs social commentator Leong Chan Hung said the issue was unlikely to go away anytime soon, noting that “bread and butter” issues have always been a major concern for many.

However, Mr Leung said Singaporeans largely accepted the government’s rationale for raising taxes to increase spending as the country’s rapidly aging population grows.

“The whole argument for tax increases is about whether people feel they are benefiting because it means they get the support they need, especially for vulnerable households. So, rightfully so. , when the time comes for another 1 percentage point increase in GST, it will depend on whether people feel secure with government aid schemes and benefits,” he said.

Singapore’s Deputy Prime Minister Lawrence Wong. Photo: EPA-EFE

Mustafa Izuddin, senior international affairs analyst at Solaris Strategies Singapore, said opposition politicians are likely to continue to use dissatisfaction to issue counter-proposals to the GST hike.

“The younger generation is much more discerning and likely to be open to accepting more proposals from both the incumbent and the opposition, but whether that translates into votes is another question,” Mustafa he said.

He added that next year’s budget, which will be announced on February 16, is likely to be similar to this year’s budget, which includes measures such as public housing subsidies for new families and enhanced infant allowances.

The budget measures come in a “crucial year” for the government, which is expected to undergo a change in leadership by November next year.

Mr Mustafa said it was “important for the government to limit the political impact of tax increases” as they were “a precursor to the general elections”.

Singapore Prime Minister Lee Hsien Loong said: he will hand over the reins It will be sent to Lawrence Wong by November next year, before the general election.

“There is no reason to delay the political transition. Therefore, I intend to hand over to DPM Lawrence by the next GE. After that, I will be in charge of Lawrence,” Lee said.

The PAP has won 14 general elections and ruled Singapore uninterrupted since 1959, with Mr Lee leading the party in the past four polls.

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