Analysts say 95% of households will have incomes around US$25,000 which could prepare them to absorb price hikes.
The Singapore government plans to raise its existing GST by two percentage points, from 7% to 9%, which is estimated to take place sometime between 2021 and 2025.
BMI Research noted that Singaporean households will also be well able to absorb the increase in taxes due to the high disposable incomes in the country. “We project the majority of households in Singapore will fall above the middle-income segment (household disposable income of US$25,000) with 95% of total households above this segment in 2018 and forecast this to reach 97% by 2022. This is indicative of a highly affluent population, capable of absorbing a rise in prices,” BMI Research said.
According to their report, personal care and effects spending - including cosmetics, make-up, and jewellery, and watches - are expected to be an outperforming retail sub-segment. It is “projected to have robust growth of an average 7.9% annually over 2018 and 2022. We also highlight that Singapore will be the biggest per capita spending market for personal care and effects globally in 2022, ahead of second-placed US and third-ranked Ireland,” BMI researchers said.
However, Singapore’s retail sales have remained tepid over 2017. On the upside, they are showing signs of improvement with retail sales growing by 4.6% YoY in December 2017, up from 0.7% in December 2016 according to the Department of Statistics Singapore. “In terms of retail sectors that are performing well or poorly in Singapore with or without the GST hike we project tepid growth for clothing and footwear, forecast to average 2.9% annually over 2018 and 2022,” the firm added.
Overall, the 7-9% GST increase will have a muted effect on household spending. “We forecast real household spending in Singapore to remain robust, growing by an average 4.0% between 2018 and 2022, an up-tick from 2.1% over 2013 and 2017 on the back of stable inflation and low unemployment. This will see total household spending rise from $164.8b (US$123b) in 2018 to $213b (US$171.8b) in 2022.
The government has highlighted that the implementation will depend on the state of the economy and how expenditures grow and stressed that the implementation would be achieved in a progressive manner. “Moreover, the government plans to introduce subsidies and packages that will help to minimize the impact of an increased GST on lower-income households.”
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