Chart of the Day: See how an upcoming GST hike affects retail sales

In 2007, retail sales spiked following the announcement of a GST hike. Will 2018 follow the same trend?

Speculations of a GST hike rose after Prime Minister Lee Hsien Loong said that the government needs to raise taxes to support growing spending. Analysts are now looking back on how the previous GST hike affected retail sales.

This chart from RHB Research shows that in previous Goods and Services Tax (GST) hikes, retail sales have spiked.

The GST was raised by 2 ppts to 7% on 1 July 2007. Similar to 1994, consumers shopped ahead of time. June's retail sales index shot up 15.3% YoY, followed by a decline of 2% YoY in July. Spending behaviour soon normalised in August.

For the 12 months following the GST hike, retail sales were up by 3.6% YoY.

RHB analyst Juliana Cai commented, "We believe consumers were able to accept that level of price increase, as the country was still in its structural growth phase back then."