GST rate hikes: How have they influenced spending habits?

In January, the government raised GST to 9%.

GST rate hikes did not impact consumer spending patterns in Singapore significantly in 2024, according to a study conducted by RHB economists.

According to the expert, retail sales did not decline after the GST rate hike in January, unlike in 2007 and 2023, which both saw declines.

"We think this difference may be attributed to some maturing of consumer expectations over price impact on demand since the recent GST rate increase was announced in 2022 with a clear path of a two-step GST hike in 2023 and 2024," the RHB economist said.

RHB stated that consumers already exhibited most of the front-loading behaviour in 2022.

Apart from the front-loading behaviour exhibited by consumers, which already happened in 2022, RHB said Singapore's government's measures also helped cushion the GST hike’s impact on consumption expenditure.

These measures include the GST Voucher scheme, U-Save rebates, MediSave top-ups, and the Community Development Council (CDC) Voucher scheme, under the Assurance Package, which are all aimed at helping households deal with increased out-of-pocket expenses and partially offset the drag on consumption from higher prices.

"The Budget has effectively addressed households’ apprehensions regarding the heightened inflationary environment. The package to counteract the effects of the GST hike will receive an additional $1.9 billion boost," the economist said.

RHB added that Singapore's consumption is more led by wages, saying that lower disposable income will dampen consumer spending.

According to RHB, GST rate hikes had a limited impact on inflation, which, in turn, had minimal spillover effects on real wages.

"The inflationary climate in Singapore is mainly influenced by import prices and its S$NEER. Increased GST rates might initially drive up consumer prices, but their limited impact on inflation will diminish over time."

"Hence, we view that the increase in the GST rate has no significant effect on the real wage trend as the rate hikes do not primarily influence the inflation pattern," added RHB.