RHB economists say GST hike had minimal impact on consumer spending patterns

SINGAPORE: A recent study conducted by RHB economists has revealed that the Goods and Services Tax (GST) rate hikes in Singapore have not significantly affected consumer spending patterns in 2024. Contrary to previous instances in 2007 and 2023, where retail sales dipped following GST increases, this year’s rate hike did not result in a notable drop in spending.

According to RHB, this resilience in consumer behavior can be attributed to a maturing of expectations. The GST rate increase, which was announced in 2022, followed a clear, two-step hike in 2023 and 2024. This transparency gave consumers ample time to adjust their purchasing decisions in advance.

“Most of the front-loading behavior, where consumers accelerated purchases to avoid paying higher GST, occurred in 2022,” an RHB economist told Singapore Business Review (SBR). This suggests that the spike in buying activity last year pre-empted any dramatic changes in retail sales following the 2024 hike.

In addition to early adjustments by consumers, government measures aimed at cushioning the blow of the GST hike have been effective, according to RHB. The economists pointed to a range of initiatives under Singapore’s Assurance Package as being helpful in easing the increased financial burden on households and offset some of the potential consumption decline.

“The government has successfully addressed concerns over rising inflation through various support measures. An additional $1.9 billion has been allocated to further counteract the effects of the GST hike,” the economist told SBR.

RHB also emphasized that consumption in Singapore is primarily driven by wage growth. Any reduction in disposable income, rather than GST hikes, would have a more direct impact on spending. Despite the increase in GST, the study indicated that inflationary pressures have remained relatively contained, limiting any adverse effects on real wages.

“The inflationary environment in Singapore is largely shaped by import prices and the Singapore Dollar Nominal Effective Exchange Rate (S$NEER). While the GST hike may initially push consumer prices upward, its overall impact on inflation is expected to taper off over time,” the report stated.