As Singapore enters the new year, households are adjusting to the second phase of the Goods and Services Tax (GST) hike, which takes effect on Monday. The GST, applicable to a wide range of items, including groceries and luxury goods, has been increased by one percentage point to 9%. The latest adjustment follows a raise from 7% to 8% earlier this year, marking the second stage of a two-step rate hike. The decision has sparked concerns, especially amid already escalating living costs.
Opposition lawmakers have voiced calls for a delay in the GST increase, citing the burden on households. The adjustment comes amid core inflation in Singapore, which moderated to 3.2% in November from its peak of 5.5% in the year’s initial months. Despite the moderation, the central bank anticipates inflation to average between 2.5% and 3.5% in 2024.
Justifying the tax increment, the government points to the necessity of fortifying state finances in anticipation of the challenges posed by an ageing population and escalating healthcare expenses. By 2030, it is estimated that a quarter of the population will be 65 years or older. Deputy Prime Minister Lawrence Wong emphasized the potential pitfalls of deferring the GST increase, asserting that it would only compound future fiscal challenges.
To alleviate the impact on households, the government introduced an “assurance package” worth over S$10 billion ($7.55 billion). This relief initiative, distributed this month, includes direct payouts ranging from S$200 to S$800 for all adult Singaporeans.
Some retailers have committed to temporarily absorbing the additional costs in response to the tax hike. Home furnishing brand IKEA has pledged to absorb the 1% increase without specifying an endpoint for this initiative. Similarly, supermarket chain FairPrice Group has committed to absorbing the hike on 500 essential items such as rice and vegetables.
The GST adjustment in Singapore reflects the government’s proactive approach to addressing future fiscal challenges posed by demographic shifts and increased healthcare demands. However, the move is met with concerns about its impact on the already rising living costs for Singaporean households, prompting a reassessment of financial strategies at the individual level.
