How much will the pinch hurt?
Jimmy said,
April 25, 2007 at 12:41 pm · Edit
todayonline.com
Prices to rise more in this GST hike than previous ones: MAS
WHEN the Goods and Services Tax (GST) is raised to 7 per cent in July, you may feel more of the pinch than you did with previous hikes.
Chances are, the rosy economic climate will embolden businesses to slap on bigger price tags in order to cope with higher operating costs. Such confidence was not displayed during the last three increases in the consumption tax.
According to a study by Monetary Authority of Singapore (MAS) economists, the better times will see a stronger “pass-through” effect, which measures the extent to which businesses will raise prices due to the GST hike.
Such a scenario is likely to play out this year. The MAS forecasts that the GST increase from 5 to 7 per cent will have a pass-through effect that could be significantly higher than when GST rose from 3 to 5 per cent.
“The economy is on a firm footing and job creation has been robust,” the MAS explained in its report tagged to the Macroeconomic Review released yesterday. Moreover, energy costs and office rentals have gone up since the last consumption tax hike.
“Businesses, including those exempted from GST, could thus take the opportunity to raise prices when the rate is revised in July,” said the central bank. In contrast, Sars-stricken 2003 saw retailers exercising caution.
“If consumers are not in good shape, firms typically will not try to pass through all their costs. This time round, consumers are feeling wealthier,” said Citigroup economist Chua Hak Bin, who predicted that overall wages this year will surge by 4 to 5 per cent, outpacing last year’s 3.2-per-cent rise.
Which goods will hit pockets the hardest? Those sold in markets dominated by a few big players, except where there is regulation like in the bus and train duopolies, Dr Chua said.
Niche or high-end retailers may also be bolder in raising prices to offset the GST increase.
“Their customers can afford it and if they really want the product, they won’t quibble over the GST increase,” said Mr Yeo Kai Eng, Ernst & Young’s tax partner for GST services.
He added, however, that it was the poor who find price hikes hardest to stomach. For this group, NTUC FairPrice’s decision to absorb the GST increase for six months would help temporarily cap inflation for necessities and food-related goods.
The Government’s GST-offset package will also shave an estimated 0.2 percentage point off inflation this year, said the MAS, bringing the overall inflation rate to a forecast 0.5 to 1.5 per cent.
These measures are crucial as spending only started creeping up recently.
“Private consumption seems to be just recovering — it has been the weak link in Singapore’s economic growth story — and soon it will have to face higher prices,” said Dr Chua. “The generous offset package will help hold up consumption.”
In any case, the impact of higher GST tends to fade after about four quarters post-hike, MAS’ study found. The initial effect on inflation is “one-off and transitory”, the central bank said. It was confident that this year’s inflationary pressures were “well contained”, especially since crude oil prices pulled back recently, helping to lower the cost of a basic item.
Overall, the MAS maintained its full-year forecast at 4.5 to 6.5 per cent, adding that Singapore’s economy will probably accelerate in the second half after slowing in the first six months of the year, fuelled by a recovery in electronics production. “The outlook for the second half is more upbeat,” said the MAS.
While the mainstay electronics sector has yet to recover, non-information technology industries, such as transport engineering and financial services, were providing the much-needed buffer amid falling demand from the United States.
INFLATION TABLE
Year GST impact on inflation
1994 Introduction of 3% GST raised inflation by 0.81 percentage point
2003 and 2004 Each year that GST rose by 1 percentage point, inflation grew by 0.47 percentage point
2007 and 2008 The one-off 2-percentage point hike in GST may raise inflation by 0.4 to 0.6 percentage point each year
PASS THROUGH TABLE:
1994: “pass-through” of 45 per cent
2003 and 2004: average “pass-through” of 53 per cent
2007 and 2008: forecast “pass-through” of 60 to 80 per cent
Prices to rise more in this GST hike than previous ones: MAS
JIMMY: I HAVEN’T FEEL THE PINCH QUITE YET BUT I AM SURE I WILL IN THE COMING MONTHS WHEN I GET MY FLAT AND NEED TO BUY THINGS LIKE FURNITURES AND HOME APPLIANCES. NTUC FAIRPRICE WILL ABSORB THE GST HIKE FOR 6 MONTHS SO MAYBE IS A GOOD IDEA TO STOCK UP SOME FOOD FIRST.
- The questions now is….how long will the food last, we need not only to stock up some food…but to find ways to grow food within HDB corridors! Potato don’t grow within a day…start learning now!
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Jimmy
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Jimmy
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Jimmy
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Jimmy
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Jimmy
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Jimmy
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Jimmy
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