The Big Read in short: Families, firms grapple with rising costs ahead of impending GST increase
Each week, TODAY’s long-running Big Read series delves into the trends and issues that matter. This week, we look at the impact of the global inflation storm on Singapore households and businesses, as an increase in the Goods and Services Tax looms. This is a shortened version of the full feature.
Each week, TODAY’s long-running Big Read series delves into the trends and issues that matter. This week, we look at the impact of the global inflation storm on Singapore households and businesses, as an increase in the Goods and Services Tax looms. This is a shortened version of the full feature, which can be found here.
- Inflation is set to be a key challenge in 2022, as households face rising prices on multiple fronts, ranging from food to electricity
- Business also face higher freight fees, manpower costs due to border restrictions and supply chain disruptions due to measures to contain the spread of Covid-19.
- Prices look set to go up even more with the impending increase in GST from 7 per cent to 9 per cent
- MPs say grassroots initiatives are up and running to help households, while economists point to possible policy levers to mitigate the impact of rising living costs
- Families facing the brunt of inflation have started belt-tightening, while businesses are looking at raising prices
SINGAPORE — Before the Covid-19 pandemic struck about two years ago, housewife Suria Saini would spend about S$400 a month on groceries and other basic necessities.
But as of December last year, her monthly spending has gone up to over S$500 on the same list of items.
“I always go to the same shops, the same stalls in the market. There seems to be a 50- to 80-cent increase on most things like shampoo and detergent. Fish, mutton, chicken… Prices have gone up so much,” said Mdm Suria, 47.
Mdm Suria said she noticed that a carton of 30 eggs, which used to cost S$3, has gone up to S$5. The price of a packet of instant noodles has also increased from S$1.80 to S$2.20.
Around the world, inflation is set to be a key challenge this year, as prices rise on multiple fronts. Border restrictions and supply chain disruptions — a result of measures to contain the spread of Covid-19 — have also led to higher manpower costs and freight fees for businesses.
The situation here is exacerbated by the recent spate of floods in Malaysia, driving up the imported costs of goods that Singapore gets from across the Causeway.
And prices are expected to go up further this year, with the impending increase in Goods and Services Tax (GST).
In his New Year message, Prime Minister Lee Hsien Loong said that the Government has to “start moving” on the planned increase in GST from 7 per cent to 9 per cent.
The MAS had said in its October macroeconomic review that public transport fares could be raised again and healthcare subsidies may be phased out this year as well.
MAS expects overall inflation for 2022 to come in between 1.5 and 2.5 per cent, up from around the projected 2 per cent in 2021. Core inflation, which strips out private transport and accommodation costs, is projected to rise between 1 and 2 per cent next year — higher than the upper end of the 0 to 1 per cent forecast range that MAS expects inflation to hit in 2021.
With multiple factors converging to push prices upwards, Ms Selena Ling, head of research and strategy at OCBC Bank, said the current situation is akin to an “inflation storm”.
"The question is whether some industries and firms are in a position to pass on the higher costs, not just from the GST hike, but also from the build up of higher operating costs," said Ms Ling.
'ICE-THIN' PROFIT MARGINS FOR FIRMS
Several business owners told TODAY that they have been feeling rising cost pressures in several aspects — manpower, logistics, raw materials and electricity.
With many retailers forced to go online as a result of Covid-19, digital marketing costs have also gone up.
Mr Bernard Tay, the managing director of Jinjja Chicken, said that the operating costs for his Korean fried chicken business have increased by between 20 and 30 per cent last year, compared to 2020.
The price of one tin of cooking oil has gone up by 40 per cent, and manpower costs have also gone up as border restrictions have also made it very hard for him to employ workers from Malaysia.
Another retailer Mr Keson Lim, the director of toys distribution firm Being Kids, also said that his business costs have jumped by a similar amount of 20 to 30 per cent due to higher freight costs and a manpower shortage.
However, revenue have not recovered to pre-Covid levels.
“The margin is so thin like ice,” said Mr Tay.
Mr Terence Yow, who is the managing director of shoe retailer Enviably Me, said that businesses cannot keep absorbing cost increases.
“When sales are already down, it’s a very difficult choice to risk customers not being happy by increasing prices during such a difficult time. Most of us will try not to. But inevitably, I think there is no choice, prices will have to rise,” he said, adding that this is not even taking into account cost pressures from the GST increase.
Mr Tay said he has not raised prices of his Korean fried chicken in the last two years, but may look to increase it by 50 cents or S$1 to cushion the impact of the rising costs. And he may have to increase prices again, if the Government decides to implement a 2 percentage point GST hike at one go.
As for Mr Lim, he has already sent a notice to his corporate clients that they would have to increase prices by 10 per cent from this year, without even factoring in the impending GST increase.
“We did a marginal 10 per cent (price increase) to reduce the negative impact on ourselves. It’s not even to be profitable,” he said.
Mr Lim said that if the current cost pressures persist, he would not be able to absorb the GST increase, a move which would not have been an issue before the pandemic.
TIMING OF GST INCREASE
Economists had previously told TODAY that 2022 provides a window of opportunity for the Government to implement a GST increase, even though there is never a good time to raise taxes.
For one, the Singapore economy is on firmer footing compared to last year, when it was just coming out of its trough in 2020 after being hammered by the pandemic.
DBS senior economist Irvin Seah believes that the GST increase will be implemented in July and the Government will raise the tax by 2 percentage points in one go.
A one-step jump will limit the long-term impact of the increase, and the effect on overall inflation should fade away in 12 months, said Mr Seah.
While Ms Ling also thinks that the higher GST could kick in as early as July, she believes that a more gradual approach, in the form of a staggered increase, would not result in knee-jerk reactions from consumers.
Ms Ling estimates overall inflation this year to be around 2 to 3 per cent. Wage growth would have to be above that to offset the effects of the GST increase, she noted.
HELP ON HAND, POLICY LEVERS TO MITIGATE IMPACT
The Government has set aside a S$6 billion package to help lower-income households cope with the planned increase in GST.
It also recently launched the Community Development Council vouchers, where every Singaporean household will each receive S$100 worth of the vouchers which may be used at participating hawker centres and businesses in the heartlands.
Speaking to TODAY, Members of Parliament (MP) said that some residents have been seeking assistance amid the rising cost of living. They added that they are running several grassroots initiatives to help needy residents. These include schemes to provide free food and financial assistance, as well as organising job fairs.
The economists interviewed said that the longer-term solution would be to keep the economy vibrant, have foreign investment continue flowing in and creating jobs.
They noted that special transfers by the Government and GST vouchers are temporary and are meant to help Singaporeans through the transition period.
If these assistance schemes are permanent, they would defeat the original intent of hiking GST to raise revenue in the first place, noted OCBC’s Ms Ling.
“If the Government expenditure is going up through fiscal transfers, it ends up as a circular argument. Where are we going to find the tax revenue to pay for all this?” she said.
Another more long-term solution is for the Government to index its various financial assistance payments to rising costs of living from year to year, said labour economist Walter Theseira from the Singapore University of Social Sciences.
Many of these payouts under the Workfare Income Supplement or Silver Support schemes are fixed monetary amounts that are adjusted periodically. But Associate Professor Theseira said this means that these payments lose purchasing power during the unadjusted years.
While it is not normally an issue when inflation is low and stable, it can be problematic when prices go up faster than expected.
“The policy intent is not to give a sum of money, but to address cost of living issues. If the cost of living changes over time, the payments ought to change,” he said.
INDIVIDUALS TIGHTEN THEIR BELTS
In the meantime, people are already tightening their own belts.
Mr Asokh Singh, 49, now prefers to make trips to Little India to buy his groceries instead of buying them from supermarkets near his home, where the prices of vegetables are at least 50 to 80 cents higher, he said.
He used to earn around S$8,000 a month as a general manager of a travel agency, but it has since been cut to around S$2,000 due to the Covid-19 impact on the travel industry.
“Last time I had a different lifestyle but now every cent matters… I will try to find cheaper alternatives to make my purchases. If I find a wholesale place, even better so I can save more money,” said the father of two school-going children.
Mr Singh also sold his car in November last year and began renting out two rooms in his five-room HDB flat about six months ago. He is looking to sell his house and move to a smaller one.
While the Government has pledged to help Singaporeans cope with the GST increase, some families are bracing themselves for leaner times amid the rising living costs on other fronts.
Mdm Suria said that she would have to discuss budgeting with her family sometime soon, recalculate their expenses and make the necessary adjustments.
“What can I do? We all have to go through (this period of rising costs) whether you like it or not… We just go on,” said Mdm Suria.