Credit Suisse raises S’pore’s GDP forecast on the back of Budget ‘hongbao’ and GST hike delay
Reuters file photo
SINGAPORE — The Budget’s one-off cash handouts and delay in the goods and services tax (GST) hike, which will kick in sometime between 2021 and 2025, prompted Credit Suisse to raise its 2018 economic growth forecast for Singapore from 3 per cent to 3.3 per cent.
Taken together, these would boost growth domestic product (GDP) as well as private consumption, the bank said in a research note, as it raised its private consumption growth forecast to 3.6 per cent, up from 2.9 per cent.
Credit Suisse economist Michael Wan said the bank had previously factored in a 2-percentage point GST hike for its macro forecasts. “We, together with most other economists, were forecasting GST rates to rise this year,” wrote Mr Wan, who described Monday’s announcement on the delayed GST increase as among the “surprises” of Budget 2018.
Other economists who had expected a GST hike to be implemented either this year or next agreed that the delay would bring a “minor boost” to consumption spending. Nevertheless, they left their GDP forecasts unchanged.
Singapore’s GST will be raised in a “progressive manner” from 7 to 9 per cent sometime between 2021 and 2025, Finance Minister Heng Swee Keat said in his Budget speech.
The exact timing of the hike — which has been widely anticipated in recent weeks in the lead-up to the Budget statement — depends on “the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are”, Mr Heng had said. “But I expect that we will need to do so earlier rather than later in the period,” he added.
First introduced in April 1994, the GST was raised from 3 to 4 per cent in 2003, and then to 5 per cent in 2004. The last change was in 2007, when it was raised to 7 per cent.
Mr Heng also announced that every Singaporean aged 21 years and above this year will receive a one-off “hongbao” of between S$100 and S$300 from the Government, as the Republic expects a record surplus for the current financial year.
Adult Singaporeans with an annual income of up to S$28,000 will receive S$300, those whose annual earnings are between S$28,001 and S$100,000 will get S$200, while those drawing more than S$100,000 a year will get S$100.
Anyone who owns more than one property is eligible for S$100 regardless of income. The payments, dubbed the SG Bonus, will be disbursed at the end of the year and will cost the Government S$700 million.
Commenting on the Credit Suisse report, Mr Bernard Aw, principal economist at IHS Markit, said consumers are expected to bring forward “large purchases” ahead of the GST hike.
UOB economist Francis Tan said he is keeping to his earlier forecast of 2.8 per cent GDP growth this year, which was based on a 1 percentage point GST hike this year. Nevertheless, he acknowledged that the delay of the GST hike “provides some upside”. He added: “Whenever there is a higher tax, people reduce their purchases.”
Maybank Kim Eng economist Chua Hak Bin is also maintaining his 2018 GDP forecast at 2.8 per cent, as he had expected the GST hike to be implemented next year. Private consumption is expected to improve from last year but it is unlikely to exceed 3 per cent this year, he said. “The jobs market looks to be improving and that will support consumer spending,” he added.
Both Mr Tan and Mr Chua, however, did not think that the impact of the hongbao handouts would be significant enough to lift GDP growth. Some Singaporeans may choose to save the money instead of spending it, Mr Tan noted. “In that aspect, these are not material handouts,” he said.
