By Nicholas Ho
GST. Mention these three letters to anyone here in Singapore and watch their expression sour. Every year when the annual budget announcement comes around, a GST hike is what everyone dreads and hopes will not happen. Being the second largest revenue contributor to the government, it is inevitable that the GST rate will go up.
Well, the worse has happened and we know for sure that the GST rate is going up from 7 – 9% sometime between 2021 - 2025.
How will this affect me?
As GST is basically a consumption tax, the burden is borne by well, consumers meaning us. As businesses have to pay GST as well, their increased cost will be passed down to their customers. This means that our cost of living is going to increase.
Lower income households are more likely to feel the pinch and while programs such as the GST voucher scheme can help to lessen the pain, some changes might have to be made in spending habits to cope.
The government has taken pains to make clear that when the hike kicks in, it will be a progressive roll-out with plans and schemes to offset the hike.
E-commerce was one of the areas where the government is eyeing towards a higher tax rate. This is ostensibly so that local and overseas businesses are kept on a level playing field.
Families with children will receive higher Edusave contributions from the government and this will take place from 2019.
Proximity housing grants are going up as well and will apply to resale flats purchased by children to live with their parents or adult children. Unfortunately, stamp duties are going up for all properties valued over more than $1 million.
Smokers face a flat 10% increase in all tobacco products.
A one off “hong bao” bonus will be gifted to all Singaporeans with the amount varying between $100 - $300 based on your income.
How we can prepare
So, what can we do? Is there anything you can do? Here are a few pointers on how you can prepare for the upcoming GST increase.
1. Plan and manage your budget
Every time your payday comes in and your bank account swells, it feels great. By the end of the month however, it can be a different story. If you don’t already use one, having a budget management app can be invaluable.
It will help you stay on track of your expenses, reduce stress as you know exactly how much you spent and curb impulsive purchasing decisions. So while this may seem dull, ignoring your spending patterns and cash flow is not smart at all.
There are many good budget management apps out there and some of the best ones are even free. So depending on what type of smart phone you use, search for the best apps available to you and start using one and you are already making progress towards financial prudence.
2. Make your money worth
There is a famous saying that goes “to make money, you need to spend money”. By now, you’d have heard over and over that investing your money is not only advised but necessary and we will echo that sentiment.
There was a story floating around a while ago of an elderly woman from China who after many years went to withdraw her life savings only to find that her savings had been made almost worthless due to inflation and was only able to get a pittance.
While this happening to any of us may seem far-fetched, in reality there is only two degrees of separation between us and her if all we do is park our money in our bank and sit on it. Yes, saving is a great habit but continual increases in the rise of living and inflation can make it an uphill battle and you will never get any more money than what you save.
Investing allows you to grow your money by putting your money to work for you and if done well, it means that you won’t have to work for your entire life. Many of the richest people in the world have diverse investment portfolios and all of them strongly advocate investing.
If you are unsure of how to start, you can begin simply by investing your CPF. If you meet the criteria, you can contact the CPF office to get started. The CPF website and numerous websites will also break down what you can do.
Another way is to contact your financial adviser who can let you know of what investment plans they have available.
Investment apps such as “Spiking” is also a great way to learn about investing in stocks and following the habits of “blue whales” (sophisticated investors) and see what stocks they have confidence in.
3. Make big purchase before the hike
Expensive purchases should be done before the hike. Quite simply put, if you are spending thousands of dollars to buy something, then 2% off the price can mean hundreds of dollars saved.
4. Revise long term plans
If you have set a target amount to hit for your retirement, then it’s likely that you will need to adjust or make revisions and a professional financial planner can really help in this regard. Listing down what assets you own and setting out a plan to reach your goal that accounts for factors like a GST hike would also be wise.
5. Purchasing decisions
In the capitalistic world we live in today, we are constantly assailed by advertisements and everything from groceries to clothing to gadgets all jostle for our attention and our dollars. By being decisive and clear about what we need to purchase can make a big difference in our financial state. Here are a few pointers to take note of to help you decide what you need and don’t need to spend on.
* Spend on items that last a long time rather than cheap throwaways that barely last.
* Spend for items that you use frequently such as glasses, bedding, shoes and more. A good bed means a good night’s sleep. Good shoes mean less aches for not just your feet, but your posture and spine.
* Spend for anything that you need to do your job better.
* Spend on quality cookware. Blunt cheap knives can cause severe injury, poor quality pans and stoves means food isn’t cooked as well or makes for poor meals. Come on, we need 3 square meals a day, eating better and healthier makes us happier.
6. Subscription fees
If you are subscribed to anything at all such as cable TV, phone plan, internet plan, these may be affected by the GST increase. These are easily forgotten about as they are likely to be automated payments. Be smart and check with your service providers to ensure your fees are not going up to avoid any nasty surprises when you get your bill.