Looking beyond GST vouchers - What Singapore's latest $1.5 billion support package means

What happened?

With all the talk about inflation these days, it was not a surprise that the Singapore government announced a support package to help Singaporeans cushion the impact. 

Minister for Finance Lawrence Wong shared that 1.5 million Singaporeans will receive up to S$300 cash in a special GST Voucher (GSTV) payment in August. 

This will benefit about 1.5 million lower-income to middle-income workers, as well as retirees without income. Together with the regular GSTV-cash amounts they were meant to receive, recipients will get up to S$700 in August this year. 

All Singaporean households will also receive a S$100 utilities credit by September to help offset their bills. 

The support package comes as the government expects “price increases to continue in the coming months”. 

What you need to know

Apart from the GST voucher, there are a few other things that we thought were worth highlighting from the announcement today.  

#1 - No change in GST hike for now

Mr Wong said that the increase in goods and services tax (GST) will go on as planned, in response to a question on whether the Government will consider delaying the GST hike.

Earlier this year, it was announced in Budget 2022 that the planned GST increase will take place in two stages - from 7% to 8% on 1 Jan 2023, and from 8% to 9% on 1 Jan 2024.

It was further explained that this was “necessary” because “our spending needs are rising very sharply, especially because of an ageing population and healthcare spending.” 

#2 - Controlling inflation is key

Mr Wong shared that since the announcement of the Budget earlier this year, the global growth and inflation environment has become “more challenging”.

Singapore’s April core inflation rose to 3.3%, the fastest pace of increase in more than 10 years. In particular, it was noted that “global energy and food prices have risen sharply”.

While Mr Wong explained that inflation and rising cost of living are not the only challenges facing Singapore, it would seem like inflation is something the government is watching out closely for. 

This comes as a survey by pollster Blackbox Research shows that the most pressing issues faced by Singaporeans are cost of living and inflation.

In the same survey, more than 90% of respondents shared that inflation has some noticeable impact or significant impact to their lives. 

Here, Mr Wong warned that “we must expect global inflation to broaden to other areas and even to pick up further before it stabilises and gets better.” 

#3 - Targeted measures to support businesses

Apart from the measures to cushion the impact of inflation for households, there were also targeted measures announced to support businesses.

These were designed carefully such that they do not spark more inflation in Singapore. 

Some of these measures include: 

• Higher subsidies for the Progressive Wage Credit Scheme and an Energy Efficiency Grant for local small- and medium-sized enterprises  
• Enhancements to the Enterprise Financing Scheme
• Eligible taxi main hirers and private hire car drivers will receive a one-off relief of S$150 in August

Overall, the support package will be funded by higher government revenues that were generated, without drawing down on past reserves. 

Why should we care?

No immediate impact to the stock market. 

The support package does not seem to have an immediate impact on the stock market. After all, the size of the S$1.5 billion support package is way smaller than the S$100 billion worth of support measures provided to help Singapore tide through the Covid-19. As a result, the Straits Times Index (STI) saw little change following the announcement. 

While the one-off relief given to taxi main hirers and private hire car drivers will partly help to offset high fuel costs incurred by drivers, it will unlikely impact the profit of taxi and private care companies such as ComfortDelgro and Grab by much. 

Invest with inflation in mind

What stands out the most to us is the government’s assessment that “we must expect global inflation to broaden to other areas and even to pick up further before it stabilises and gets better.”

This is something we will bear in mind when thinking about our investments through the rest of the year. 

If you are trying to find a sound way to prevent the value of your cash holdings from being eroded, why not take a look at the Singapore Savings Bonds?