Closer to the Truth, about Our Economy
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Private consumption the weak link in Singapore's economic expansion
By Lee Ching Wern, TODAY | Posted: 29 January 2007 1302 hrs
When you have an economy charging ahead — it grew by 7.7 per cent last year — you would expect cash registers to be ringing non-stop as more people hit the shops.
But the reality has left economists and retailers scratching their heads.
Domestic private consumption was estimated to have grown by just 2.8 per cent last year — a meagre increase over 2005's 2.5 per cent, when the economy grew by 6.4 per cent, and a dip from the 5.9 per cent in 2004, when economic growth hit 8.7 per cent.
"Private consumption has been the weak link in this current economic expansion," said Dr Chua Hak Bin, Citigroup Economist.
Figures released earlier this month showed that retail sales, excluding vehicles, grew by 4.4 per cent year-on-year in November — a figure which is not fantastic, say economists. Consumer lending, too, was lacklustre, expanding by just 2 per cent year-on-year, according to the central bank.
It seems the CEOs and bankers, who are snapping up luxury homes and Lamborghinis, are not splurging enough to make up for the average Joes' lack of spending.
"The big boom has benefited companies more than workers. The economic benefits are going to those who are well-to-do and who own capital — not the average person," said Dr Chua.
And the impending Goods and Services Tax (GST) hike from 5 to 7 per cent at one go — as signalled by Prime Minister Lee Hsien Loong — is likely to dampen mass spending even further.
One bit of hope: With this increase in revenue, some analysts are hoping the Government will lower the personal income tax rate, especially with a corporate tax cut already on the cards for next month's Budget Day. The trend in other countries has been to lower both rates, and Mr Lee hinted last week that Singapore could not buck global trends if it wanted to compete for investments.
However, private consumption has always lagged behind growth in gross domestic product, and this is a structural issue worth looking into, said Mr Manu Bhaskaran, Head of Economics Research, Centennial Group.
"Has globalisation led to a more skewed income distribution?" he asked.
According to Urban Redevelopment Authority figures for 2006, prices of high-end private property in prime districts have surged by 17 per cent. Yet prices of mass market condos and Housing and Development Board flats have grown by only 4.2 and 1.97 per cent, respectively.
Despite having the smallest population in the region, Singapore topped the charts in the sales of luxury cars of the Ferrari, Porsche, Lamborghini, Rolls-Royce and Bentley variety.
Yet retailers and restaurateurs say that sales have not been up to mark. One local owner of a restaurant chain told Today: "Surprisingly, sales in December were not as strong as they were in the peak season in previous years. We're waiting to see if things will improve over the Chinese New Year period. It's very puzzling because there's all the hype in the news about a growing economy — yet we're not seeing it."
Mr Song Seng Wun, a regional economist with CIMB-GK Research, noted that the arrival of budget airlines means that people can easily go overseas to shop.
Overseas expenditure of Singapore residents tripled between 1998 and 2005, according to Monetary Authority of Singapore statistics. One in two persons aged 15 and above, or a total of 1.4 million people, made at least one overseas trip in 2005.
More are spending in neighbouring countries such as Thailand and Malaysia, where a dollar can go much further. Rival shopping cities, such as Hong Kong, Kuala Lumpur and Dubai — all of which do not impose a GST — are giving Singapore a run for its money.
Said Citigroup's Dr Chua: "Retail sales in Hong Kong, which recently decided not to adopt the GST, are running at almost double the pace of Singapore's. For a small open economy, where residents are travelling abroad, a high GST may have wider negative consequences."
Even so, he is optimistic of this year's outlook, expecting domestic spending to accelerate to 4.5 per cent. "The job market is tightening and wages are creeping up. Together with the picking up of the mass residential market, these factors can, hopefully, offset the impact of the GST hike," he said.
Mr Song agreed: "We must remember that last year's consumption growth rate is coming off the high base of 2004. Things will get better." - TODAY/sh -
Singaporeans have taken their shopping elsewhere, in countries where they do not have GST (VAT).
That's a reason why our domestic consumption economy is in the doldrums.
They have a "beggar thyself" principle in economic policies.
Singapore's Dual Economy -
double post
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I too share the economists' opinions, except I'm not sure if they will reduce the income tax rate or not. It is likely that our rich are not spending enough to increase domestic expenditure. The dampening effect of our 5-7% GST is going to make it worse. Though there is going to be an effective reduction in the percentage of total tax that the rich pays, I am not so optimistic it can stimulate the rich spending more as they are probably more financially-savvy compared to the common man-in-the-street.
In the end, the burden of the tax will still fall on the lesser-to-do, and the Govt will come out with some packages to re-distribute the monies, hopefully to those who need them more. Net result is likely that the rich will hardly bate an eyelid on the GST thingy. -
at least they do admit somewhat that the "improvement" in the economy only heps the already rich and well off
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re-distribute? Into whose pockets? -
The government crafty, they plan to reduce the employee's contribution to CPF, thus raising disposable income, might stimulate domestic demand in the short run, but has long run consequences.Originally posted by livspore2006:I too share the economists' opinions, except I'm not sure if they will reduce the income tax rate or not. It is likely that our rich are not spending enough to increase domestic expenditure. The dampening effect of our 5-7% GST is going to make it worse. Though there is going to be an effective reduction in the percentage of total tax that the rich pays, I am not so optimistic it can stimulate the rich spending more as they are probably more financially-savvy compared to the common man-in-the-street.
In the end, the burden of the tax will still fall on the lesser-to-do, and the Govt will come out with some packages to re-distribute the monies, hopefully to those who need them more. Net result is likely that the rich will hardly bate an eyelid on the GST thingy. -
Yup, disposable income will increase, so that the not-so-financially-savvy citizens will spend more, realising that they have more $ than before. However, with reduction in CPF, your taxable income also increases, as your CPF used to offset the earned income will be reduced. At the end of the year, hopefully, not everybody goes on Income Tax Giro, most people will notice that they will be paying more income taxes. (If u go on Giro spreaded over 12 months, u will probably not notice the bigger income tax impact)Originally posted by maurizio13:The government crafty, they plan to reduce the employee's contribution to CPF, thus raising disposable income, might stimulate domestic demand in the short run, but has long run consequences.
Next, assuming that the citizen has consistent pay increment over the years, the ceiling of CPF deduction to $4.5k will also hit as a person earns more $. This means even more goes to income taxes as less CPF could now be offset from earned Income. -
That's a good point, I overlooked the CPF deductions for Income Tax. But I think the 1-2% reduction in CPF converted to Income Tax will not be too substantial for an individual as opposed to the government.Originally posted by livspore2006:Yup, disposable income will increase, so that the not-so-financially-savvy citizens will spend more, realising that they have more $ than before. However, with reduction in CPF, your taxable income also increases, as your CPF used to offset the earned income will be reduced. At the end of the year, hopefully, not everybody goes on Income Tax Giro, most people will notice that they will be paying more income taxes. (If u go on Giro spreaded over 12 months, u will probably not notice the bigger income tax impact)
Next, assuming that the citizen has consistent pay increment over the years, the ceiling of CPF deduction to $4.5k will also hit as a person earns more $. This means even more goes to income taxes as less CPF could now be offset from earned Income. -
I think the Govt needs to hold elections more often so they can bribe the people with more handouts.
That will redistribute the wealth quickly.
Unfortunately, everyone will spend it, probably on beer, smokes or 4D. -
Soli, all not my past-time.Originally posted by OneWithTheForce:I think the Govt needs to hold elections more often so they can bribe the people with more handouts.
That will redistribute the wealth quickly.
Unfortunately, everyone will spend it, probably on beer, smokes or 4D.
I would get a gravure idol poster and hang in my room till the next time I think I need to paint my house again.
Or, spend one weekend in cinema with frds... -
The last package they distributed only lasted 2 weeks, 3 weeks is the max. Taxi driver said, after 2 weeks everything was quiet again.Originally posted by OneWithTheForce:I think the Govt needs to hold elections more often so they can bribe the people with more handouts.
That will redistribute the wealth quickly.
Unfortunately, everyone will spend it, probably on beer, smokes or 4D. -
private spending less = more gov spending? tt means the gov spending on shin corp counted>? tt is a huge boost rite?
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But gov spending not in SG, it's in Thailand and Australia.Originally posted by Xtrider:private spending less = more gov spending? tt means the gov spending on shin corp counted>? tt is a huge boost rite? -
True, shopping overseas cheaper & wide variety.Originally posted by maurizio13:Singaporeans have taken their shopping elsewhere, in countries where they do not have GST (VAT).
That's a reason why our domestic consumption economy is in the doldrums.
They have a "beggar thyself" principle in economic policies.
Singapore's Dual Economy
I was in Vivocity on Sun for lunch, the crowd is gone & most people are only window shopping.
The average S'porean has too many bills/loans to pay, moreover the pay don't increase much so their spending power is limited. -
That's our government style lah. If got problem just use money to TRY TO SOLVE.
Hey look MIW, it's not WORKING!!!!!!
For traffic jams you introduce ERP. Now farking hell like nearly everywhere also got ERP, is it bloody hell solving the problem? Everything you also want to make us suffer. The oil prices go down I also never see the bloody transport fee go down. You want to bloody hell make so much profit from us common people for what fark? To pay your bungalow installment is it????
My friends always tell me to rob the bank if I need money... I think that's what the MIW is doing now. I hate you guys!!!!!!!
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Even during Xmas...yes vivocity is crowded, but I noticed that not many people actually carrying any shopping bags, meaning they did no make any purchase.Originally posted by gerrykoh:True, shopping overseas cheaper & wide variety.
I was in Vivocity on Sun for lunch, the crowd is gone & most people are only window shopping.
The average S'porean has too many bills/loans to pay, moreover the pay don't increase much so their spending power is limited.