Managing Your Finances Amidst the GST Hike, Inflation and Recession

Key Takeaways

• 1. Amidst the GST hike and inflation, review your historical expenses and project a 24-month future budget, to see how you can reduce or optimise your spending.
• 2. Try to ensure that you have sufficient savings to cover 12 months of expenses in the event of unforeseen circumstances, such as a recession-related layoff or the emergence of a health condition.
• 3. Consider opening a high-yield account that may accord higher interest rates to make your savings work harder.

The GST Hike Overview

Singapore’s Goods and Services Tax (GST) increased from 7% to 8% on the 1^st of January 2023. This is part of a two-step approach, with another increase to 9% on the 1^st of January 2024 (Han, 2022). The reason behind the GST hike in Singapore is to support government spending on the rising costs of healthcare, education, and security (Han, 2022).

The GST hike is performed in stages over two years to help Singapore residents adjust to rising costs. It is coupled with government support initiatives such as a $6 billion Assurance Package and $1.5 billion Support Package. However, middle-income Singaporeans could be the group most affected by the GST hike if they do not qualify for financial aid (Tham, 2022).

Inflation and a Potential Recession

While the effects of the GST hike may see higher bills on everyday expenses such as bills, dining and imported products and services, consumers also have to cope with the effects of inflation. MAS forecasts Singapore’s core inflation to average 3.5 to 4.5% in 2023. In fact, Singapore’s core inflation rose to 5.5% in January 2023, the highest since November 2008 (Lin, 2023).

According to Citi’s Wealth Outlook 2023, the US Federal Reserve rate hikes and shrinking bond portfolio may cause an economic recession this year in the US (Citigroup, 2023). With a potential recession on the horizon, it may be wise to think long-term and review your financial planning strategy to better bear the effects of rising costs.

3 Financial planning steps to consider during the GST hike and potential recession

Practising financial prudence and being careful with how you spend your money is important in everyday life, but it becomes especially crucial during a recession. Here are three steps you can take to better manage your finance.

Reviewing long-term budgets

One of the first things to consider is to review your historical income and expenses to understand better what your financial flows might have looked like recently. Based on this review, project a draft of what your next 24-month budget might look like. Once you have this draft, you can scrutinise it further to prioritise your expenses and reduce spending on unnecessary items or large purchases.

Ensure that you have sufficient savings to cover at least 12 months of expenses in the event of unfortunate incidents such as a recession-related layoff or the emergence of a health condition.

Investing opportunities

It is important to plan your budget well and have a well-managed diversified portfolio. Consider investigating investing methods such as dollar cost averaging. Be careful not to engage in short-term panic selling or buying. Instead, think long-term when investing.

At the same time, relook at your portfolio to diversify your investments across different types and sectors. Build a portfolio that can weather the ups and downs.

High-yield deposit account

Another method you may look at to protect yourself against the GST hike and inflation is to open a high-yield savings account. A high-yield savings account may not necessarily be the same as a time deposit or fixed deposit account.

A time deposit or a fixed deposit account is a type of bank account which grows a deposited sum of money over a period of time, known as the tenor, ranging from 1 week to 48 months. The larger the lump sum of money and the longer the period it is deposited, the higher the interest (for example, from 0.05% to 0.1%) that may be eligible to be received at the end of the tenor. Check out the latest time deposit promotion from Citi.

However, the potential downside of a time deposit account is that either the deposited sum may be locked away until the tenor ends or that no interest may be eligible if the deposit was withdrawn before the end of the tenor.

A high-yield account, on the other hand, may offer more flexibility than a time deposit account when it comes to withdrawals. Particularly during a period of rising costs of living and economic uncertainty, you may need cash on hand but do not wish to forgo the interest that a time deposit may provide.

The Citi Wealth First Account, for example, is a savings account that allows customers to proactively boost the interest rate on their deposits to up to 7.51% p.a., by performing day-to-day banking activities with Citi. Click here to find out more.

Explore solutions for wealth protection with Citi

Managing your finances amidst the GST hike, inflation and a potential recession requires a proactive approach. Apart from planning your budgeting carefully, adjusting your investment portfolio and earning interest through a high yield account, it is also prudent to protect your wealth with insurance. Learn more about balancing wealth creation with wealth protection goals.

Finally, keep track of the economic situation and adjust your strategy accordingly to safeguard your financial future. Accelerate your savings journey with the Citi Wealth First Account today.

References

Citigroup. (2023). Wealth Outlook 2023. Retrieved from Wealth Outlook 2023: https://www.privatebank.citibank.com/newcpb-media/media/documents/outlook/outlookwealthreport2023.pdf

Han, G. Y. (2022, 02 21). Budget 2022: Singapore to raise GST from 7% to 9% in two stages in 2023 and 2024. Retrieved from The Straits Times: https://www.straitstimes.com/singapore/budget-2022-singapore-to-raise-gst-from-7-to-9-in-two-stages-in-2023-and-2024

Lin, C. (2023, 02 23). Singapore's January core inflation rises 5.5%, fastest in 14 years. Retrieved from Reuters: https://www.reuters.com/markets/asia/singapores-january-core-inflation-rises-55-2023-02-23/

Tham, N. (2022, 12 28). Singapore is set to hike its goods and services tax in January. Here's how it will work. Retrieved from CNBC: https://www.cnbc.com/2022/12/29/gst-increase-singapore-to-raise-goods-and-services-tax-in-january.html

Disclaimers

This article is for general information only and is not intended to be a forecast of future events nor a guarantee of future results and should not be relied upon as financial advice. All views and opinions are as of the date hereof, and are subject to change based on market and other conditions without notice. The article has no regard to the specific objectives, financial situation and particular needs of any specific person. It is neither an offer nor a solicitation to purchase, nor endorsement or recommendation of any products or services mentioned therein, and the products or services mentioned may or may not be offered by Citibank Singapore Limited, its related entities and their respective directors, agents and employees (together "Citigroup").

This article and its contents do not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution, offer or solicitation is not authorised or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Citigroup is under no duty to update this article and shall not be liable for any complaint, suit, action, claim, expense, loss or damages directly or indirectly arising out of or in connection with any person’s reliance on, or acting upon, or use of, any contents on this article. The article is subject to amendment without notice. Investment Products are (i) not insured by any government agency; (ii) not a deposit or other obligation of, or guaranteed by, the depository institution; and (iii) subject to investment risks, including possible loss of the principal amount invested. The information contained herein is not intended to be tax or legal advice, or an exhaustive discussion of the strategies or concepts mentioned herein. Please seek advice from your tax, legal or financial adviser as appropriate about the contents discussed herein or before investing in any investment products. Should you choose not to seek such advice, you should carefully consider the risks associated with any investments and make a determination based upon your own particular circumstances and assess whether such investment product is suitable for you.