1 00:00:00,000 --> 00:00:04,350 Speaker 1: money talks is brought to you by OCBC Bank 2 00:00:06,269 --> 00:00:08,500 Speaker 1: in a few words. Could you give us your quick 3 00:00:08,500 --> 00:00:11,610 Speaker 1: thoughts on the following GSD hike? 4 00:00:12,530 --> 00:00:18,189 Speaker 2: Painful but necessary. Hopefully short term impact 5 00:00:18,200 --> 00:00:20,560 Speaker 1: higher price is 6 00:00:20,570 --> 00:00:26,060 Speaker 2: going to impact everybody. But let's hope we can cut 7 00:00:26,060 --> 00:00:27,320 Speaker 2: down our spending 8 00:00:27,330 --> 00:00:29,910 Speaker 1: spending habits very 9 00:00:29,910 --> 00:00:34,159 Speaker 2: sticky. We want consumers to change them and be more prudent. 10 00:00:34,690 --> 00:00:37,010 Speaker 1: The year 2023. 11 00:00:37,020 --> 00:00:40,670 Speaker 2: It should be a better year than 2022. 12 00:00:40,680 --> 00:00:42,280 Speaker 1: Thank you so much. 13 00:00:56,380 --> 00:00:59,200 Speaker 1: Hi, I'm Sarah Alcalde and thanks for joining us on 14 00:00:59,200 --> 00:01:03,280 Speaker 1: money talks. If you're feeling the pinch from higher prices, 15 00:01:03,290 --> 00:01:08,370 Speaker 1: brace yourself because items are about to get more expensive. 16 00:01:08,380 --> 00:01:12,010 Speaker 1: The goods and services tax, or GST, is such an 17 00:01:12,010 --> 00:01:16,300 Speaker 1: increase from 7% to 8% next January 18 00:01:16,550 --> 00:01:21,339 Speaker 1: and another rise is scheduled for 2024. It's happening as 19 00:01:21,340 --> 00:01:25,550 Speaker 1: inflation creeps higher and is expected to stay high in 20 00:01:25,550 --> 00:01:28,959 Speaker 1: the first half of next year. Add to that higher 21 00:01:28,959 --> 00:01:33,370 Speaker 1: mortgage rates, which have squeezed budgets and tighter rules on 22 00:01:33,370 --> 00:01:38,500 Speaker 1: property purchases. All these factors have likely made you rethink 23 00:01:38,500 --> 00:01:42,800 Speaker 1: your spending and how much you set aside for different needs. 24 00:01:43,000 --> 00:01:47,080 Speaker 1: So with expenses increasing all around, how should you manage 25 00:01:47,080 --> 00:01:50,480 Speaker 1: your finances? And what are the best ways to cope 26 00:01:50,480 --> 00:01:54,230 Speaker 1: with the upcoming GSD increase? To help us make sense 27 00:01:54,230 --> 00:01:58,160 Speaker 1: of this GSC hike, I'm joined by Sumit Agarwal, professor 28 00:01:58,160 --> 00:02:01,390 Speaker 1: of finance economics and real estate at N. U S 29 00:02:01,390 --> 00:02:02,430 Speaker 1: Business School 30 00:02:02,940 --> 00:02:06,410 Speaker 1: Professor Sumit. Thanks so much for joining us today and 31 00:02:06,410 --> 00:02:08,990 Speaker 1: talking about this very important topic. 32 00:02:09,000 --> 00:02:10,080 Speaker 2: You're welcome. 33 00:02:10,150 --> 00:02:15,070 Speaker 1: It seems like there is really no escaping higher GSD, right? 34 00:02:15,090 --> 00:02:18,290 Speaker 2: Yes. I mean, I think the government was trying to 35 00:02:18,290 --> 00:02:21,530 Speaker 2: push it off by as much as they could because 36 00:02:21,530 --> 00:02:26,310 Speaker 2: they had announced it already 34 years ago. And then 37 00:02:26,310 --> 00:02:27,690 Speaker 2: because of covid, 38 00:02:27,700 --> 00:02:30,889 Speaker 2: they try to kind of push it back. They try 39 00:02:30,889 --> 00:02:33,190 Speaker 2: to do it in stages now that they will do 40 00:02:33,190 --> 00:02:37,110 Speaker 2: it in two steps, but it's inevitable it has to 41 00:02:37,110 --> 00:02:37,870 Speaker 2: go up. 42 00:02:37,880 --> 00:02:41,810 Speaker 1: Inflation is high. Mortgage rates are creeping up to Why 43 00:02:41,810 --> 00:02:44,160 Speaker 1: do we need to raise taxes now? 44 00:02:44,169 --> 00:02:49,840 Speaker 2: It's a complicated answer, so clearly, if you believe inflation 45 00:02:49,850 --> 00:02:53,760 Speaker 2: is high, which it is right now, you want to 46 00:02:53,760 --> 00:02:56,280 Speaker 2: actually slow down spending 47 00:02:56,460 --> 00:03:00,290 Speaker 2: the governments around the world through the monetary policy through 48 00:03:00,290 --> 00:03:04,590 Speaker 2: the central banks, raise the borrowing rates of the banks. 49 00:03:04,600 --> 00:03:09,799 Speaker 2: That raises the rates of lending to consumers that causes 50 00:03:09,800 --> 00:03:12,660 Speaker 2: consumers to not buy things like houses. 51 00:03:12,889 --> 00:03:15,640 Speaker 2: If you raise the interest rate on mortgages, they are 52 00:03:15,639 --> 00:03:18,780 Speaker 2: not going to buy a house. Similarly, if you raise 53 00:03:18,780 --> 00:03:22,440 Speaker 2: the taxes or your ability to go out and spend 54 00:03:22,440 --> 00:03:26,760 Speaker 2: money for dinners or shopping for handbags or luxury goods 55 00:03:26,770 --> 00:03:30,300 Speaker 2: through the GST, you're not going to go out and 56 00:03:30,300 --> 00:03:34,639 Speaker 2: buy those things, and so you will curb inflation. But 57 00:03:34,639 --> 00:03:37,640 Speaker 2: on the other side, you also raise an important point. 58 00:03:37,960 --> 00:03:41,770 Speaker 2: If you are going to raise GST, you still have 59 00:03:41,770 --> 00:03:46,210 Speaker 2: needs for necessary goods like food and other items that 60 00:03:46,210 --> 00:03:50,820 Speaker 2: are important to you. So raising the GST when inflation 61 00:03:50,820 --> 00:03:54,570 Speaker 2: is already high will also hurt people, 62 00:03:54,920 --> 00:03:58,600 Speaker 2: so you can see it can go both ways. Raising 63 00:03:58,600 --> 00:04:01,370 Speaker 2: GS Steve Inflation is high is a good thing, but 64 00:04:01,370 --> 00:04:03,970 Speaker 2: raising GS Steve and inflation is high can also be 65 00:04:03,970 --> 00:04:07,610 Speaker 2: a bad thing because taxes on your necessary items can 66 00:04:07,620 --> 00:04:09,210 Speaker 2: hurt your pocketbook. 67 00:04:09,220 --> 00:04:14,760 Speaker 1: But this GSC increase was announced before inflation was an issue. 68 00:04:14,770 --> 00:04:20,210 Speaker 1: So why is GSD being increased? Where will this extra 69 00:04:20,220 --> 00:04:21,940 Speaker 1: taxes go? 70 00:04:21,950 --> 00:04:24,580 Speaker 2: If you think about a GSD itself, 71 00:04:24,910 --> 00:04:29,640 Speaker 2: it's kind of a regressive tax because a progressive taxation 72 00:04:29,650 --> 00:04:33,420 Speaker 2: structure you will raise the marginal tax rate for the 73 00:04:33,420 --> 00:04:38,820 Speaker 2: highest earners. So the richest people pay higher taxes. It 74 00:04:38,820 --> 00:04:39,610 Speaker 2: makes sense. 75 00:04:40,350 --> 00:04:44,320 Speaker 2: GST is an increase in tax for everybody, from the 76 00:04:44,320 --> 00:04:47,850 Speaker 2: poorest person to the richest person. You would think that 77 00:04:47,850 --> 00:04:51,250 Speaker 2: the burden will fall more on the poor person in 78 00:04:51,250 --> 00:04:54,630 Speaker 2: paying taxes through GST. But what the government is doing 79 00:04:54,630 --> 00:04:58,260 Speaker 2: then is taking all the revenue additional revenue they're going 80 00:04:58,260 --> 00:05:02,860 Speaker 2: to earn through GST taxation. And part of that they 81 00:05:02,860 --> 00:05:07,350 Speaker 2: will give in terms of kickbacks are rebates to the 82 00:05:07,350 --> 00:05:08,550 Speaker 2: low income people. 83 00:05:08,779 --> 00:05:12,400 Speaker 2: So they're trying to make it more progressive by taking 84 00:05:12,400 --> 00:05:14,919 Speaker 2: part of the GST money and giving it to the 85 00:05:14,920 --> 00:05:19,360 Speaker 2: low income families. It's still not as progressive as you 86 00:05:19,360 --> 00:05:23,270 Speaker 2: raising the income tax rate for the super rich, which 87 00:05:23,270 --> 00:05:26,980 Speaker 2: the government has also done. Right now, they're raising 1% 88 00:05:26,980 --> 00:05:30,640 Speaker 2: tax rate income tax rate for the most wealthy people. 89 00:05:31,279 --> 00:05:36,430 Speaker 1: How do you think this will affect household budgets if 90 00:05:36,440 --> 00:05:41,100 Speaker 1: everybody is going to face higher taxes, considering all the 91 00:05:41,110 --> 00:05:44,910 Speaker 1: other things that are more expensive nowadays, households have to 92 00:05:44,910 --> 00:05:50,029 Speaker 1: face higher mortgages, groceries, petrol is expensive. So how will 93 00:05:50,029 --> 00:05:51,710 Speaker 1: this affect budgets? 94 00:05:51,720 --> 00:05:55,750 Speaker 2: Yes, clearly, it will definitely affect the consumer budget. 95 00:05:56,380 --> 00:05:58,950 Speaker 2: So the government's plan is to give back some of 96 00:05:58,950 --> 00:06:01,870 Speaker 2: the money to the low income people. So what will 97 00:06:01,880 --> 00:06:04,620 Speaker 2: end up happening is the middle class will be more 98 00:06:04,620 --> 00:06:08,740 Speaker 2: squeezed than anybody else. And the middle class will feel 99 00:06:08,740 --> 00:06:13,099 Speaker 2: the biggest pinch of the GST tax rate because they 100 00:06:13,100 --> 00:06:16,640 Speaker 2: also spend a lot. They are spending not just necessary 101 00:06:16,640 --> 00:06:20,360 Speaker 2: good but part on more luxury or travel and eating 102 00:06:20,360 --> 00:06:23,110 Speaker 2: out so they will be affected. And they 103 00:06:23,120 --> 00:06:26,359 Speaker 2: We'll either have to cut down consumption, which may be 104 00:06:26,360 --> 00:06:28,730 Speaker 2: the right thing to do for them. Or they may 105 00:06:28,730 --> 00:06:32,950 Speaker 2: end up borrowing or smoothing consumption through borrowing from their 106 00:06:32,950 --> 00:06:36,450 Speaker 2: future Selves. If I assume my GST is going to 107 00:06:36,450 --> 00:06:39,750 Speaker 2: go up, but inflation will come down in the future, 108 00:06:39,760 --> 00:06:42,260 Speaker 2: I don't want to cut down my spending habits because 109 00:06:42,260 --> 00:06:44,419 Speaker 2: I love what I do and I don't want to 110 00:06:44,420 --> 00:06:46,960 Speaker 2: go out to a cheaper restaurant. I still want to 111 00:06:46,960 --> 00:06:50,029 Speaker 2: go to the same restaurants every day or every week. 112 00:06:50,040 --> 00:06:52,670 Speaker 2: I will just start borrowing more on my credit cards 113 00:06:53,160 --> 00:06:55,810 Speaker 2: so we don't know how it will go. How consumer 114 00:06:55,810 --> 00:06:59,230 Speaker 2: sentiment will be. Do the cut down consumption. Are they 115 00:06:59,230 --> 00:07:02,700 Speaker 2: rational and saying GSD is going to hurt my pocket books? 116 00:07:02,700 --> 00:07:05,489 Speaker 2: I should cut down consumption or do I keep consuming more? 117 00:07:05,500 --> 00:07:08,600 Speaker 1: You keep consuming more. But put it on the credit 118 00:07:08,600 --> 00:07:12,060 Speaker 1: card and get yourself into more debt. Basically, is the 119 00:07:12,060 --> 00:07:12,870 Speaker 1: other option. 120 00:07:13,040 --> 00:07:18,210 Speaker 1: What should we do then? To manage this GSD increased 121 00:07:18,210 --> 00:07:22,280 Speaker 1: responsibly on a personal level. If I know that everything 122 00:07:22,280 --> 00:07:25,670 Speaker 1: else is more expensive and it's about to get more expensive, 123 00:07:25,680 --> 00:07:27,530 Speaker 1: what should we do? 124 00:07:27,540 --> 00:07:30,930 Speaker 2: The prudent thing or the rational thing for the consumer 125 00:07:30,930 --> 00:07:31,900 Speaker 2: is to say 126 00:07:32,180 --> 00:07:35,590 Speaker 2: I have a basket of things I need to do 127 00:07:35,600 --> 00:07:38,600 Speaker 2: every month. Part of that could be paying rent. Part 128 00:07:38,600 --> 00:07:41,930 Speaker 2: of that could be paying my mortgage. It's also paying 129 00:07:41,930 --> 00:07:45,010 Speaker 2: to Shin, which have gone up for my Children, uh, 130 00:07:45,020 --> 00:07:48,090 Speaker 2: many other things there. I can't do much. There is 131 00:07:48,090 --> 00:07:51,140 Speaker 2: not much room for me to change my lifestyle, but 132 00:07:51,140 --> 00:07:53,960 Speaker 2: there are lots of other things which is eating out 133 00:07:53,970 --> 00:07:57,910 Speaker 2: or going to more eateries or travel those I could 134 00:07:57,910 --> 00:07:59,720 Speaker 2: cut down for the time being, 135 00:08:00,000 --> 00:08:03,700 Speaker 2: mainly because this is going to be affecting my budget. 136 00:08:03,710 --> 00:08:06,840 Speaker 2: My budget constraint is there, and GST is just going 137 00:08:06,840 --> 00:08:09,370 Speaker 2: to make my budget constraint even tighter. 138 00:08:10,230 --> 00:08:13,750 Speaker 2: Now I hope many people realise that this is good. 139 00:08:13,760 --> 00:08:17,860 Speaker 2: GS TVs is inevitable because the government needs to raise 140 00:08:17,860 --> 00:08:21,250 Speaker 2: more revenue because the government in the past few years 141 00:08:21,250 --> 00:08:25,450 Speaker 2: had to have more expenses because of covid and going forward. 142 00:08:25,450 --> 00:08:28,100 Speaker 2: They're also investing much more and the government ended up 143 00:08:28,100 --> 00:08:29,510 Speaker 2: borrowing from their reserves. 144 00:08:30,310 --> 00:08:32,940 Speaker 2: So the people may have to say I need to 145 00:08:32,940 --> 00:08:39,260 Speaker 2: cut down my expensive, especially my discretionary expenses by nondiscretionary expensive. 146 00:08:39,270 --> 00:08:41,969 Speaker 2: I can't change. I mean those I have to incur 147 00:08:41,980 --> 00:08:43,090 Speaker 2: their inevitable. 148 00:08:43,390 --> 00:08:46,740 Speaker 1: How about you professors to make you mentioned? How twisted 149 00:08:46,740 --> 00:08:51,250 Speaker 1: and for your Children Now more expensive. Have you changed 150 00:08:51,250 --> 00:08:53,660 Speaker 1: how you're spending? First 151 00:08:53,660 --> 00:08:57,970 Speaker 2: you start dipping into your savings. Start dipping in your savings. 152 00:08:57,970 --> 00:09:01,010 Speaker 2: So you say. Okay, Hopefully wages will go up in 153 00:09:01,010 --> 00:09:03,580 Speaker 2: the future. Inflation will go away. So for now, let 154 00:09:03,580 --> 00:09:06,530 Speaker 2: me try to dip on my savings. Second, you may 155 00:09:06,530 --> 00:09:09,220 Speaker 2: start using your credit card. Third, you make consumption. So 156 00:09:09,220 --> 00:09:10,510 Speaker 2: I'm trying to do all three. 157 00:09:10,790 --> 00:09:14,280 Speaker 2: So actually cut consumption where it is frivolous. Try to 158 00:09:14,280 --> 00:09:16,780 Speaker 2: say OK Let's not do certain things. Let's not go 159 00:09:16,780 --> 00:09:21,370 Speaker 2: on certifications or more expensive vacations and also kind of 160 00:09:21,370 --> 00:09:23,569 Speaker 2: dip in the savings. And we see that I can 161 00:09:23,570 --> 00:09:26,470 Speaker 2: give you a very nice example on Singapore. 162 00:09:26,820 --> 00:09:31,030 Speaker 2: Actually, a few years ago, when Singapore raised the marginal 163 00:09:31,030 --> 00:09:34,450 Speaker 2: tax rate for the super rich, that increase the marginal 164 00:09:34,450 --> 00:09:39,330 Speaker 2: tax rate by 2% was going to actually reduce consumption 165 00:09:39,330 --> 00:09:41,890 Speaker 2: of the rich because now they pay higher taxes, so 166 00:09:41,890 --> 00:09:44,540 Speaker 2: their disposable income is law. What we see in the 167 00:09:44,540 --> 00:09:48,510 Speaker 2: data of rich Singaporeans they did not cut down consumption 168 00:09:48,520 --> 00:09:51,679 Speaker 2: is that they just dipped in their savings, their savings 169 00:09:51,679 --> 00:09:55,050 Speaker 2: balance goes down, the consumption doesn't go down 170 00:09:55,390 --> 00:09:57,750 Speaker 2: and what the Singapore government did, then they took that 171 00:09:57,750 --> 00:10:00,340 Speaker 2: money and gave it to the poor in terms of 172 00:10:00,340 --> 00:10:04,339 Speaker 2: redistribution of their taxes. And you see the poor actually 173 00:10:04,340 --> 00:10:06,800 Speaker 2: spend more because now they are getting free money or 174 00:10:06,809 --> 00:10:09,320 Speaker 2: a tax rebate from the government. The poor end up 175 00:10:09,320 --> 00:10:12,530 Speaker 2: spending so you can see the cycle in some sense, 176 00:10:12,530 --> 00:10:16,080 Speaker 2: how redistribution works and also not hurt the rich consumption 177 00:10:16,090 --> 00:10:17,640 Speaker 2: because they just use their savings. 178 00:10:18,090 --> 00:10:20,839 Speaker 1: Yeah, but you need to have savings. Then that's also 179 00:10:20,840 --> 00:10:23,670 Speaker 1: one key thing before all this happened. So you have 180 00:10:23,670 --> 00:10:26,380 Speaker 1: something to pick up when you need it. 181 00:10:26,390 --> 00:10:30,050 Speaker 2: I agree. Hence the government is being prudent. Realising the 182 00:10:30,050 --> 00:10:32,210 Speaker 2: poor may not have the savings, so we need to 183 00:10:32,210 --> 00:10:34,930 Speaker 2: give them back. The middle upper middle class may have 184 00:10:34,929 --> 00:10:38,110 Speaker 2: some savings and they do. I mean, the pandemic caused 185 00:10:38,110 --> 00:10:40,120 Speaker 2: a lot of people to save a lot of money. 186 00:10:40,130 --> 00:10:42,580 Speaker 2: And that's why we are seeing inflation. And so now 187 00:10:42,580 --> 00:10:43,040 Speaker 2: they'll just 188 00:10:43,054 --> 00:10:45,705 Speaker 2: kind of spent a lot of their savings. I mean, 189 00:10:45,705 --> 00:10:47,965 Speaker 2: a lot of the people who are upper middle class, 190 00:10:47,975 --> 00:10:50,425 Speaker 2: they didn't go to work. They just didn't buy clothes. 191 00:10:50,425 --> 00:10:53,074 Speaker 2: They didn't buy makeup, they didn't buy lots of things. 192 00:10:53,085 --> 00:10:55,595 Speaker 2: So all that money was saved up for the last 193 00:10:55,595 --> 00:10:58,485 Speaker 2: 34 years, and now they may end up either spending 194 00:10:58,485 --> 00:11:02,345 Speaker 2: because Syria, rice Or actually, that's also the reason we 195 00:11:02,345 --> 00:11:05,595 Speaker 2: had inflation. Because people realised that all the savings I 196 00:11:05,595 --> 00:11:07,475 Speaker 2: can travel Let me spend all this money 197 00:11:07,475 --> 00:11:08,015 Speaker 1: out. 198 00:11:08,260 --> 00:11:13,239 Speaker 1: Yeah, and all that money we saved from not travelling anywhere, right? Yes. 199 00:11:17,470 --> 00:11:20,530 Speaker 1: Hi. I'm Adrian Tan and I'm Crispino Robert. We are 200 00:11:20,530 --> 00:11:23,420 Speaker 1: the host of a new podcast called working. We're here 201 00:11:23,420 --> 00:11:25,860 Speaker 1: to get into the essential things that no one tells 202 00:11:25,860 --> 00:11:28,960 Speaker 1: you about working in company culture, from office politics to 203 00:11:28,960 --> 00:11:32,270 Speaker 1: dealing with burnout. If you've ever wanted to eavesdrop on 204 00:11:32,270 --> 00:11:35,900 Speaker 1: an interesting conversation by the water cooler, this podcast is 205 00:11:35,900 --> 00:11:38,780 Speaker 1: for you. Look out for our episodes wherever you get 206 00:11:38,780 --> 00:11:39,670 Speaker 1: your podcast. 207 00:11:44,100 --> 00:11:48,030 Speaker 1: It has been a while, though, since GST was last raised. 208 00:11:48,040 --> 00:11:51,960 Speaker 1: If they look back last time or when other countries 209 00:11:51,960 --> 00:11:56,340 Speaker 1: raised their GST, their taxes, what do you think we 210 00:11:56,340 --> 00:12:01,240 Speaker 1: can expect after this GSD hike? And what lessons can 211 00:12:01,240 --> 00:12:03,940 Speaker 1: we take from previous examples 212 00:12:03,950 --> 00:12:07,099 Speaker 2: people have studied? Academics have been studying this thing. I 213 00:12:07,100 --> 00:12:11,230 Speaker 2: have looked at GST tax rate changes in India, which 214 00:12:11,230 --> 00:12:12,750 Speaker 2: just recently happened. 215 00:12:12,765 --> 00:12:16,155 Speaker 2: I've looked at similar things in the U. S. And 216 00:12:16,165 --> 00:12:22,645 Speaker 2: other countries. What happens? Typically, consumers consumption basket will shrink, 217 00:12:22,655 --> 00:12:26,865 Speaker 2: so that's one thing. They will actually spend less. On average, 218 00:12:26,875 --> 00:12:32,665 Speaker 2: in every 1% point, rates in GST may actually shrink 219 00:12:32,665 --> 00:12:36,885 Speaker 2: the consumer basket from 5 to 7% so that's one thing. 220 00:12:36,915 --> 00:12:40,094 Speaker 2: The other thing that happens. Typically there's a shift in 221 00:12:40,095 --> 00:12:41,415 Speaker 2: the consumption basket. 222 00:12:41,790 --> 00:12:47,030 Speaker 2: They will shift away from discretionary items to non discretionary 223 00:12:47,030 --> 00:12:50,890 Speaker 2: items or in some sense, not take those vacations, not 224 00:12:50,890 --> 00:12:54,510 Speaker 2: go out and eat at expensive restaurants. But focus on 225 00:12:54,510 --> 00:12:58,080 Speaker 2: doing going to McDonald's more rather than going to an 226 00:12:58,080 --> 00:13:01,370 Speaker 2: expensive restaurant so that we'll see both of those shifts. 227 00:13:01,380 --> 00:13:04,429 Speaker 2: We have seen similar things in the data in other countries, 228 00:13:04,440 --> 00:13:08,090 Speaker 2: and we should see something like that in Singapore as well. 229 00:13:08,410 --> 00:13:12,120 Speaker 1: And when you look around at how we're spending, what's 230 00:13:12,120 --> 00:13:15,579 Speaker 1: your sense of how Singaporeans are coping with the rising 231 00:13:15,580 --> 00:13:16,730 Speaker 1: cost of living 232 00:13:16,760 --> 00:13:21,040 Speaker 2: look? Cost of living has been going up in the U. S. Context. 233 00:13:21,040 --> 00:13:24,140 Speaker 2: We are again looking at this, this effect of inflation 234 00:13:24,140 --> 00:13:28,670 Speaker 2: and consumer spending that itself is going to moderate spending 235 00:13:28,679 --> 00:13:33,760 Speaker 2: because inflation and how the government will respond. I mean, 236 00:13:33,760 --> 00:13:37,559 Speaker 2: we see mortgage rates in Singapore have gone up dramatically 237 00:13:37,770 --> 00:13:41,690 Speaker 2: when mortgage rates go up, then your budget constraint becomes 238 00:13:41,690 --> 00:13:44,550 Speaker 2: tighter or your debt service burden goes up, and I 239 00:13:44,550 --> 00:13:48,550 Speaker 2: have to pay more money to my bank in interest payments. 240 00:13:48,570 --> 00:13:51,420 Speaker 2: When I have to do that, I can't spend money 241 00:13:51,420 --> 00:13:54,080 Speaker 2: anymore on other things. I can't take vacation 242 00:13:54,295 --> 00:13:58,005 Speaker 2: or I can't buy fancy clothes anymore, So people have 243 00:13:58,015 --> 00:14:01,715 Speaker 2: been cutting down now. I don't have exact data for 244 00:14:01,715 --> 00:14:05,454 Speaker 2: Singapore yet, but we will end up seeing similar results 245 00:14:05,565 --> 00:14:08,045 Speaker 2: now on the GST is will be very difficult to 246 00:14:08,045 --> 00:14:10,415 Speaker 2: quantify this because 247 00:14:10,650 --> 00:14:16,439 Speaker 2: typically when GST raises by a significant amount, let's say 34% 248 00:14:16,510 --> 00:14:19,650 Speaker 2: then you can actually study this in the data that 249 00:14:19,650 --> 00:14:23,560 Speaker 2: consumption dropped. But GST going up by 1% is just 250 00:14:23,560 --> 00:14:26,740 Speaker 2: very hard to pick it up in the data and 251 00:14:26,740 --> 00:14:27,860 Speaker 2: see Look, I can show you 252 00:14:27,870 --> 00:14:31,380 Speaker 2: how consumption is dropping because there are so many other things. 253 00:14:31,390 --> 00:14:35,150 Speaker 2: Sometimes people just make smooth consumption through credit cards and 254 00:14:35,150 --> 00:14:38,250 Speaker 2: other things, so it's difficult to pick this up. 255 00:14:38,260 --> 00:14:43,120 Speaker 1: Prices are interest rates are it is a tough time 256 00:14:43,120 --> 00:14:45,090 Speaker 1: financially for many. 257 00:14:45,320 --> 00:14:49,260 Speaker 1: How long do you think this will go on for? 258 00:14:49,270 --> 00:14:52,560 Speaker 1: Is this a new normal of prices going up so fast? 259 00:14:52,570 --> 00:14:55,410 Speaker 1: Mortgage rates going up so fast as well? 260 00:14:55,420 --> 00:14:58,990 Speaker 2: I don't think so. There are a few factors that 261 00:14:58,990 --> 00:15:04,860 Speaker 2: caused this situation first. Clearly the pandemic that caused huge 262 00:15:04,870 --> 00:15:09,630 Speaker 2: government fiscal stimulus plants around the world that caused inflow 263 00:15:09,630 --> 00:15:13,450 Speaker 2: of money to the balance sheet of the consumer. Second, 264 00:15:13,600 --> 00:15:16,850 Speaker 2: the supply chain issues that we are facing right now 265 00:15:16,850 --> 00:15:21,060 Speaker 2: that is raising prices at the manufacturer level because they 266 00:15:21,060 --> 00:15:24,160 Speaker 2: just can't produce goods as fast as they could. So 267 00:15:24,160 --> 00:15:26,920 Speaker 2: it's the scarcity of goods raises prices. 268 00:15:27,100 --> 00:15:30,940 Speaker 2: Third, what we have seen. The conflict in Russia and 269 00:15:30,940 --> 00:15:36,730 Speaker 2: Ukraine has also reduced both food and grain coming into 270 00:15:36,730 --> 00:15:40,300 Speaker 2: various parts of the world and also oil prices shooting 271 00:15:40,300 --> 00:15:43,920 Speaker 2: up and oil prices going up is a necessary input 272 00:15:43,930 --> 00:15:45,240 Speaker 2: for production of every, 273 00:15:45,285 --> 00:15:48,305 Speaker 2: so that is also raising prices. So we have seen 274 00:15:48,305 --> 00:15:53,425 Speaker 2: three or four things that are causing this inflationary pressure 275 00:15:53,425 --> 00:15:56,125 Speaker 2: around the world and they are not going down despite 276 00:15:56,125 --> 00:16:00,625 Speaker 2: the fact that monetary authorities in the US in Singapore 277 00:16:00,635 --> 00:16:03,405 Speaker 2: everywhere else are raising interest rates. 278 00:16:03,720 --> 00:16:07,739 Speaker 2: So we will see consumption go down, investments go down, 279 00:16:07,750 --> 00:16:11,900 Speaker 2: infrastructure go down, slow down of all those will reduce inflation. 280 00:16:11,910 --> 00:16:15,810 Speaker 2: The conflict in Russia eventually will go away. China will 281 00:16:15,810 --> 00:16:19,430 Speaker 2: open up, so supplies constraints will also kind of go away. 282 00:16:19,440 --> 00:16:22,550 Speaker 2: Hence inflation may be there until next year. But I 283 00:16:22,550 --> 00:16:25,120 Speaker 2: just don't see that to be there much longer, 284 00:16:25,130 --> 00:16:29,770 Speaker 1: if not much longer. How much longer when this thing 285 00:16:29,770 --> 00:16:31,160 Speaker 1: is going to get better 286 00:16:31,290 --> 00:16:34,330 Speaker 1: because we were hoping that Covid was going to go 287 00:16:34,330 --> 00:16:36,790 Speaker 1: away this year and that we're going to go back 288 00:16:36,800 --> 00:16:40,200 Speaker 1: to how things were then were slapped in the face 289 00:16:40,200 --> 00:16:45,080 Speaker 1: by inflation, high property prices and all these things. When 290 00:16:45,080 --> 00:16:46,640 Speaker 1: will things get better? 291 00:16:46,650 --> 00:16:51,580 Speaker 2: We already at the end of 2022 governments, central banks 292 00:16:51,590 --> 00:16:54,640 Speaker 2: around the world are working very hard. We just saw 293 00:16:54,640 --> 00:16:58,050 Speaker 2: the Federal Reserve raised the interest rate by 75 basis point. 294 00:16:58,500 --> 00:17:01,240 Speaker 2: And you are seeing the effect of that in terms 295 00:17:01,240 --> 00:17:06,680 Speaker 2: of housing starts are a new development, construction or actually, 296 00:17:06,680 --> 00:17:11,199 Speaker 2: new purchases of forms are dropping consumption levels where the 297 00:17:11,200 --> 00:17:13,540 Speaker 2: data is available, at least for the U. S. You 298 00:17:13,540 --> 00:17:17,090 Speaker 2: see consumption going down to answer your question more directly. 299 00:17:17,100 --> 00:17:18,840 Speaker 2: I think we will be high 300 00:17:18,859 --> 00:17:22,550 Speaker 2: having this issue all the way till 3rd, 4th quarter 301 00:17:22,550 --> 00:17:26,020 Speaker 2: of 2023. So all of next year we are going 302 00:17:26,020 --> 00:17:30,090 Speaker 2: to have inflationary pressure or prices go up, and as 303 00:17:30,090 --> 00:17:34,730 Speaker 2: a result, interest rates go up and hopefully we will 304 00:17:34,740 --> 00:17:38,600 Speaker 2: start seeing inflation to be dropped by the end of 305 00:17:38,600 --> 00:17:41,629 Speaker 2: next year. So that's my prediction. So I'm taking a 306 00:17:41,630 --> 00:17:44,139 Speaker 2: strong stand, and when I see this happening. 307 00:17:44,359 --> 00:17:46,960 Speaker 1: Is this also going to be a case of when 308 00:17:46,960 --> 00:17:51,530 Speaker 1: businesses raise prices coupled with the G S T increase? 309 00:17:51,530 --> 00:17:54,280 Speaker 1: We're not going to see that go back down because, 310 00:17:54,290 --> 00:17:58,709 Speaker 1: for example, tax affairs, they've increased tax affairs because of 311 00:17:58,710 --> 00:18:01,430 Speaker 1: high oil prices. But I don't remember tax affairs going 312 00:18:01,430 --> 00:18:03,560 Speaker 1: down when oil prices are down. 313 00:18:03,570 --> 00:18:06,280 Speaker 2: That's true. So there's a lot of research that talks 314 00:18:06,280 --> 00:18:10,840 Speaker 2: about how prices are sticky. When prices go up, they 315 00:18:10,850 --> 00:18:12,490 Speaker 2: rarely rarely come down. 316 00:18:12,970 --> 00:18:17,500 Speaker 2: But if you actually think about it, prices of electronic 317 00:18:17,500 --> 00:18:21,520 Speaker 2: goods have only been coming down in the last 50 years. 318 00:18:22,080 --> 00:18:26,450 Speaker 2: Your computer, your iPhone, you might say the iPhone price 319 00:18:26,450 --> 00:18:30,840 Speaker 2: has been the same. Maybe 809 $100. But what is happening? 320 00:18:30,840 --> 00:18:34,170 Speaker 2: The quality of iPhone every time is going up 1 321 00:18:34,170 --> 00:18:37,920 Speaker 2: to 3 times the quality is improving. So essentially the 322 00:18:37,930 --> 00:18:40,710 Speaker 2: price of iPhones have been going down. Your computers and 323 00:18:40,710 --> 00:18:42,270 Speaker 2: everything else is going down. 324 00:18:42,760 --> 00:18:47,560 Speaker 2: But taxi fares may be difficult because most of these 325 00:18:47,570 --> 00:18:50,960 Speaker 2: kind of goods they adjust their prices every now and then. 326 00:18:50,970 --> 00:18:54,129 Speaker 2: So imagine inflation has been there in the world. Every 327 00:18:54,130 --> 00:18:58,490 Speaker 2: year we have inflation of 2%. Okay, which is reasonable. 328 00:18:58,490 --> 00:19:00,270 Speaker 2: We want to live in a country where we have 329 00:19:00,270 --> 00:19:03,060 Speaker 2: inflation because we don't want to live in countries where 330 00:19:03,060 --> 00:19:04,140 Speaker 2: there's no inflation. 331 00:19:04,400 --> 00:19:07,210 Speaker 2: But you don't see the price of chicken rice going 332 00:19:07,210 --> 00:19:11,000 Speaker 2: up by 2% every year. What do the stars do? 333 00:19:11,010 --> 00:19:14,160 Speaker 2: They keep the price constant, even though they know that 334 00:19:14,160 --> 00:19:17,250 Speaker 2: inflation is higher by 2%. But every now and then, 335 00:19:17,250 --> 00:19:20,050 Speaker 2: maybe five years, 10 years down the raid, they increase 336 00:19:20,050 --> 00:19:21,140 Speaker 2: the price of chick 337 00:19:21,170 --> 00:19:26,490 Speaker 2: and rise by maybe 30%. That adjusts for the inflation 338 00:19:26,490 --> 00:19:28,850 Speaker 2: for the last 5, 10 years, and that's what we 339 00:19:28,850 --> 00:19:32,430 Speaker 2: are seeing that is happening. This inflationary pressure is causing 340 00:19:32,430 --> 00:19:35,150 Speaker 2: everybody to adjust. But now what we will not see 341 00:19:35,150 --> 00:19:37,930 Speaker 2: is them adjusting prices for another 5 to 10 years. 342 00:19:38,470 --> 00:19:40,510 Speaker 2: You are right. It may not come down, but it 343 00:19:40,510 --> 00:19:42,640 Speaker 2: may not go up for the next 5 to 10 344 00:19:42,640 --> 00:19:43,609 Speaker 2: years old. So 345 00:19:43,830 --> 00:19:45,460 Speaker 1: I guess in the meantime, we have to get through 346 00:19:45,460 --> 00:19:48,330 Speaker 1: the next year. It's 347 00:19:48,330 --> 00:19:51,570 Speaker 2: one of those situations where there will be hard times 348 00:19:51,570 --> 00:19:55,150 Speaker 2: to come, at least in the short run. But in 349 00:19:55,150 --> 00:19:58,200 Speaker 2: the medium to long term, I don't think we should 350 00:19:58,210 --> 00:19:59,790 Speaker 2: be that concern, 351 00:20:00,119 --> 00:20:04,630 Speaker 2: especially for a country like Singapore, where the government is 352 00:20:04,640 --> 00:20:08,609 Speaker 2: agile enough and they understand. And they can react fast 353 00:20:08,609 --> 00:20:09,030 Speaker 2: enough 354 00:20:09,510 --> 00:20:12,709 Speaker 2: in the US, where the policy making and politics is 355 00:20:12,710 --> 00:20:16,050 Speaker 2: so convoluted that it will take years and there will 356 00:20:16,050 --> 00:20:19,710 Speaker 2: be so many different fractions that nothing gets done. At 357 00:20:19,710 --> 00:20:24,000 Speaker 2: least in Singapore, we will see reaction faster. And Singapore, luckily, 358 00:20:24,000 --> 00:20:29,000 Speaker 2: also has a surplus. Unlike many other countries, they have deficits. 359 00:20:29,010 --> 00:20:31,540 Speaker 2: So if they have to do any fiscal policy, they 360 00:20:31,540 --> 00:20:32,600 Speaker 2: have to borrow. 361 00:20:32,800 --> 00:20:35,690 Speaker 2: Singapore doesn't have to borrow. They can actually dipped in 362 00:20:35,690 --> 00:20:40,939 Speaker 2: their surplus and reserves and actually help the consumers or households. 363 00:20:40,950 --> 00:20:44,770 Speaker 1: Government is putting part of the revenue from this extra 364 00:20:44,770 --> 00:20:48,720 Speaker 1: tax and putting that to the lower income households to 365 00:20:48,720 --> 00:20:54,070 Speaker 1: help them cope with this rising G S t. But 366 00:20:54,080 --> 00:20:57,690 Speaker 1: is that assurance package from the government 367 00:20:57,859 --> 00:21:02,140 Speaker 1: enough to help the low income group in the long term? 368 00:21:02,150 --> 00:21:05,610 Speaker 1: Or do you think that this will be a short 369 00:21:05,609 --> 00:21:09,280 Speaker 1: term measure and after that, they'll have to figure out 370 00:21:09,280 --> 00:21:11,030 Speaker 1: how to cope in the end? 371 00:21:11,040 --> 00:21:14,600 Speaker 2: So I can't imagine this to be a permanent measure. 372 00:21:14,609 --> 00:21:19,000 Speaker 2: Part of the measure is to help them because of inflation. 373 00:21:19,580 --> 00:21:23,380 Speaker 2: Part of the measure is also to help them smooth 374 00:21:23,380 --> 00:21:27,750 Speaker 2: their spending habits in steps as opposed to taking a 375 00:21:27,750 --> 00:21:32,580 Speaker 2: big shock in reducing consumption. By allowing them to get 376 00:21:32,580 --> 00:21:35,340 Speaker 2: some of the money back that they would have spent 377 00:21:35,350 --> 00:21:39,950 Speaker 2: extra on GST payments. It gives them some breathing room 378 00:21:39,960 --> 00:21:43,140 Speaker 2: to slowly bring down their consumption level. I think that's 379 00:21:43,140 --> 00:21:44,000 Speaker 2: the right thing, 380 00:21:44,170 --> 00:21:46,679 Speaker 2: but you don't want to make it permanent because essentially 381 00:21:46,680 --> 00:21:51,080 Speaker 2: then you have not done any modification in consumer behaviour, 382 00:21:51,080 --> 00:21:53,840 Speaker 2: a change in consumer behaviour on their spending because they 383 00:21:53,850 --> 00:21:56,830 Speaker 2: realised there was no increase in GST. They just continue 384 00:21:56,830 --> 00:21:59,150 Speaker 2: to spend the way they were. So you want to 385 00:21:59,160 --> 00:22:02,590 Speaker 2: have an effect but the middle class or the upper 386 00:22:02,590 --> 00:22:07,270 Speaker 2: middle class, where these rebates will be tiny or nonexistent? 387 00:22:07,280 --> 00:22:11,680 Speaker 2: Those people will have to curb consumption or will have 388 00:22:11,680 --> 00:22:14,020 Speaker 2: to think of other ways to smooth consumption 389 00:22:14,410 --> 00:22:16,850 Speaker 1: before we let you go. Do you have any tips 390 00:22:16,850 --> 00:22:20,020 Speaker 1: for us to manage this upcoming GSC hike? 391 00:22:20,030 --> 00:22:24,780 Speaker 2: Yes, very simple tips make a budget figure out. What's 392 00:22:24,780 --> 00:22:29,240 Speaker 2: your income? What's your expenses? How can you break down 393 00:22:29,240 --> 00:22:34,300 Speaker 2: your expenses into necessary discretionary non discretionary expenses. 394 00:22:34,720 --> 00:22:38,650 Speaker 2: Try to spread out the pain everywhere. So you can 395 00:22:38,650 --> 00:22:41,190 Speaker 2: say I'm not going to just say we're not gonna 396 00:22:41,190 --> 00:22:44,139 Speaker 2: take vacations. But we're going to continue eating out. So 397 00:22:44,140 --> 00:22:47,340 Speaker 2: you want to cut down on all the things wherever 398 00:22:47,340 --> 00:22:50,650 Speaker 2: you can because you are going to be experiencing this 399 00:22:50,650 --> 00:22:53,510 Speaker 2: pain for another year or so. So it's not going 400 00:22:53,510 --> 00:22:55,970 Speaker 2: to go away in the next two months. Three months, 401 00:22:55,980 --> 00:22:59,810 Speaker 2: and I don't see wages to go up as fast anymore. 402 00:22:59,820 --> 00:23:02,760 Speaker 2: So you want to make sure that your prudent and 403 00:23:02,760 --> 00:23:03,460 Speaker 2: too expensive 404 00:23:03,880 --> 00:23:06,400 Speaker 2: the other thing is do not try to smooth out 405 00:23:06,400 --> 00:23:10,379 Speaker 2: consumption by taking on credit card debt because that's really bad, 406 00:23:10,390 --> 00:23:13,750 Speaker 2: because then you are taking on new debt at 24% 407 00:23:13,930 --> 00:23:17,170 Speaker 2: just because you think I want to continue and inflation 408 00:23:17,170 --> 00:23:19,830 Speaker 2: will go away and things will be back to normal. 409 00:23:19,840 --> 00:23:22,770 Speaker 2: So do not take our debt. Try to cut down 410 00:23:22,780 --> 00:23:24,820 Speaker 2: as much of consumption as you can. 411 00:23:24,830 --> 00:23:29,940 Speaker 1: Yeah, this period really reminds us of the need for savings. 412 00:23:29,940 --> 00:23:33,920 Speaker 1: So when times are tough, we have something to go to. 413 00:23:33,920 --> 00:23:35,580 Speaker 1: Thanks so much. Professor. Summit. 414 00:23:35,590 --> 00:23:36,850 Speaker 2: Thank you very much. 415 00:23:37,850 --> 00:23:41,960 Speaker 1: Thanks for listening. If you've enjoyed money talks do follow 416 00:23:41,960 --> 00:23:45,710 Speaker 1: us on Spotify or apple podcasts. If you like what 417 00:23:45,710 --> 00:23:48,860 Speaker 1: you hear, do rate us or better still, leave us 418 00:23:48,859 --> 00:23:52,040 Speaker 1: a review. 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