Wednesday, August 22, 2012

Thailand doesn't have money for a spending spree

The Thai government is using tax money and borrowing heavily to appease its support base - with no guarantee that populist policies will benefit anyone.

Although the budget bill will have to be further deliberated upon in the Senate, the government should easily win approval because of its majority control in the House. But this does not mean the government has the right to ineffectively use taxpayers' money to finance short-term political promises regardless of the consequences.

The 2.4 trillion baht (US$76 billion) that the government plans to spend in fiscal 2012-13 is no small amount. But the real question is whether the money will be spent wisely, to serve the interests of the public.

The government should not be content with the thought that it is entitled to spend taxpayers' money because of its massive majority in Parliament. A number of spending plans will have to be financed by the money of future generations because the government needs to borrow more, with an obligation to pay in the future.

The target expenditure is 2.4 trillion baht, but the Finance Ministry expects tax revenue collection of only 2.1 billion baht, resulting in a budget deficit of 300 billion baht. This is not to mention the extraordinary borrowing of 350 billion baht to invest in flood-prevention projects and other public investments.

During last week's House debate the government could not clearly explain how it would finance these populist projects. If the government plans to spend more, the Finance Ministry should have placed equal importance on how to find additional sources of revenue by, for instance, reforming the tax base.

The targeted tax revenue of 2.1 trillion baht shows that the country's taxation base remains inadequate, representing only 16-17 per cent of gross domestic product. Reform would enable the government to finance future projects in a steady manner, because it has obligations to support welfare projects such as healthcare, education and welfare for an increasing number of senior citizens. Land tax has not been mentioned, even though it should be a high priority.

Instead of looking at the tools available to raise more revenue to finance its mammoth spending plans, the government is pressuring the Bank of Thailand to use foreign reserves - which exist to ensure monetary stability - to finance its populist, short-term political promises.

The vast budget is meant to excite those voters who are the target of these populist schemes. But in reality they may not be the real beneficiaries, since the ineffective rice price-pledging programme has shown that farmers are not the major beneficiaries of that particular subsidy.

The question has to be asked whether a number of these projects are necessary. The controversial rice programme aside, there is also the government subsidy given to people to buy their first car. Of course this project will make consumers feel good, but the government should focus on developing mass transit systems and logistics to save imported fuel and reduce air pollution. Ineffective spending of the Oil Fund will cause problems for the country's fiscal stance and the stability of domestic oil prices.

The government has placed high priority on economic growth, but there are other elements that are equally important. For instance, Thailand's growth should be able to rise on a solid foundation. Otherwise our economic growth prospects will face limitations. Unsteady growth right now is reflected by a lack of labour.

Apart from the migration of workers from rural to urban areas, Thailand also has to import foreign migrants to fill gaps in the workforce, but this has led to problems of abuse and illegal migration.

Growth should see the country gaining the ability to use advanced technology to offset the lack of cheap labour, without having to worry about the consequences of massive urban migration and illegal foreign workers.

The huge budget allocation is likely to leave negative impacts if the money is not spent wisely. The government's plans to encourage consumption and give away easy money will result in an increase in farmers' household debts. Farmers' credit cards will further raise their debt level if they are not educated about money management.

Let's hope this money will be carefully spent to produce long-term results, because every Thai is a stakeholder in this spending spree.-Asia News NEtwork (August 21, 2012)

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