Fiscal Stability Must Not Be At The Mercy Of Thai Politics

[webfact]

EDITORIAL

Fiscal stability must not be at the mercy of politics

By The Nation

The govt should be wary of making handout promises to voters before the next election; the country cannot afford the cost of welfare programmes

According to many political pundits, the results of the recent by-elections show that populist policies seem to be working to the Democrat Party's benefit. Although the Democrats lost in the northeastern provinces, as expected, the party gained much higher scores in the region, compared to the previous election. The Democrat candidate in Khon Kaen province received more than 36,000 votes, compared to only 7,000 in the previous election.

The higher returns are being attributed to the populist handouts that the Democrat Party is continuing from previous governments. These policies work well, since voters see immediate and easy benefits. But the longer-term effects will be damaging for the nation's fiscal stance.

Excessive spending ahead of a general election has unfortunately become a routine for all Thai administrations. Prime Minister Abhisit Vejjajiva has hinted at a House dissolution early next year, but the government should refrain from exploiting financial policy for the coalition parties' benefit. It should resist the political temptations and follow a discretionary path.

As things stand, the annual budget for Thailand over the next 10 years is set to increase to Bt3 trillion, up from the current level of Bt2 trillion because of increases in routine spending, debt obligations and higher outlays on social welfare.

Nonetheless, nothing has been said about how the government will find the revenue to cover its planned increase in social spending. For next year's fiscal plan, the government will run a further deficit. The government still says that it plans to balance the budget by 2016 - let's hope that this isn't forgotten in the rush to secure voters' favours through financial incentives.

Although government officials defend some welfare projects, such as the cost-of-living scheme, by saying that they do not consume much of the budget, some of these initiatives are clearly not necessary and are failing to solve the root causes of the massive income disparity in this country. Worse, they instil in the public the bad habit of craving even more handouts.

According to the Thailand Development Research Institute, Thailand's welfare spending is increasing by 1.5 to 1.6 per cent of the nation's GDP every year. Even if the economy grows at an average of 4.5 percent, the proportion of public debt to GDP could top 60 per cent by the year 2027. However, if the economy grows by only 3.5 per cent, the ratio of public debt to GDP could rise to 80-90 per cent, which would threaten the financial stability of the country.

At present, the government has to spend around Bt300 billion a year for welfare expenditure. If the government plans to continue to finance this expenditure at this level, it will have to increase the annual tax revenue to the level of 21 per cent of GDP, compared to the current 18 per cent. The government's plan to raise value-added tax will increase revenue by Bt100 billion, while the planned land and property tax increase will bring in additional revenue of Bt200 billion.

But the government has not made a final decision on tax increases because none of them will be politically popular. The government talks a lot about tax reform but nothing has been done so far. Instead, the government keeps on spending as the election draws nearer. But all political players must be warned: The election campaigns should be sensible. Political promises must not cause a long-term negative impact on our fiscal stability. The next generation of Thais should not have to bear a higher debt burden because of our indiscreet spending.

It is an admirable effort to promote welfare benefits, especially for the underprivileged. But the measures should lead to a more substantive and sustainable outcome. Otherwise, governments will be forced to continue to appease voters with cash and other handouts - thus creating a possibly unmanageable debt obligation. And that will lessen the country's ability to withstand internal and external shocks that can happen at any time.

-- The Nation 2010-12-18

[Bagwan]

If the country includes all the millionaire Generals, politicians and senior civil servants maybe the country could afford a decent welfare programme. The key to improving the condition of the down trodden is redistribution of wealth and adult education so that enhanced incomes are spent wisely and not on baubles and other 'desirables'.

[Pib]

Getting elected and staying elected ain't cheap.

[asiawatcher]

IT also should not be at the behest of crooked banks! As both work in cahoots it means we as the public have no chance anyway other that keeping funds out of the banks. Without our capital they have to change.

[mahtin]