New Thai Govt Will Face Early Crisis Of Funding

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New Govt will face early crisis of funding

By ACHARA PONGVUTITHAM,

WICHIT CHAITRONG

THE NATION

The incoming government, whatever its political complexion, will face an immediate obstacle as it is unlikely to be able to generate sufficient revenue this fiscal year to support its populist policies, according to leading economists.

They share the view that even if the new administration were to undertake tax restructuring, it might not create enough income to fund ambitious spending plans in the near term.

The current fiscal year ends on September 30.

In any case, it is regarded as impossible for the government to opt for an early increase in value-added tax (VAT), given the rising cost of living.

Moreover, if the new government were to borrow more from international financial organisations, the move would lead to higher public debt and have a domino effect on the Kingdom's economy in the long run, particularly in terms of an increased budget deficit and higher interest rates.

Sethaput Suthiwart-narueput, a leading independent economist, said two key methods enabling the government to achieve additional funding would be to focus on overseas loans and the squeezing of its investment budget.

However, neither approach would have a positive impact on the economy in the long term, as the country would be landed with a higher public debt burden and budget deficit, among other negative effects.

He stressed that increases in VAT, excise duty and inheritance tax would not generate sufficient income to pay for populist projects.

"The government investment budget is the most essential expenditure, as [it provides for] the Kingdom's long-term economic fundamentals," Sethaput said, adding that the government should not ignore budgetary-prudence principles, otherwise the country would end up in a state of financial collapse like Greece.

In addition, there is a limit under constitutional law on how much the government can transfer its investment budget for other expenditure, as well as on its borrowing from overseas, he said.

"We fear populist policies will cause Thailand to be saddled with a further debt burden, lower economic growth, and reduced productivity and competitiveness. The parties are not looking ahead to the country's long-term sustainable development," Sethaput said, pointing to the huge debt burden still facing the Kingdom.

Nitinai Sirismatthakarn, former director of the Macro Fiscal Policy Analysis Section of the Finance Ministry, said the government would not be able to collect more tax, either directly and indirectly.

At present, revenue from tax collection accounts for 90 per cent of the Kingdom's income, with the remainder coming from income generated by state enterprises and the Treasury Department.

Thailand will also have lower collection from import tariffs due to its various free-trade agreements, most notably the Asean Economic Community, besides which excise duty is already levied on a wide range of goods, including oil, cigarettes, automobiles, motorcycles, liquor and a variety of other drinks, he said.

"Not only has the [current] government thought of ways to increase revenue from excise collection, but the ideas have been in focus since the time of King Rama IV, and there are no more options," he added.

As regards turning to foreign loans, the next administration must take into account Articles 21 and 22 of the Public Debt Management Act of 2005, which impose restrictions on borrowing by the government.

Article 21 sets out that in the event of the Finance Ministry seeking loans to finance the budget when expenditure exceeds revenue, the aggregate amount shall not exceed 20 per cent of the existing annual budget and 80 per cent of budget appropriation as set out for the repayment of principal.

Article 22 restricts the raising of loans for economic and social development, with the ministry having to borrow in foreign currency and the aggregate amount not exceeding 10 per cent of the annual budget.

Considering the current fiscal year's estimated revenue of Bt1.9 trillion and projected deficit of Bt420 billion, the government would not have enough additional funds to support populist projects from borrowing or restructuring its expenditure, Nitinai said.

"The new government would have to wait for 2012 budget approval to rearrange its new spending to match income. They can do nothing this fiscal year," he added.

Vorapol Socatiyanurak, an economist at the National Institute of Development Administration, said the government could instead provide social-welfare programmes that would not cause public debt to rise.

In order to reduce budgetary constraints, the government needs to target its measures at specific groups, he said. For example, the current subsidy provided on the use of electricity also benefits a large number of people who cannot be considered poor.

Moreover, removal of the diesel subsidy would result in more tax income, which the government could then allocate to improving mass transit or the overall rail system, thus reducing the cost of both travel and logistics.

The government has to ensure that infrastructure investment projects will generate future income, he said, adding that private firms should play a greater role in financing such projects, as the government could not find adequate revenue to do so.

The government must also be very careful about new borrowings, as the country's public debt is about 41 per cent of gross domestic product. This may not very high at the moment but it could increase in later years, he warned.

Vorapol cited the example of Greece, which until a decade ago did not have a particularly high level of public debt, but which was now mired in a public-debt crisis.

-- The Nation 2011-06-28

[OzMick]

55555555555555 - Yingluk's little promise, B20,000/tonne for rice looks to be either a non-starter or a huge drain on the budget

What's it gonna be sweetheart?

Answer - Big smile "I'm sure the financial experts of PTP have looked into this and all our promises are fully funded."

There goes that flying pig again!

[rreddin]

55555555555555 - Yingluk's little promise, B20,000/tonne for rice looks to be either a non-starter or a huge drain on the budget

What's it gonna be sweetheart?

Answer - Big smile "I'm sure the financial experts of PTP have looked into this and all our promises are fully funded."

There goes that flying pig again!

From the OP: "The incoming government, whatever its political complexion, will face an immediate obstacle as it is unlikely to be able to generate sufficient revenue this fiscal year to support its populist policies, according to leading economists."

So, you have nothing to say about the Dems populist policies? I thought not.

[ginjag]

55555555555555 - Yingluk's little promise, B20,000/tonne for rice looks to be either a non-starter or a huge drain on the budget

What's it gonna be sweetheart?

Answer - Big smile "I'm sure the financial experts of PTP have looked into this and all our promises are fully funded."

There goes that flying pig again!

Ha Ha ---And the kids new toys, and the farmers are going to be rich in 6 months--But I think the country will be in good hands, a massive FAMILY whip round would be in order, I think Thaksin family will have to fund the Issan people to stay at home for a while after the election and get on with the farming, and keep your kids off school as much as you can so they will have no knowledge of what's happening at government level.

[OzMick]

55555555555555 - Yingluk's little promise, B20,000/tonne for rice looks to be either a non-starter or a huge drain on the budget

What's it gonna be sweetheart?

Answer - Big smile "I'm sure the financial experts of PTP have looked into this and all our promises are fully funded."

There goes that flying pig again!

From the OP: "The incoming government, whatever its political complexion, will face an immediate obstacle as it is unlikely to be able to generate sufficient revenue this fiscal year to support its populist policies, according to leading economists."

So, you have nothing to say about the Dems populist policies? I thought not.

The democrats rice subsidy was costed at THB45-50 billion baht. I have said many times that propping up an unviable industry (as it stands) is a bad idea, but with a huge slab of the workforce/voters, possible necessary to get elected.

PTP initially promised B15,000/tonne, increased by an off-the-cuff rally comment by her big smileness to B20,000/tonne - costed at around THB200 billion. It has also been estimated by a farmer's org that 60% of this would go to millers.

.This can only be achieved by diverting govt expenditure from current items - schools, roads, hospitals - or abandoned as just another campaign promise.

You thought wrong. Now I would be happy to read your thoughtful critique and analysis. That is, of course if you have any thoughts.

[MrChangers]

"The government must also be very careful about new borrowings, as the country's public debt is about 41 per cent of gross domestic product. This may not very high at the moment but it could increase in later years, he warned.

Vorapol cited the example of Greece, which until a decade ago did not have a particularly high level of public debt, but which was now mired in a public-debt crisis."

Who ever gets in is going to have a sticky time with these figures.

[DP25]

"The government investment budget is the most essential expenditure, as [it provides for] the Kingdom's long-term economic fundamentals," Sethaput said, adding that the government should not ignore budgetary-prudence principles, otherwise the country would end up in a state of financial collapse like Greece.

In addition, there is a limit under constitutional law on how much the government can transfer its investment budget for other expenditure, as well as on its borrowing from overseas, he said.

Like they'll let something like the constitution stop them if the reds win. Pardon and 46 billion baht for one and free iPads for everyone else

[exbelg]

every 3 meter, you see billboards for crooky politician, can anybody explain how many billions it must have costed for whole thailand ?

[exbelg]

why compare thailand to greece ?

people overthere almost nobody pays any taxes (here only in bangkok i guess)

people overthere earn 5000 euro (200.000+ baht) for driving a train !!!

people overthere go on pensioen at the age of 50 and get 90% of their last salary ...

massive corruption overthere is sowhat the best comparison with thailand

thailand has as good as no social security, expect for those governement people abusing the system and visiting the doctor 10 x per month and selling of medicine at 30.000 baht per head , no unemployment benefits, for most people no pension if not government workers...

[geriatrickid]

I believe that FM Korn has been less than forthright with the numbers. In the event that PTP wins, I believe that it will discover that there really is no money in the treasury. If the Democrats win, they will have to blow some more smoke. I truly believe that Thailand's finances are in a mess and the government has not been honest in that regard.

[Throatwobbler]

I believe that FM Korn has been less than forthright with the numbers. In the event that PTP wins, I believe that it will discover that there really is no money in the treasury. If the Democrats win, they will have to blow some more smoke. I truly believe that Thailand's finances are in a mess and the government has not been honest in that regard.

If the PTP get in then I'm sure that's the way they will spin it. If they get in I believe they have no intention of implementing all their policies as it will destroy the economy and they are not that stupid. Who better to blame than Abhisit and the Democrats.

" We want to help to help you but they speant all the money, In the meantime please keep voting for us and let us keep deceiving you"

[hawksway]

Thai Politicians will simply do what Politicians the World over do. Forget the promises they made, plead that in the economic climate are not conducive to fulfilling them or simply re-offer them just before the next election. problem solved!

[MrChangers]

I believe that FM Korn has been less than forthright with the numbers. In the event that PTP wins, I believe that it will discover that there really is no money in the treasury. If the Democrats win, they will have to blow some more smoke. I truly believe that Thailand's finances are in a mess and the government has not been honest in that regard.

If the PTP get in then I'm sure that's the way they will spin it. If they get in I believe they have no intention of implementing all their policies as it will destroy the economy and they are not that stupid. Who better to blame than Abhisit and the Democrats.

" We want to help to help you but they speant all the money, In the meantime please keep voting for us and let us keep deceiving you"

That sounds like the UK. It does not matter what country you are in but the old phrase "We did not realise how bad it was till we saw the books" comes out. Always blame the previous government and if you do get in again think of an excuse quick!

[moe666]

No problem Taksin will fund all of the funny stuff.

Maybe the exchange rate will get better at the political parties expense.

Edited June 28, 2011 by moe666

[John1012]

Save money?

An aircraft carrier? Moth ball or scrap.

Submarines? For what?

Military airships? What happened to that?

Motorcades on a regular basis between Pats and Sattahip, multiple police presence, stopping normal traffic , just so someone can go shopping/ work? Must cost a fortune in wages.

Enforce proper traffic laws, the fines generated would be massive. No red light jumping, no driving (by 4+ wheeled vehicles against the traffic, just to avoid a short journey to next U turn). . The crime of driving without 'due care' , that would have 90% of motorists paying. Enforce 'dangerous driving rules'. DREAM ON.

Audit of military officers, chiefs and indians. Cut the overhead, early retirement. DREAM ON.

Allow non Thai ownership of land/property (with an upper limit of how much per individual).

Remove the number of restrictions on non Thai's jobs, make getting a 'B' visa and work permit easier. Allow more non Thai trained foreigners to run businnesses, bring in such things as long term planning, efficient administration systems, 'paperless ' offices, years of experience.

None of the above will change, so the drip,drip drain on the Thai economy will continue on. TV readers must see, on a daily basis, ways of saving expenditure, but being non Thai, suggestions are generally ignored, or taken as an insult.

[Ricardo]

Allow non Thai ownership of land/property (with an upper limit of how much per individual).

Not sure how this particular one might improve the government's finances ?

Agree that it would be nice, for us foreign residents, but personally I can understand & live-with the current rules. Also agree with controlling military-spending, keeping it to the current reasonable level, and the same needs to happen to all the agricultural-subsidies or the diesel-support, these do nothing to help improve economic-efficiency longer-term.

I suspect that Thaksin would think he can sell lots more long-term zero-coupon bonds, and whoever is PTP's nominee for Finance-Minister will act as he's told, whereas Korn might stretch-out the implementation of the higher-subsidies/minimum-wage. But the economy appears to be growing strongly, which isn't a bad place to start, for any new incoming-government.

It would be nice to think that the Dems' relatively-modest land-tax proposals might get implemented, whoever gets in. And that PTP's promised 30%->20% corporate-tax-cut might be an early-casualty.

[Theo007]

Well, an immediate source of income would be to just double all the visa fees. Everyone knows that the foreigners have plenty of money so they would not complain too much and, if they did, nobody would care.