On A Dangerous Path To Financial Uncertainty: Thai Opinion

[webfact]

EDITORIAL

On a dangerous path to financial uncertainty

The Nation

BANGKOK: -- The government insists that massive borrowing is necessary to finance its populist policies, but the danger in the long term is that these expensive schemes could destroy the economy

The Bank of Thailand on Thursday warned the government of the possibility that its populist policies will increase the country's public debt to the worrisome level of 60 per cent of gross domestic product (GDP) in the next 4 to 5 years.

The government plans to borrow more money to implement a series of pledged policies that are inteded to inflate economic growth, but are only likely to increase the level of public debt. Prime Minister Yingluck Shinawatra said that the government needs to borrow in order to compensate for the Bt300 billion budget deficit, as Bt2.4 trillion will be needed for state spending in fiscal year 2013. This is about Bt20 billion more than is being spent in the current fiscal year.

During a recent press conference held by the central bank, the government was told that the budget deficit in 2013 could top Bt650 billion. The government recently received the nod from the Constitutional Court to borrow an additional Bt350 billion for flood relief and future flood prevention projects. This sum will be added to the original budget deficit of Bt300 billion.

However, the government still insists that needs to borrow more money to stimulate the economy in the midst of ongoing economic problems. But if the government continues borrowing at this rate, with the budget deficit accounting for 4 to 5 per cent of GDP, that deficit will likely increase every year.

Even if the deficit does not decrease, Thailand's level of public debt over the next four to five years could rise to 60 per cent of GDP, which is a sign that our fiscal status may become unstable.

The ongoing economic and financial woes in Europe should serve as a lesson for the Thai government that fiscal indiscretion can wreck the economy, especially if money is squandered on unnecessary projects that do not enhance the competitiveness of the country in the long term.

The government has so far focused on how to acquire more money in the future to fulfil pledges made to voters during the last election campaign. These promises include a rice subsidy programme, credit cards for taxi-drivers and farmers, computer tablets for school students, a women's development fund, a nationwide rise in the minimum wage, among other schemes. It remains to be seen if any of these policies will yield satisfactory returns.

There are definite risks in these populist policies. For instance, the low quality of the screening process for the credit-card project will create an additional burden for the government if many of the borrowers cannot repay their debts. This will lead to non-performing loans that will end up being the burden of taxpayers.

The government may be accused of being complacent in borrowing vast sums to finance these policies when the country's fiscal status is currently sound, with public debt accounting for around 40 per cent of GDP. Prime Minister Yingluck says that more spending is necessary to stimulate growth. Thailand's economy expanded by only 0.1 per cent last year due to the flood crisis. The government expects the gross domestic product this year to grow by 5.5 per cent to 6.5 per cent. But Thailand is on the path to higher-than-estimated GDP growth this year mainly because of last year's low base.

Apart from increasing spending and borrowing, the government should consider alternatives that can generate more earnings. One way is to address the fundamental problem of revenue collection in Thailand. Tax reform must be carried out to expand the tax base. Revenue collection remains unfair if only some 2 million people are paying taxes. Millions of others manage to avoid paying taxes due to loopholes provided by the system which, for instance, enable some people to transfer billions of baht worth of shares on the stock market without paying a single baht in tax.

-- The Nation 2012-02-25

[jonclark]

I'm not a business person and don't claim to be. But it seems strange that while the majority of the worlds economics are tightening their belt and aimining to reduce their levels of public debt Thailand seems to be doing the exact opposite. Is Thailand really that economically strong?

[xthAi76s]

I must admit that The Nation articles are so often poorly written that I often just skip right over the content after looking at the headline going straight to the comments section to get an idea (from good posters) about the content. I know there are a couple of decent writers at The Nation, but the majority are piss poor, and it can't be language issue with translation or anything because the arguments (when any are actually made) are weak and often not even logical.

[waza]

The PTP are just filling the trough for the feast of corruption that will make the cabinet of millionaires into billionaires. If anyone objects they will have a war chest overflowing with funds to buy red shirt cannon fodder and mercenaries

[Reasonableman]

Does it matter?

I'm not a business person and don't claim to be. But it seems strange that while the majority of the worlds economics are tightening their belt and aimining to reduce their levels of public debt Thailand seems to be doing the exact opposite. Is Thailand really that economically strong?

[webfact]

related topic in business forum:

Thai economy gets a pat on back from IMF

Full story: http://www.thaivisa....-back-from-imf/

[noitom]

Somewhere along the line a while ago it was reported that the tax base in Thailand was 9 million entities (people and businesses), but that only 2 million actually paid income tax. If true, this has to change. Additionally, there is virtually no real estate tax in Thailand, therefore equity goes in to investment in buildings and residential property, condominiums, etc. , and does not become true "capital investment" without corresponding investment and the will to improve infrastructure ie. cabling for electrical, telco/Internet, road access in Bangkok (a disgrace), water management, enforcement of law, and education.

There needs to be a policy of fair property tax to create a "relative" value that corresponds to investment and therefore motivates property owners to pay or move their capital in to higher yield , growth and funding of entrepreneurial business and not to just let it sit idle in a "lights out" unattended and deteriorating state. A prerequisite would be that society and the community is prepared and educated for this. The Thai "black economy" or unofficial recorded commerce needs to be legalized, integrated, regulated, and promoted properly with investment and management.

Thailand has a last chance to emerge in five to ten years as a true vibrant "developing nation" and could re-attract new capital investment not because of payoffs and under the table circumventions of law, but because they have created true prosperity, efficiency, and value through education, investment, and a philosophy that is a reversal of its current methodology. Thailand doesn't have to continue on a corrupt and oblivious path to being the "sex entertainment" capital of the world with cheap, unskilled, and unregulated factory labor. It can be a winner instead of a kleptocracy.

[jayboy]

related topic in business forum:

Thai economy gets a pat on back from IMF

Full story: http://www.thaivisa....-back-from-imf/

Directly contradicting The Nation's politicised and poorly argued editorial.

[Reasonableman]

These points have all been raised on TVF. Good that the IMF raises them too.

The mission approved the Thai government's spending on water management in response to the crisis, to reassure investors. However, there could be risks if the implementation is slower than expected. The IMF also suggested that the government come up with a comprehensive fiscal framework on how to finance the spending. It is crucial that the financing is not carried out on an off-balance-sheet budget, he said.

The mission expressed concern about the rice-pledging scheme, as it could lead to higher-than-expected fiscal costs. Moreover, as oil prices are creeping up, the Thai government has been urged to look at policies that are not well targeted, including oil subsidies, Rumbaugh said.

Edited February 25, 2012 by Reasonableman

[whybother]

related topic in business forum:

Thai economy gets a pat on back from IMF

Full story: http://www.thaivisa....-back-from-imf/

Directly contradicting The Nation's politicised and poorly argued editorial.

Maybe you should read the article rather than just the headline.

However, there are downside risks:... implementation of water-management projects might be slower than anticipated; and any renewed domestic uncertainty could weigh on still-fragile investor sentiment," Rumbaugh said.

...

The IMF also suggested that the government come up with a comprehensive fiscal framework on how to finance the spending. It is crucial that the financing is not carried out on an off-balance-sheet budget, he said.

The mission expressed concern about the rice-pledging scheme, as it could lead to higher-than-expected fiscal costs. Moreover, as oil prices are creeping up, the Thai government has been urged to look at policies that are not well targeted, including oil subsidies, Rumbaugh said.

[swisstouristpattaya]

It s not in the interest of the 10% rich citizen to make the 90% of poor richer.

Better to keep this country poor and corrupt.

You don't want Thailand to become like uk?

Corruption is the future... . See what's happen in Mexico nowadays, its an emerging market despit drug and corruption....

[exeter]

related topic in business forum:

Thai economy gets a pat on back from IMF

Full story: http://www.thaivisa....-back-from-imf/

Directly contradicting The Nation's politicised and poorly argued editorial.

Isnt communication a great tool! Do they have an editor I wonder?

[exeter]

Its the same all over the world. When politicians get in they like to spend other peoples money, even if they dont actually have any either,but, you can borrow it to spend and at sometime in the future some else has to pick up the bill. I think they call it the national debt which makes it ok. No one is interested in paying off the national debt when its easier to print more money.

Can you run your finances like that?

[jayboy]

related topic in business forum:

Thai economy gets a pat on back from IMF

Full story: http://www.thaivisa....-back-from-imf/

Directly contradicting The Nation's politicised and poorly argued editorial.

Maybe you should read the article rather than just the headline.

However, there are downside risks:... implementation of water-management projects might be slower than anticipated; and any renewed domestic uncertainty could weigh on still-fragile investor sentiment," Rumbaugh said.

...

The IMF also suggested that the government come up with a comprehensive fiscal framework on how to finance the spending. It is crucial that the financing is not carried out on an off-balance-sheet budget, he said.

The mission expressed concern about the rice-pledging scheme, as it could lead to higher-than-expected fiscal costs. Moreover, as oil prices are creeping up, the Thai government has been urged to look at policies that are not well targeted, including oil subsidies, Rumbaugh said.

The reports reservations are perfectly valid and in a way you probably have difficulty in understanding are made in the context of a balanced judgement, in this case broad endorsement of government policy.If criticisms are made in a way that are objective and reasonable, they are much more likely to be accepted.It's a lesson that the usual suspects on this forum could learn from.

[Thai at Heart]

Somewhere along the line a while ago it was reported that the tax base in Thailand was 9 million entities (people and businesses), but that only 2 million actually paid income tax. If true, this has to change. Additionally, there is virtually no real estate tax in Thailand, therefore equity goes in to investment in buildings and residential property, condominiums, etc. , and does not become true "capital investment" without corresponding investment and the will to improve infrastructure ie. cabling for electrical, telco/Internet, road access in Bangkok (a disgrace), water management, enforcement of law, and education.

There needs to be a policy of fair property tax to create a "relative" value that corresponds to investment and therefore motivates property owners to pay or move their capital in to higher yield , growth and funding of entrepreneurial business and not to just let it sit idle in a "lights out" unattended and deteriorating state. A prerequisite would be that society and the community is prepared and educated for this. The Thai "black economy" or unofficial recorded commerce needs to be legalized, integrated, regulated, and promoted properly with investment and management.

Thailand has a last chance to emerge in five to ten years as a true vibrant "developing nation" and could re-attract new capital investment not because of payoffs and under the table circumventions of law, but because they have created true prosperity, efficiency, and value through education, investment, and a philosophy that is a reversal of its current methodology. Thailand doesn't have to continue on a corrupt and oblivious path to being the "sex entertainment" capital of the world with cheap, unskilled, and unregulated factory labor. It can be a winner instead of a kleptocracy.

Precisely.

I can't help but think that an effective policy might actually be to increase the free allowances for tax and then whack up VAT, and I mean way up.

[Slaps]

And then there is this

Despite floods, Thailand looks ready to rock

http://community.nasdaq.com/News/2012-02/despite-floods-thailand-looks-ready-to-rock.aspx?storyid=122980&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+nasdaq%2Fcategories+%28Articles+by+Category%29

.

[anterian]

Nigeria and Thailand have the world’s largest black economies, both accounting for more than 70% of official GDP

http://www.economist.com/node/324323

[BigJohnnyBKK]

Since Thailand's real economy isn't in a bad recession, it would make a lot more sense to simply expand the tax base to "pay as you go" for needed infrastructure and services rather than incurring debts that will need to be paid off - with interest - during future times when things may actually be worse.

Especially since the only people that actually pay taxes are those that support the opposition, seems to me they'd have nothing to lose. If any government would actually care about being responsible, they'd at least try to bring a higher proportion of the economy out of black/grey market status, but that would of course directly hit their core supporters who work on a daily basis for a few coins and could ill afford to pay any tax at all.

[wolfmanjack]

Somewhere along the line a while ago it was reported that the tax base in Thailand was 9 million entities (people and businesses), but that only 2 million actually paid income tax. If true, this has to change. Additionally, there is virtually no real estate tax in Thailand, therefore equity goes in to investment in buildings and residential property, condominiums, etc. , and does not become true "capital investment" without corresponding investment and the will to improve infrastructure ie. cabling for electrical, telco/Internet, road access in Bangkok (a disgrace), water management, enforcement of law, and education.

There needs to be a policy of fair property tax to create a "relative" value that corresponds to investment and therefore motivates property owners to pay or move their capital in to higher yield , growth and funding of entrepreneurial business and not to just let it sit idle in a "lights out" unattended and deteriorating state. A prerequisite would be that society and the community is prepared and educated for this. The Thai "black economy" or unofficial recorded commerce needs to be legalized, integrated, regulated, and promoted properly with investment and management.

Thailand has a last chance to emerge in five to ten years as a true vibrant "developing nation" and could re-attract new capital investment not because of payoffs and under the table circumventions of law, but because they have created true prosperity, efficiency, and value through education, investment, and a philosophy that is a reversal of its current methodology. Thailand doesn't have to continue on a corrupt and oblivious path to being the "sex entertainment" capital of the world with cheap, unskilled, and unregulated factory labor. It can be a winner instead of a kleptocracy.

There may not be a property tax but there is a building tax. I know because I have to pay it every year.

A couple of years ago it was proposed by the Dems that there be an idle land tax where the people that bought land for purely speculation purposes were taxed. What ever happened to that?

I definitely do not want to see a property tax like back home where you do not own your land no matter what the deed says. You just rent it from the government.

I like this part.

" Millions of others manage to avoid paying taxes due to loopholes provided by the system which, for instance, enable some people to transfer billions of baht worth of shares on the stock market without paying a single baht in tax."

Edited February 28, 2012 by wolfmanjack

[hyperdimension]

I wrote this in another thread, and I think it's even more relevant here:

Thaksin is talking big money, but none of it is going to come from his own pockets, yet his followers are fooled into thinking that he is so generous.

When it comes down to it, people would vote for whatever option makes them personally richer, regardless of the consequences to the country. For example, a promise of 1M baht to every household would definitely win an election - Thailand's central bank simply would need to print more money for the government to borrow. How it would be paid back is anyone's guess, but at least the election will be won and people will think that they are richer. (Just don't teach them about concepts like inflation and purchasing power).

[ParadiseLost]

The main condition - only unmarked bills.

[moe666]

Lets say another flood hits this year all of the japanese pull out thousands of lost jobs and Thailand becomes totally dependant on Tourism. Sounds like Greece to me.

[waza]

Lets say another flood hits this year all of the japanese pull out thousands of lost jobs and Thailand becomes totally dependant on Tourism. Sounds like Greece to me.

Dont worry every Thai will be rich soon, their Government promised it.