THAI TALK
NIT: In search of an alternative to populist policy
Suthichai Yoon
The Nation

BANGKOK: -- Members of the think-tank at the Finance Ministry have been thinking aloud about how to find an alternative to controversial and expensive populist policy.

Their mission is to identify the "real poor", engage them and make them part of the income tax data system. In other words, the technocrats are embarking on a new assignment to prevent corrupt politicians from exploiting the downtrodden, once and for all.

Planners at the Finance Ministry's Economic Fiscal Policy Office have stumbled on what is known as the "Negative Income Tax" (NIT) formula, which they believe could provide the answer in the search for a new way to help the poor that prevents them falling prey to political parties offering them political largesse in an apparent exchange for votes at the polling booths when elections come around.

NIT was developed by British politician Juliet Rhys-Williams in the 1940s and later fine-tuned by economist Milton Friedman. NIT has been described as a "progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government".

Advocates of the system claim that with NIT, the need for minimum wage, food stamps, welfare, social security programmes and other government assistance projects can be eliminated. Doing so should reduce the administrative cost and efforts to a fraction of the current system.

They also argue that NIT does not need large bureaucracies to run taxation and welfare systems, and that all the complicated rules and regulations could be wiped out. As a result, resources currently devoted to the present system could instead be spent on more productive government activities - or returned to the people through tax cuts.

The flip side, of course, is the possibility that NIT could reduce the incentive to work because recipients get a guaranteed minimum wage from the government in the absence of employment.

Proponents of the scheme at the Finance Ministry are well aware of the "negative side of the negative income tax" concept.

The first draft of the idea specifies that if implemented, the plan will cover only those with no more than Bt30,000 income per year - aged 15-60 - and they must be employed.

"To prevent the scheme from creating a disincentive to work, our plan stipulates that for every Bt1 of a recipient's earnings, the government will add 20 per cent to personal income. The reason we don't want to offer government tax assistance at a fixed rate is because we want to use NIT as a tool to encourage poor people to work harder and to earn more. Once their personal income rises to Bt80,000 per year, the supplemental tax assistance will stop."

The most important proviso is that every recipient must submit their tax returns - which will give the government, for the first time, a full list of all income earners in the country. The initial study shows that more than 18 million Thais will benefit from this scheme. The government budget required to launch the project may come to around Bt55,600 million.

Crucial to the success of this formula would be the political will of the powers-that-be to jettison populist projects to pave the way for NIT - otherwise the financial burden on the government would be too heavy.

As part of the package, the Finance Ministry says it is submitting a master plan covering the management of revenue, expenses, debts and assets to put a stop to populist policies that have dragged the country's fiscal discipline down the drain.

It's early days and once the issue is raised among the leadership of the National Council for Peace and Order (NCPO), there is bound to be a lengthy debate on its pros and cons. But one thing is clear: The effort to replace populist policy with a more transparent, accountable and effective platform to help the country's poor is irreversible.

Source: http://www.nationmultimedia.com/opinion/NIT-In-search-of-an-alternative-to-populist-policy-30240861.html

[thenation]2014-08-14[/thenation]

Great idea......all Thailand needs right now is a dole office!

Money for nothing......the queues will be endless.........

It will be impossible to find out how much rural Thais earn as nearly all transactions are in cash. Need to change a lot more things before this scheme could work.

The first draft of the idea specifies that if implemented, the plan will cover only those with no more than Bt30,000 income per year - aged 15-60 - and they must be employed.

 

If they must be employed, how are they going to include farmers, other categories of self-employed and casual workers who comprise the bulk of those vulnerable to populist inducements?  Also the average age of Thai farmers is now about 60.

"the technocrats are embarking on a new assignment to prevent corrupt politicians from exploiting the downtrodden, once and for all." Now they can be exploited by honest politicians. Is this NIT an improvement on rice scheme? Plus would be not have to fill warehouses with rice to rot away. Minus would be get nothing in return (other than votes.. oh yeah...).

It will be impossible to find out how much rural Thais earn as nearly all transactions are in cash. Need to change a lot more things before this scheme could work.

This scheme could also be useful for having the employees put a lot of pressure on the employers to enter the tax system too.
Many personal income tax returns would inevitably incriminate dodgy business owners.

If it makes the tax system work better for the benefit of the country in general and not just one small group - go for it. But be careful not to slip into the same traps as England, America etc....

I assume this would also do away with the minimum wage requirements as well.

By shifting the burden from employers to state it would enable Thailand to expand its low paid, unskilled labour exports again and compete with the likes of Bangladesh and Cambodia.


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I assume this would also do away with the minimum wage requirements as well.

By shifting the burden from employers to state it would enable Thailand to expand its low paid, unskilled labour exports again and compete with the likes of Bangladesh and Cambodia.


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If you play in the minor league, you stay in the minor league. I'd hope that Thailand would want to improve work skills of those in the low income class so they may move into the major leagues like Indonesia, India, and Malaysia. 

I do support this effort.  Of course it should be done in parallel with changes in the law that prevent the wealthy from exploiting existing tax loopholes and exclusions, lining their pockets from bloated government contracts and corrupting politicians with donations and outright bribes. 

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The first draft of the idea specifies that if implemented, the plan will cover only those with no more than Bt30,000 income per year - aged 15-60 - and they must be employed.

 

If they must be employed, how are they going to include farmers, other categories of self-employed and casual workers who comprise the bulk of those vulnerable to populist inducements?  Also the average age of Thai farmers is now about 60.

 

By filing individual tax returns? No tax return, no income subsidy.

Incredible.

 

In order to avoid being accused of doing something populist, they call it negative income tax.  Of course this assumes that they have income tax on one side coming in, in order to redistribute it down the line.

 

I suggest they start reforming the tax system full stop to start capturing the gargantuan amount of cash sloshing around in the system untouched, before they start commiting to redistribute something they don't have. 

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If it makes the tax system work better for the benefit of the country in general and not just one small group - go for it. But be careful not to slip into the same traps as England, America etc....

 

It would add to the conversation if you'd detail those "traps."

 

The US does not make supplemental payments to qualified recipients under its Earned Income Tax provisions.  The EIT will only reduce the amount of income taxes paid and/or owed by a taxpayer but to no less than zero. If a taxpayer paid no tax and owes no tax, no refund will be received. To prevent undeserved tax refunds a government must have a vigorous, enforceable, and accountable tax administration in place. I don't think Thailand is ready now for such a major governmental undertaking.   
 

Thailand has a labour force of is around 39 million. According to WickiPedia, the current Thai minimum wage is 300 baht per day, or a little over 86,000 baht a year based on a six-day week.

 

Yet nearly half the working population is earning the equivalent of around 87 baht per day – less than a third of the official minimum.

 

That’s the clear implication of figures released by the wits behind NIT, who say (a) the scheme is for employees earning no more than 30,000 baht a year and that 18 million people stand to benefit.

 

I’m no Einstein, so maybe I have the math wrong. I sincerely hope so. Otherwise, somebody needs to explain to millions of lowly-paid Thais why they have gained so little or nothing from the minimum wage legislation introduced by the last government - and make employers pay up.

 

The generals have shown what sticklers they are for applying laws, rules and regulations. Action on this issue deserves the highest priority – and, at a time when millions of Thai families are falling ever deeper into debt, would win them lots of working-class votes.

 

Were I a well-heeled captain of Thai industry I would of course be rooting for NIT, which would ensure a constant supply of dirt cheap labour and oblige the taxpayer to bail out millions of people who are in effect wage slaves.

 

One can't help wondering how well represented employers are on the NLA and other ruling bodies compared with trade unionists.

 

As for the Finance Ministry, one can only assume that whoever “stumbled” on the long-discarded NIT file must have tripped and fallen on their head - and are still suffering from concussion.

 

The OP makes it sound as though the technocrats are looking for some elusive policy recipe that will bring about the end of politics (remember the 'end of ideology' phase in the US).  Rather bizarrely the architects of this plan turn to Milton Freidman, a standard bearer of neo-liberalism, to propose a system in which a single fiscal measure sweeps away a whole raft of welfare and other redistributive social policies. Presumably some will even argue that with NIT the poor can pay for their own health care.  This isn't a strategy for ending 'populist policies' as much as a way of putting an end to any European-style welfare provision that make the Bangkok elite think that too much of their tax is going to support the undeserving poor.  Of course, NIT would only make sense if the real agenda is to cut that subsidy by ensuring that NIT costs less than the welfare policies that it would displace.  It will never happen.

Edited August 14, 201411 yr by citizen33

What's wrong with populist policies?