Middle class may rebel against populist policies (in Thailand)

Well, making promises during election campaign is easy. Now to look for the money to implement populist promises is a whole different kettle of fish. One of the reasons why there are so few tax payers in Thailand, I suppose is due the cash economy. I am sure there are many more rich people but not paying taxes.

Anyhow, I don't envy the Finance Minister in this case. It is still too early to gauge the Government's performance but one thing for sure, the poor is full of hope. It will be good to help them, though. Good luck!

Until the next time, cheers.

The Nation on 7, September, 2011

Middle class may rebel against populist policies

The small number of people who actually pay taxes in Thailand are being forced to finance potentially disastrous schemes they don't support

It is now almost certain that the Yingluck government will not make balancing the budget one of its policy priorities, largely because the Pheu Thai Party has to fulfil its campaign promises to supporters. But has the government asked the nation's small number of taxpayers whether they want these massive spending schemes?

Over the past few weeks, news debates have focused on the consequences of the government's populist schemes such as the reduction of the Oil Fund levy and the controversial minimum wage hike. Their political supporters, especially those with low-incomes, will certainly welcome these policies because they will suddenly make these people feel that they have more money in their pockets to spend. 

But the consequences for the country will be negative in the long term. After all, these policies will simply add to the government's fiscal burden. Higher public debt could eventually force the government to raise taxes to pay for all these schemes.

It is still not clear exactly how the government will finance these populist schemes. The administration says it will not borrow more money, but it is unlikely to find additional revenue from other sources.

Some of these schemes were drafted hurriedly to persuade people to vote for the Pheu Thai Party. The extensive debate over the pros and cons of these policies shows that the party did not carefully gauge the consequences or even the feasibility of such policy implementation.

The details of these policies are confusing, and Prime Minister Yingluck Shinawatra cannot give clear answers on how they are supposed to be implemented. Pheu Thai for instance promised during the campaign to raise the daily minimum wage nationwide to Bt300. But now the government says the promise actually means something different and it will start only in seven provinces.

The government also pledged to provide a tax deduction for first-time buyers of cars, even though the buyers' target group is those on low incomes who are not subject to paying taxes.

Some taxpayers have been watching the government use their money to finance Pheu Thai Party promises, and they are very sceptical about the government's motives. During several debate forums, people have questioned the necessity and urgency to implement these projects. Their concerns are about whether their money is being well spent or squandered. These views are now being raised far more frequently.

The country's tax revenue is provided by only a small group of people. According to statistics released last year, only 2.3 million people nationwide pay personal income tax to help finance public spending for the country's population of more than 64 million. Some 9 million people file personal income tax returns each year, but the majority are exempt from tax liability as they earn less than Bt20,000 per month.

In the meanwhile, middle-income earners have been squeezed between the rich and poor. Some 60,000 people each year pay taxes in the highest bracket of 37 per cent, which applies for an annual income of more than Bt4 million per year. This group of 60,000 accounts for as much as 50 per cent of total personal income tax collected each year. And a full one-third of income tax collected is paid by just 2,400 people in the country who earn over Bt10 million per year. The richest 20 per cent of the population accounts for 54 per cent of total income, while the poorest 20 per cent accounts for just 4.8 per cent, according to the Finance Ministry.

The Yingluck government's populist policies are unlikely to address this inequality in income figures. But even worse, they could make the gap even wider. 

The minimum wage issue is likely to seriously affect small and medium-sized business operators. Business conglomerates with the right connections are more likely to benefit from these massive projects, while the small benefits from the populist schemes are certainly aimed to attract low-income earners. 

Worse still, some people are becoming addicted to these government handouts. They have lost the will to take responsibility for their own lives and choose to wait for the help of others. The middle class, most of them law-abiding taxpayers, are being put under greater pressure from these unpredictable policies.

While Yingluck acknowledged the external risk when she first assumed the premiership, her government has so far failed to formulate policies to create jobs and sustain growth. The government has only implemented piecemeal populist policies for short-term benefits. 

This small group of taxpayers does not expect a populist windfall to benefit them, but it does expect a decent return for hard work and a productive, fair and conducive environment for their businesses to thrive on. Unfortunately, their voices are being ignored by the government.