Many social activists and economists believe the ongoing political crisis is largely rooted in the gaping inequity between the rich and the poor.

"We're very upset to learn that Chalongphob will not push for introduction of inheritance and land taxes," an official at Finance Ministry, who  did not want to be named, said recently.

There were expectations that the military-installed interim government would introduce inheritance and land taxes, which would normally be difficult for any elected government to push through.

Supporters of ousted prime minister Thaksin Shinawatra, largely from the provinces, were happy with the way he allocated public funds to support them, arguing that he was the first Thai leader who had ever thought about the economic welfare of the poor.

However, the middle-class was upset that Thaksin was wasting their tax money on his populist policies for increasing his political popularity. They were also angry with Thaksin and accused him of using his vast political power to help his family avoid taxes at the expense of the public.

The political conflict has dragged on and it seems the economic ministers of the Surayud Chulanont government have failed to seriously diagnose the issues and tune their macroeconomic policies to solve, or at least lessen, the conflict.

A large number of countries have used government spending and tax policies to address both economic and social issues. Well-planned tax structures and budget spending could be conducive for social mobility, helping the disadvantaged to move up the social ladder and preventing economic resources from becoming concentrated in the hands of a few families.

Land and inheritance taxes, among other kinds of taxation, have been accepted in some countries as important tools.

And productivity could be raised via smart resource allocation and good governance. Ideally, this combined with other factors would narrow the income gap, create more equality and lessen the political and social conflict in society.

With his populist policies, Thaksin succeeded in channelling public funds to the upcountry poor by debt financing instead of raising tax rates on the rich to cover spending. Thaksin thus gained support from the poor, the largest proportion of the population.

Thaksin  also employed murky rules regarding public spending. This sparked opposition from the middle-class who feared they stood to lose out from future tax burdens. They demanded good governance in public spending.

The interim government has seen the positive side of some of the populist policies and has maintained some of Thaksin's projects and also introduced new social projects. Deputy Prime Minister Paiboon Wattanasiritham, responsible for the social projects, has named them "U-dee Kindee" projects.

Chalongphob has used state-owned specialised banks to lend more to support the rural people in the same way that the former government did.

To correct the problems with populist policies, we must consider how to make them transparent and work within the framework of sustainability.

Clear rules for tax collection and spending of these taxes will help people feel there is tax justice and that public spending benefits all parties equally.

Paiboon, also a veteran social activist, has contended that the government has room to use economic policy for social purposes in general, or to lessen social conflict in particular.

Paiboon has urged Chalongphob to adopt property and land taxes, and inheritance tax. He has also asked Chalongphob to give more tax allowances for donors who support charity work, facilitating the rich to help the poor.

"The amount of money from collections of these taxes may not be much psychologically, but it would have far-reaching impact as people would think that the government is trying to create justice in society," said Paiboon.

Teerana Bhongmakapat, an economic lecturer at Chulalongkorn Univeristy, said the current tax structure imposes high financial burdens on the middle-class due to the high rates of personal income tax. Some economic advisers to Chalongphob also say that the personal and corporate income taxes are outdated and need to be revised.

Chalongphob wants to leave tax matters, especially land and inheritance taxes, to the new government to handle and insists that the interim government should not change social contracts or rules.

He says his term is too short, with the general election expected to take place by the end of this year.

The revising of property and land taxes is long overdue. Officials at the Finance Ministry have spent many years in preparation for introducing an inheritance tax by learning from the experience of the United Kingdom.

It does not help if large numbers of people think that the ruling class are landlords and big business-owners who do not want to hurt their own pocket. Therefore, there has to be greater political will to deal with the issue of land and inheritance taxes.

Political conflict has persisted for years, so it is pity that Chalongphob, as a leading economist, is not making a greater effort to lessen the conflict by reforming tax policies. 

Wichit Chaitrong

 The Nation