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Published on November 11, 2007

Academics yesterday proposed that the next government use an appropriate mix of welfare, populist and economic-liberalisation policies to address the country's social and economic problems.

Ammar Siamwalla, acting president of the Thailand Development Research Institute (TDRI), told the institute's year-end conference that the new government should adopt more welfare-oriented policies to reduce poverty.

As for populist policies such as micro-credit, village funds and state-sanctioned loans for the low-income bracket, the next government will have to be careful that they do not cause long-term fiscal problems, he said.

Somchai Jitsuchon, a research director at TDRI, warned that populist policies might produce quick results but would leave problems for succeeding governments.

Economic liberalisation he saw as a means to increase the country's international competitiveness so that higher economic growth could also reduce poverty.

Ammar, a noted economist, said welfarism meant that taxpayers would have to shoulder higher tax rates to finance the spread of more benefits among citizens.

Since the initial cost is high, welfare policies will be opposed because people do not want to pay more taxes, he said.

In Ammar's opinion, property or inheritance taxes should be introduced, and the valued-added tax rate of 7 per cent is too low and should be raised.

Going by the experience of developed countries, welfare states generally levy high taxes on the middle class, most of whom benefit from welfare projects such as universal healthcare and free education, said Ammar.

Due to the high financial burden of welfare schemes, the government will need a strong and vibrant economy to generate enough tax revenue to finance the projects, he said.

In addition, the next government will have to further liberalise the economy in order to boost the country's competitiveness and attract more private investment.

Prior to the 1997 economic crisis, economic liberalism prevailed, and the economy was more independent of political conditions. Higher economic growth rates averaging 7 per cent per annum prior to the crisis also lifted many people above the poverty line.

However, it will be difficult to achieve such a high growth rate in future, largely due to increased competition from China, India and Vietnam, he said.

Rising oil prices have also hindered economic growth.

"If we have a competent and good government, we might fare better," he said.

Ammar said the need for higher taxes in the welfare-state approach would make populist policies very attractive in the upcoming polls.

He noted that several political parties had adopted populist policies in the same way as former prime minister Thaksin Shinawatra, who changed the country's political landscape with his populist approach.

However, one party has also tried to launch welfare programmes, such as giving more financial support to the elderly.

Somchai, the TDRI research director, said that when Thaksin pumped money into the grass-roots economy under several populist projects such as the village fund, soft loans from state-owned banks and plain handouts from 2002 to 2004, the income gap between the rich and poor was narrowed from 13.2 times to 12.1 times.

However, the gap between the top 20 per cent in income and the bottom 20 per cent jumped to 15.9 times last year, a 20-year high, suggesting that populism is not sustainable, Somchai said.

Therefore the next government should also target more specific lower-income groups and design more precise measures to help them, he said.

Deputy Prime Minister Kosit Panpiemras said populism could be practised if it did not erode the competitiveness of the country in the long run.

Wichit Chaitrong

The Nation