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Published on March 4, 2008

Deputy Finance Minister Pradit Patharaprasit claims the economic package that will be tabled for Cabinet approval today will benefit all parties including the poor, the middle class and higher income groups.

The package has been divided into three groups: personal income tax breaks, corporate income tax reduction for small firms and listing firms, and tax packages to boost the real-estate sector.

"The government will put back about Bt40 billion into taxpayers' pockets," Pradit said.

The government will officially roll out an economic stimulus package tomorrow.

Government revenue will be down by the same amount, but Pradit expected that higher economic growth would generate higher government revenues in the future.

The Fiscal Policy Office has estimated the package will boost economic growth by an extra 1 per cent on top of the previous projection of 4.5 to 5.5 per cent for this year.

"There are a few good measures but overall the package is a waste of public money," said Teerana Bhongmakapat, professor of economics at Chulalongkorn University.

The tax package was not as impressive as it should be, he said. It was almost a copy of the package proposed earlier by the former Thaksin government.

During the first term of the Thaksin government, its economic package was described as a short-term one and a necessary step for later, real economic reform. However, Thaksin did not implement any economic reform as promised. The package, dubbed as populist polices, proved unsustainable.

The current coalition government led by the People Power Party, the reincarnation of the dissolved Thai Rak Thai Party, has adopted these policies.

Tax exemption of the first part of annual income up to Bt150,000 would lessen the tax burden for the middle class, according to Teerana.

Teerana suggested permanent cuts across the board for both personal and corporate income taxes.

Economists have long called for tax reform to reduce the tax burden of salary earners, who make up the largest group of the total 6 million taxpayers.

They also want corporate income tax cuts to increase the competitiveness of private firms which are tagged for 30 per cent of their profits compared to 20-25 per cent in neighbouring countries.

Conglomerate CitiGroup said the stimulus package would bolster the property sector the most.

"We believe that the property sector should benefit the most from either reduced taxes and/or lower transfer fees," it said.

Sompop Manarungsan, an economics lecturer at Chulalongkorn University, said most of the economic measures will not work. For example, temporary tax cuts for newly listed firms will not boost investment.

He only agreed with measures to allow life insurance policy holders to get more tax allowance, up from Bt50,000 to Bt100,000 annually. This will help people who are covered by social security or the Government Pension Fund and will promote long-term saving, he said.

Pairoj Vongvipanond, an economist at Dhurakit Pundit University, felt the same, saying the package might not boost spending as the government expected. Consumers and investors might be cautious about spending because of higher oil prices, fear of baht appreciation affecting exports and the world economic slowdown.

"The government is too optimistic," he said. He suggested mega-projects might boost more investment and spending by consumers.

After today's economic package, Deputy Prime Minister Surapong Suebwonglee is expected to announce debt suspension and debt restructuring for 2.1 million farmers whose combined debts of Bt100 billion are owed to the Bank for Agriculture and Agricultural Cooperatives (BAAC). Surapong earlier defended his plan for populist policies as the right way to boost the economy.

However, critics said the government aimed to use the measures as a political tool to win popularity in the short term rather than to achieve real economic reform.

Wichit Chaitrong

The Nation