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Published on March 11, 2008

"Oil prices are rising and products are expensive. If [the government] doesn't help people to have any money left, spending will drop. It's the right time to do that," said Pridiyathorn, who also used to be the governor of the Bank of Thailand.

The government formally introduced the Bt42-billion tax-deduction measures last Tuesday, including raising the ceiling for insurance premiums.

The package was aimed at boosting economic growth to 6 per cent this year. While the treasury will lose personal income tax, it should gain value-added tax revenue as consumer spending picks up along with the economy.

Olarn Chaipravat, an adviser to the Fiscal Policy Research Institute, has estimated that Bt30 billion of the Bt42 billion in tax savings will show up as spending this year.

Shadow finance minister Korn Chatikavanij, however, criticised the tax breaks as missing the point, because they will stimulate savings and reduce consumption.

He said the tax cuts would benefit only middle- and high-income  but not lower-income people who are really in need of help. Much of the money would end up as interest on savings accounts of wealthy people.

Amara Sriphayak, senior director of the Bank of Thailand, said that if the government's stimulus package was not effective in gunning the economy, the Monetary Policy Committee might consider easing its policy interest rate, as long as inflationary pressure was also under control. However, the central bank must monitor how fiscal policy could help the economy, she said. The committee will review the overall economy as well as inflation trends at its April 9 meeting. "If inflation is not a significant issue and the stimulus package is not enough, the committee might consider pursuing interest rates to rev up the economy," Amara said.

Last month, inflation was a shocker, hitting a 20-month high of 5.4 per cent on surging oil and food prices.

If inflation accelerates faster than expected but the economy keeps growing, the central bank does not need to give the economy any more pep pills, she said.  She was optimistic that the oil price would not be in the worst-case scenario, although it would be at a high level this quarter. "It was projected earlier that inflation would be high in the first quarter and would gradually decline if the oil price is under the forecast," she said.

Anoma Srisukkasem

The Nation