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Published on April 11, 2008

However, it will cost the government Bt48 billion in lost revenue.

The increase in growth will result from higher private consumption and investment following a rise in the net income of businesses and households. Recuperating domestic demand will help compensate for a slowdown in exports, which will be adversely affected by the US recession, the central bank said.

However, the package could make a higher-than-expected contribution to gross domestic product, because of its psychological effect - an effect that could be diluted by risk factors that continue to shake confidence.

"The stimulus package will take time to pass through to consumption and investment, because it functions with private-sector decisions but government spending. Nevertheless, it will have an immediate psychological effect on consumers and investors," said a statement released by the BOT's Wide-Angle Economics Project.

Thitima Chucherd, a senior economist with the BOT's Monetary Policy Group, said the measures were worth implementing, although their effect in bolstering economic growth could only be slight.

The package will build up consumption among high-income people "sooner or later", as they will initially save their rising net income rather than spend it, she said.

Critics say the measures were introduced for political reasons, in order to attract support for the government from the pro-Democrat Party high-income group. They point out that the Bt48 billion in lost revenue in the package could have built the Purple Line rapid-transit route.

BOT economist Prossaya Jitapunkul said the impact of the package on the economy had been forecast only from the expected effect of tax reductions on annual income, tax privileges for investment in long-term equity funds (LTFs) and retirement mutual funds (RMFs), relaxation of depreciation calculations and special business taxes and adjusted property-transfer fees.

Four million taxpayers whose annual incomes are higher than Bt100,000, or 11 per cent of the labour force, will benefit from reduced tax payments on the first Bt150,000 of income. The government will lose Bt15 billion in revenue this year and next from this measure, said the BOT economists.

Those earning Bt2 million annually will take advantage of tax privileges for LTF and RMF investment. The BOT officials said this would help boost consumption, but they believe it likely that these taxpayers will use their existing savings rather than their new income for new LTF and RMF investment. The government will lose only Bt2 million a year from this measure, starting next year.

They said the relaxation of depreciation calculations would bolster investment from profitable companies but not from firms with red bottom lines or Board of Investment-promoted companies. This measure will cause a loss of Bt12.5 billion in government revenue at present values.

The BOT economists said tax privileges for the property sector were expected to boost that industry, as they did after the 1997 economic crisis.

Anoma Srisukkasem

The Nation