A window into where your tax money goes

That's the largest deficit ever, and it appears that deficits will remain a feature of our national budget for the foreseeable future. How will this affect our people and is this money being used for their best benefit?  

After 35 working hours of the Ad Hoc Budget Committee, we have completed the budget request for the Ministry of Finance and moved onto the Ministry of Commerce. That means there are 18 ministries to go, 76 provinces and 59 state enterprises, and over a dozen other agencies. After two and a half months we will have seen and analysed every government department and assessed the capability of every head of department and permanent secretary. I'd like to think that they will derive some benefit from the feedback they receive from politicians, reflecting back the needs of their electorate.  

Unfortunately, civil servants will have to bear a lot of 'grandstanding' by politicians in these meetings. There is a tendency for committee members to make speeches as opposed to simple requests for explanations or information. It is like Parliament transported into the committee room, with 63 members each feeling the need to make a speech to every government agency that comes to ask for funds. I think part of the reason is that the meetings are transmitted live into the press-room and sometimes the press is actually listening. Another reason is probably that this is the only way politicians know how to talk.  

One is reminded about how eclectic the mix of politicians can be in terms of experience, background and knowledge.  One common denominator - true across party lines - is the sensitivity regarding votes 'back home'. It is this combination of the civil service's technocratic approach and politicians' need to constantly be aware of voters' sentiments that makes the democratic system so intriguing. All this is clearly evident in budget sessions.  

The Finance Ministry doesn't actually ask for a lot of money - most of the funding allocated to it is to pay off national debt and interest on debt. The ministry's task is to collect money rather than spend it, and indeed the Customs Department actually asked for less money than a year ago, even though it is aiming to collect 15 per cent more tax revenue than last year.  The departments that had the toughest time were the Revenue Department, the Office for State Enterprises and the Public Debt Management Office. The Revenue Department had a rough time partly because, well, let's face it, who in the world likes revenue departments? Also, the Revenue Department was the most complicit during the Thaksin regime in allowing tax dodges to occur - and they are still being grilled about it.

The bulk of the government's tax revenue comes from the Revenue Department - in terms of corporate and personal income tax as well as VAT. So when the increased budget is based on the assumption that this department will be able to increase its tax intake, we have to ask how it is that this will be achieved, given that it is aiming for tax receipts to increase by more than twice the rate of GDP growth.  

One important observation early in this process is that, in a sense, we attach too much importance to the budget as a tool to drive economic development. In Thailand this is particularly true as our tax base is narrow and the tax collected is only 15 per cent of GDP. Thus, government spending is a relatively small portion of the economy. Last week I mentioned that it is a concern that the 'investment' portion of the budget is in decline - only 22 per cent of total budget against 24 per cent last year- and in baht terms actually less net of inflation  but this total is only 16 per cent of total national investments. The main component is private investment - domestic and foreign - as well as state enterprises. So, much more important are government policies that will ensure Thailand remains an attractive place to invest. Having said that, the trend is worrying since the 'expenses' portion of the budget is not only growing but is effectively fixed. This means that without the Bt250 billion deficit, we would only have Bt150 billion available for investments. Just to maintain this level of investment means we will have to live with budget deficits for a long time to come.  

What is of more concern is that these 'investments' are not the kind of investments one hopes to see at all. I would define 'good' investments as money spent on improving or increasing productive capability. In short this means the creation of jobs and opportunities and also a financial/social return. So far, all I have seen in the budget are requests for land and additional government buildings as well as the procurement of computers and cars. We are building up assets that neither generate returns nor improve our competitive advantage.  

It is also my supposition that there is a lot of wastage in the investments made by the State-Owned Enterprises (SoEs). We raised the point with the State Enterprise Office that the governance issue remains a concern. The recent farce at THAI illustrates a breakdown of good governance in even the leading SoEs. Bear in mind total SoE asset value of Bt6 trillion and one begins to understand the poor returns on assets for the Thai people. Too much cash is being left with the SoEs and there is a lack of discipline in how they spend. The two state telephone companies are cases in point - and the point was made that investments in additional businesses by these agencies may even be in contravention of the Constitution, forbidding the state from competing with the private sector. It is high time that concession revenues flowed directly into state coffers to help reduce our tax burden and not to fatten the SoEs.  

There were questions directed at the Public Debt Office of the Finance Ministry as to when we could look forward to debt clearance. I smiled, knowing full well that the day will never come. Indeed, I was happy to learn that we can build up our national debt to finance the planned Bt1.7 trillion mega-projects over the next five years without even increasing our debt-to-GDP ratio.

The key, as always, is making sure we invest in projects that will most benefit the public and in making sure the people are getting what they pay for. So far, I see too much waste and too much unproductive spending of our tax money.  

korn chatikavanij is the shadow finance minister. He can be contacted via e-mail at: korn.chatikavanij@gmail.com.