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Prime Minister Samak Sundaravej has unveiled an economic stimulus package, in which the government will cut excise taxes for fuel, offer cheap electricity and water to low-income families, delay price adjustment for cooking gas, and waive bus and train fares. This package, worth Bt46 billion, will take effect on August 1, and will be implemented for six months.

"The poor are suffering the most," Samak said today in a televised briefing. "These measures will help reduce the cost of living. They can get on buses and trains for free and use electricity and water for free."

This marks a rare statement from the prime minister, who has been embattled since taking office five months ago. The government has been criticised for doing nothing to tackle economic problems but spending time playing politics for its own survival.

The package can be divided into two parts: tax cuts on fuels that will help all Thais, and economic measures targeted at low-income families. The excise taxes for gasohol and other biofuels will be cut by Bt3.30 per litre to almost zero. This will help widen the price between biofuels and normal high-octane fuels. The tax for diesel, which is widely used in the transport sector, will also be cut by Bt2.30 per litre. The tax for biodiesel will also see a similar cut. The electricity rate cut will relieve the burden of some 9.85 million Thais nationwide. The free bus fares will benefit workers in Bangkok, while free train fares will benefit some 16 million people.

However, we do not think the tax cut for fuels it is a good idea. Most countries - particularly in Asia, where some 40 per cent of energy consumption is subsidised - are now cutting back subsidies on fuel. Most Asian countries have taken the painful step, already. By allowing fuel prices to reflect market prices, Asian countries hope that people will become aware about saving energy or using energy in the most efficient way. If China and India are more serious about fuel measures, they will also help reduce speculation on oil prices in the world market.

Thailand is moving in the wrong direction on this front. Will subsidising fuel, even for a limited time frame of six months, encourage people to save or to use fuel efficiently? What will happen after six months? The public will be hooked on relatively low fuel prices and will pressure the government to continue the subsidy programme, which will prove costly.

At this juncture, the government needs to show a degree of fiscal discipline. It is true that fiscal deficit spending will be needed to jump-start investment, while the monetary authorities should be left to manage the interest-rate policy, which should be tightened to rein in inflation. So public money should be wisely spent - to gear up for investment, for re-training of workers or to create jobs - rather than used to guarantee cheaper fuel prices.

To be fair, low-income people are having a hard time coping with the rising costs of living. The second portion of the economic stimulus package is welcome. Low-income Thais received no wage rise this year. But inflation is heading towards 9-10 per cent. It is the responsibility of the government to look after low-income families and targeting them for help is the right policy. Yet overall, these measures are all short-term and are aimed at reducing the consumption burden of Thais.

Over the next six months, Bt46 billion of tax money will be gone. Most political observers now believe that Samak will not last that long, so all the measures - including a Cabinet reshuffle - will only tackle short-term problems. The economic stimulus package is designed to win votes ahead of the House dissolution, which is now expected to take place once the government succeeds in passing the 2009 fiscal budget and in reshuffling key civil servants and top military commanders.