Govt to hike extra spending

The crucial mid-year supplementary state budget will be boosted to Bt120 billion from Bt100 billion to shore up the weakening economy, Finance Minister Korn Chatikavanij said yesterday.

The move was announced a day after the Democrat-led coalition government won 10 more House seats in Sunday's by-elections, boosting its majority in Parliament to 256 from 236.

Meanwhile, Government Savings Bank (GSB) will set up a joint venture with insurance companies to provide  mortgage insurance service to home-buyers to stimulate sales in the real-estate sector, Deputy Prime Minister Korbsak Sabhavasu said.

GSB will hold a 20 per cent stake in the proposed venture.

"This measure would allow low-income home-buyers to borrow up to 100 per cent of the property value. They could also pay for the down payment in instalments," Korbsak said.

Home-buyers are usually required to put up cash, worth about 20-30 per cent of the property value, as down payments.

In addition, the Labour Ministry is studying a plan to help employers and employees cope with the economic crisis by paying part of their mandatory contributions to the Social Security Fund.

Currently, 9.3 million employees are fund members.

Finance Minister Korn said the government needs to stimulate local economic activities and reduce the people's financial burden during this juncture.

For example, parents will see a cut in their children's education expenses, while senior citizens will be offered a monthly allowance.

In addition, unemployed persons will be offered training and other financial incentives, said Korn.

"As the government has tried to inject more money to boost the economy, we expect the central bank to follow suit [with further interest rate cuts]," Korn said.

The government will also accelerate budget disbursement. A combined unused budget of Bt140 billion is awaiting local state agencies.

Altogether, the central government and state-owned enterprises will accelerate capital spending worth about Bt600 billion to boost growth, he said.

In addition, a package of tax incentives to boost the real-estate sector would be considered by the Cabinet by the end of this month.

Under this proposal, the

tax deductible allowance on interest paid by new home-buyers will be doubled from Bt100,000 to Bt200,000 to help reduce inventories in the real-estate sector.

The government would also assign state-owned banks to set up a mortgage insurance firm, aimed at helping low-income home-buyers to buy new units.

Korn has also asked state-owned banks to lend more to support to small and medium-sized firms, which could not access loans from commercial banks during this credit crunch.

Given the rise in deficit spending, critics are increasingly worried about the

government's fiscal discipline as state income is expected to fall short of the target by about 10 per cent this year due to

the sharp economic slowdown.

However, Atchana Waiqu-amdee, deputy governor of the central bank, said extra spending plans should not hurt the government's fiscal stance at this stage.