Higher taxes, more borrowings to push public projects

It is targeting collecting additional taxes worth Bt70 billion and borrowing up to Bt800 billion to finance investment between 2009 and 2012, Finance Minister Korn Chatikavanij said yesterday.

The Cabinet yesterday approved the first round of excise-tax hikes, covering beer and liquor. The move is expected to generate revenue of Bt6.3 billion annually, said Korn.

"There are also other items waiting to be approved later," he said, without elaboration.

However, a source said the Finance Ministry would soon propose increasing excise tax on petrol and diesel by Bt2 per litre. Cigarettes will also face higher taxes.

Before the Cabinet meeting, Deputy Finance Minster Pruttichai Damrongrat said cigarettes would become Bt2 or Bt3 dearer per pack. The precise tax hike will be announced later.

Korn said the government plans to borrow Bt800 billion in the domestic market to finance investment and create jobs.

It will issue an executive decree to facilitate the first Bt400 billion, as the government this year urgently needs Bt200 billion for financing public investment and another Bt200 billion to ensure liquidity in its budget flow.

It will then opt for a parliamentary bill to raise the other Bt400 billion next year, he said.

Korn insisted the government would be able to implement projects worth Bt1.1 trillion that are expected to be ready for investment.

These include a large-scale irrigation scheme and the rehabilitation of water sources, which together account for 17 per cent of the Bt1.1 trillion.

The programmes for 15 years of free education, tourism infrastructure and public health investment are also among the priorities.

Other key projects include transport and logistics, accounting for 40 per cent, electricity and alternative energy (14 per cent) and third-generation telecommunications (2 per cent).

Asked about whether the government may dissolve Parliament early next year, Korn said he expected the next government would follow the current plan.

"I bet whoever forms the next government will follow this current investment and borrowing plan," he said.

The opposition had previously expressed its objection to the government borrowing more money.

Korn acknowledged that the government had been forced to cut the planned investment level from the Bt1.56 trillion previously approved by the Cabinet. He stressed, however, that it was still possible until June for state agencies to propose more projects.

The finance minister projected that the investment would generate 2 million jobs and reduce logistics costs for the private sector. The current cost burden resulting from the underdeveloped transport system is estimated to be 19 per cent of gross domestic product.

The new borrowing will, however, increase public debt to 60 per cent of GDP by 2013 - up from the current level of 40 per cent.

Meanwhile, Deputy Prime Minister Korbsak Sabhavasu said the Cabinet had approved expenditure cuts for the next fiscal year.

The Defence Ministry's budget has been cut by 10.9 per cent from that in the current fiscal year.

Every ministry has been subject to a cut in spending, as the government decided to cut overall expenditure to Bt1.7 trillion from the Bt1.9 trillion set earlier, he said.

Korn and Korbsak insisted that most public investment projects would benefit people in rural areas. They countered criticism from the opposition that the government was cutting expenditure earmarked for villagers and preserving the military budget.