Spending rejig urged to ease inequality

Economy April 03, 2018 01:00


ECONOMISTS have blamed government spending and taxation policies for the country’s widening income gap. They also want cuts in defence spending.

Somchai Jitsuchon, research director at Thailand Development Research Institute (TDRI), said the government’s spending benefits the rich more than the poor. He also urged the government to cut spending on security matters.

The government’s investment in high-speed rail will benefit high-income groups, and education spending mostly benefits those studying at university level while poor children get less support, he said yesterday at the Thammasat Economic Focus forum.

He urged the government to spend more on helping poor children. Currently, the annual budget allocated to them is merely Bt2 billion, he said.

“Actually every newborn to three-year kid could get financial support at an estimated cost of just Bt15 billion,” said Somchai.

He also urged the government to cut spending on security issues.

“I don’t understand why the defence department plans to draft 104,000 young men to serve mandatory military service,” he said. 

Drafting more young men means more spending for the Defence Ministry when there is no war, he said.

The government should instead increase spending on social protection with the local administration responsible for allocating social welfare spending. Lack of people participation in government policy is one of the reasons income inequality persists, he said.

He also suggested the government increase value added tax to 10 per cent from 7 per cent, saying that the current rate is too low and it mostly benefits the rich.

 He said VAT revenue largely comes from tax collection on the rich, or about 80 per cent of the total each year.

“The fiscal policy is highly political as many misunderstood that the poor will be hit hardest if the VAT rate is hiked, “ added Somchai.

Duangmanee Laovakul, economics lecturer at Thammasat University, shared a similar view with Somchai, saying that taxation does not play a big enough role in income redistribution.

She suggested that the government end tax allowances for investment in long term equity fund (LTF) which mostly benefits high income group. By doing so, the government could reallocate tax savings of about Bt 9 billion annually for other purposes.

Duangmanee suggested the National Legislative Assembly (NLA) impose high tax rate on land and property owners with high wealth. 

The NLA currently scrutinises land and property bill which is criticised for offering excessive tax allowances to property owners. Property ownership is a potential for a new taxation base as currently the government levy is far tow low. 

She pointed out the fact that the richest group owns 61 per cent of the land, an indication of the widening income gap.