Prime Minister Abhisit Vejjajiva made headlines early this week by ordering the Finance Ministry to study the feasibility of providing free electricity and free bus and train rides to low-income earners on a permanent basis. He quickly drew criticism from several academics as well as his own deputy premier for economic affairs, Dr Trairong Suwannakiri, who suggested that Thailand couldn't afford these freebies forever.
Yet, the premier has long been pondering more populist and social welfare measures to win wider public support ahead of the next poll, which will likely take place some time next year. Together with Finance Minister Korn Chatikavanij, Abhisit has come up with a long list of measures since taking office more than 18 months ago.
The administration is toying with the idea of granting every newborn child in this country a Bt500-per-month savings contribution until he or she is 18. That's Bt6,000 per child per year.
The administration also mentions a co-savings programme for senior citizens, in which every Bt100 saved will be matched with an equivalent amount from the state. Senior citizens have also been receiving a monthly allowance of Bt500 per person for the past year.
The government has also announced that it will spend another Bt30 billion to give a 5-per-cent pay raise to all civil servants, effective from April 2011.
As for free electricity, bus and train rides, these will cost Bt20 billion annually. The electricity benefit may be made permanent for low-income households that use no more than 90 units of electricity per month. To make these measures permanent, public service accounts would be set up at the electricity authority as well as the Bangkok Metropolitan Transit Agency and State Railway of Thailand for the free ordinary bus and third-class train rides, respectively. The government would have to directly set aside a budget to compensate the state agencies for the freebies.
However, critics like Dr Trairong ask why Thailand, which is not a rich country, should follow in the footsteps of wealthy Scandinavian nations such as Sweden and Norway. As generous welfare states, these countries levy hefty income tax rates of over 50 per cent, so as to cover the cost of public services provided free of charge to citizens.
However, Thailand's highest personal income tax rate is currently 37 per cent, while most of the six million taxpayers in Thailand pay much lower rates.
So if there is no tax hike, where will the government get the money to finance these social-welfare schemes, which will run to the tune of hundreds of billions baht in the coming years?
At this stage, the government has been relying on fiscal deficits to cover some of these schemes, as evidenced by the annual budget deficit of Bt300-400 billion over the past two years.
In other words, there is no new money to pay for the freebies yet. And when people become addicted to these freebies, it will be difficult for future governments to undo them.
It seems that politicians are now so desperate and short-sighted, they will do anything to win in the next election. Some argue that the country's fiscal position remains sound, as public debt is currently hovering at around 42 per cent of GDP. Unlike some heavily-indebted European states, such as Greece, whose public debt has soared past 100 per cent of GDP, Thailand faces no immediate threat of a sovereign debt crisis.
Hence, the ruling Democrats are planning to lead Thailand along a social welfare path that could go broke pretty quickly.