When elections are eventually called, we will be bombarded by campaigns designed to win as many votes as possible.
Successful candidates will then head to Parliament to pass laws, which include the annual budgets for fixed government expenses and also election campaigns.
The process is currently on hold while Thailand is under military rule. But the budgeting for fiscal year 2015, set to start this October, is underway. Many are anxious to know whether budgeting under the military will be any different from that under the politicians.
Thailand has been living with budget deficits for decades now. In the 2014 budget under the Pheu Thai-led government, Bt2 trillion – or 80 per cent of the Bt2.5-trillion total – was earmarked for fixed expenses, which ranged from government employees’ pay to electricity bills. Some Bt457 billion was earmarked for investment. Meanwhile, annual government revenue was estimated at Bt2.25 trillion, resulting in a deficit of Bt250 billion.
For the 2015 fiscal year, the Budget Bureau estimates that the deficit may hit Bt500 billion. That’s double this year’s level, as the charter court ruled the Bt2-trillion loan bill unconstitutional. A number of projects included in the bill will now be financed by annual budgets.
The National Centre for Peace and Order last week launched its push to finish the 2015 budget in time. Air Chief Marshal Prajin Juntong, handed the economy portfolio, has held meetings with different ministries. After talking with officials at the Transport Ministry last week, he said the junta would take about two weeks to decide whether to proceed with mega-projects approved by the ousted government. Transport Ministry officials have asked for a budget of roughly just over Bt300 billion for 2015, doubling this year’s level.
The Commerce Ministry is also expected to ask for an increase, particularly to promote sagging exports.
Several spending plans have been drawn up, including the Public Health Ministry’s plan to turn 15,000 employees into civil servants. One thing that will definitely follow is an increase in the government’s medical bills, which currently total about Bt60 billion a year.
Thailand should not be short of spending plans, given challenges in social welfare, climate change and competitiveness. The proportion of the population aged 60 and over is increasing and our ageing society requires long-term plans. Meanwhile, climate change threatens to create more disasters like the 2011 floods. As the country must now compete in a global arena, Thailand also needs to invest more to boost competitiveness. It’s no surprise that with the political instability, Thailand’s overall competitiveness ranking has dropped two places to 29th. Among the 60 economies included in the ranking, Thailand is relatively poor in terms of technology infrastructure (41st), scientific infrastructure (53rd) and education (54th). If we want to increase the country’s performance in these spheres, we need improvement and that requires manpower and funding.
Yet Thailand has never earned enough money to finance its raft of spending plans.
Historically, the budget threshold has been set at 20 per cent of gross domestic product (GDP), but revenue has never reached that level. In 2011, it was 17.55 per cent of GDP, before dropping to 16.5 per cent in 2012, according to the World Bank.
Corporate income tax has been temporarily lowered to 20 per cent, to lure new investment that would boost GDP and other tax income. The individual income brackets for tax were extended last year, dictating that those in the top bracket pay more.
A decision was made last week to keep value-added tax at 7 per cent, against the standard rate of 10 per cent (which has never been implemented since the VAT system was first introduced in 1992).
Meanwhile, the NCPO also decided that the excise tax waiver on diesel (about Bt5 per litre) would stay. If that waiver, implemented in May 2011 to keep the diesel pump price below Bt30 per litre, were to be lifted, the Revenue Department would immediately see an increase in revenue of over Bt7 billion a month.
Last but not least, the business environment as a whole does not guarantee a bright outlook for collection of revenue.
Disruption resulting from anti-government protests that started in November 2013 saw total tax collected by three main departments fall to Bt663.4 billion in the first four months of fiscal year 2014 (October 2013-January 2014).
According to the Bank of Thailand, the Private Consumption Index (PCI) fell 0.8 per cent in April from the same period last year. This inevitably means a fall in VAT revenue. The Private Investment Index also decreased 4.7 per cent on year. April also saw visitor numbers to Thailand drop to 2 million, 1.7 per cent lower than the level observed last year, as tourists from China, Malaysia, Russia and Japan stayed away.
We also need to think twice if we assume foreign investment will increase. As an indicator, Stock Exchange of Thailand data shows that foreign investors sold Bt35.76 billion net worth of Thai shares in May, when the political situation in Thailand reached another juncture. In the first five months of this year, the foreign net sell was Bt40.68 billion.
We can borrow to replenish budget deficits, as Thailand’s public debt is still below 50 per cent of GDP. But last week, the Finance Ministry raised only Bt18 billion of its Bt20 billion target in the bond market.
It remains to be seen whether and by what means the military can steer us through these challenges.