Thailand’s fiscal system could face a severe crisis within a decade if the government does not urgently undertake reforms, warns a political scientist from Chulalongkorn University.
“The country’s fiscal system can still carry the burden at the moment, and the government can still keep the money circulating. But if no reforms are undertaken, the system will collapse within 10 years, similar to Greece. This is my concern,” said Weerasak Krueathep, a lecturer in the Department of Public Administration at Chulalongkorn University.
Thailand’s fiscal system could face a severe crisis within a decade if the government does not urgently undertake reforms, warns a political scientist from Chulalongkorn University.
“The country’s fiscal system can still carry the burden at the moment, and the government can still keep the money circulating. But if no reforms are undertaken, the system will collapse within 10 years, similar to Greece. This is my concern,” said Weerasak Krueathep, a lecturer in the Department of Public Administration at Chulalongkorn University.
A collapse of the fiscal system would affect welfare mechanisms and other government services that rely on budgetary funding. The government could potentially lack the budget to pay for fuel for garbage trucks, said Mr Weerasak at the university seminar.
The country’s increasingly strained fiscal position has been building for a long time, but the government only became concerned about it around two years ago, as it reached a point where authorities could no longer sustain the burden, he noted.
“Public debt is expected to rise over the next two years, with the government likely to raise the public debt ceiling to 80% of GDP, up from 70%. The ceiling is expected to eventually be moved to 100% of GDP within 5-6 years,” said Mr Weerasak.
“If we delay reforming the country’s fiscal system, we may have to seek assistance from the International Monetary Fund again, and Thailand could repeat Greece’s experience.”
Once Thailand reaches that point, it could take a decade to restore its economy, he said.
As of July, the government’s public debt was 67.5% of GDP, with the statutory ceiling at 70%. The projected debt levels do not include the possibility of an economic crisis, noted Mr Weerasak.
Another concern is debt within state-owned financial institutions is not included in the government’s calculation of its public debt burden, he said, which conceals government borrowing from these institutions under Section 28 of the State Fiscal and Financial Discipline Act.
URGENT REFORM NEEDED
The government needs to reform the public sector to reduce government expenditure, as some government agencies have overlapping functions, said Mr Weerasak. For example, Vietnam has undertaken public sector reforms that reduced the number of civil servants by 30-40%.
Governments elsewhere have sought to streamline bureaucracy by determining which functions the state should perform. In terms of national security, Thailand has numerous agencies with overlapping responsibilities, including the Internal Security Operations Command, the National Intelligence Agency, and the Southern Border Provinces Administrative Centre, he noted.
Another necessary reform is strengthening checks and balances between the executive and legislative branches, said Mr Weerasak. The executive has considerable authority over public spending, as tax relief measures can be proposed and approved simply through the cabinet. Similarly, the executive can independently use off-budget funds, such as with the TH-AI Passport project, which utilises off-budget funding from the Digital Economy and Society Ministry.
Meanwhile, tax exemptions granted to investment projects promoted by the Board of Investment amount to more than 200 billion baht a year. Yet analyses suggest the economic returns generated by these tax incentives may not be commensurate with the revenue lost by the government, he noted.
TAX BASE EXPANSION
Thailand’s tax base is relatively narrow and outdated. The country has more than 40 million workers, but only around 5 million people pay personal income tax.
The value-added tax (VAT) system also leaves many people and businesses outside the system, while some businesses maintain multiple sets of accounts to evade taxes. Online businesses have mushroomed, yet the tax system has struggled to keep pace with collecting revenue from them, said Mr Weerasak.
Thailand needs to restructure its tax base, he noted. For example, around 20 million people work in agriculture, a sector widely regarded as the backbone of the country, and agricultural income is exempt from personal income tax.
The government should reconsider which types of farmers should qualify for tax exemptions, said Mr Weerasak. For instance, should farmers who own large plots of land be exempt from income tax?
Meanwhile, technology could be used to improve tax monitoring and collection, he said.
Populist policies could also use a rethink. The Prayut Chan-o-cha government distributed state welfare cards to roughly 14 million people, while the National Economic and Social Development Council estimated there were 4.8 million poor people in the country, about one-third the number of people receiving welfare assistance.
Finance Minister Ekniti Nitithanprapas recently sought to reduce the number of state welfare card recipients to 9 million, but the move faced opposition. The government needs to be firm and target state assistance for specific groups of beneficiaries rather than distributing it universally, said Mr Weerasak.
From a political perspective, distributing welfare cards to 14 million people during the Prayut government did not translate into more votes for the incumbents, as during the 2023 election Mr Prayut’s party received fewer than 14 million party-list votes.
As for raising the VAT rate, Mr Weerasak said there was no need to rush to hike it in the short term. Instead, the government should accelerate efforts to broaden the tax base.
After the tax base has been comprehensively expanded for 3-4 years, Thailand may have little choice but to raise VAT as it is a major source of government revenue, he noted.
Every increase of one percentage point in the VAT rate could generate as much as 100 billion baht in additional government revenue, said Mr Weerasak. The statutory VAT ceiling is 10%, which is lower than in many European nations, where VAT can reach 20%.