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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%.

A previous phase approved 42 projects under Skill Bridge with total funding of 2.03 billion baht and workforce development plans for 76,728 people, bringing the total number of people covered by workforce development plans to more than 80,000.

Workforce development projects are assessed in terms of curriculum standards, alignment with the needs of the industrial sector, the expertise of trainers and readiness to provide training.

The goal is to ensure the skills can be put to practical use in industry, helping Thai workers qualify for jobs requiring higher levels of skills and offering greater value, said Ms Lalida.

The challenge for the government is not simply how to attract more investment to the country, but also how to ensure such investment creates more opportunities for Thai businesses and people, she said.

The government needs to accelerate efforts to help Thai entrepreneurs gain access to artificial intelligence (AI), automated systems, R and D and new technologies, while developing workers with skills that match the needs of industry, said Ms Lalida. This effort will ensure that when new industries grow in Thailand, Thai businesses can become integrated into their supply chains and capture a greater share of the benefits generated by that growth, she noted.

“The government aims to promote investment while strengthening the economy, including upgrading the technology used by Thai companies, developing the workforce, increasing domestic procurement and facilitating knowledge transfer,” said Ms Lalida.

“The goal is to ensure Thailand is not merely a destination for investment, but also has Thai businesses and workers capable of growing and creating greater value alongside the industries of the future.”

The Competitiveness Enhancement Fund also provided financial support for business transformation, recently approving funding for 48 projects with a total investment of 3.54 billion baht, including 1.66 billion baht from the fund.

The projects cover R and D, improving business efficiency through modern technologies, adopting automation, digital technologies and AI, as well as transitions into new and green industries.

The goal of the scheme is to ensure Thai entrepreneurs have sufficient technology and productivity to grow alongside the industries of the future, she noted.

Some 66 projects received support for business transformation, representing total investment of 5.80 billion baht, with 2.79 billion baht allocated from the fund.

The Board of Investment, which oversees the National Competitiveness Enhancement Fund, estimates all of these projects will increase participating businesses’ revenue by 3.90 billion baht per year, bolstering domestic procurement of raw materials, components and services by more than 7.10 billion baht annually.

The benefits of investment should not be confined to the companies receiving investment promotion, but also extend to Thai component manufacturers, suppliers and service businesses throughout the supply chain, said Ms Lalida.