11 July 2024

Months of wait for the new Cabinet ended on Saturday, but reservations were expressed by many observers on Prime Minister Srettha Thavisin’s choice of ministers.

Srettha has kept with himself the Finance portfolio, the first time in 44 years when a prime minister will also double as finance minister. Srettha is likely to have his hands full with his responsibilities in Government House and the Finance Ministry. Many observers, however, believe the two deputy finance ministers will bear most of the burden at the Finance Ministry, especially Krisada Chinavicharana, a former permanent secretary at the ministry.

The Pheu Thai-led coalition government includes Phumtham Wechayachai as minister of Commerce; Suriya Juangroongruangkit — minister of Transport; Pirapan Salirathavibhaga — minister of Energy;

Prasert Chantararuangthong — minister of Digital Economy and Society; Phiphat Ratchakitprakarn — minister of Labour; Pimphattra Wichaikul — minister of Industry; and Sudawan Wangsuphakijkosolo — Tourism and Sports minister.

Worries about Commerce Minister

When asked if he was happy with the new Cabinet under Srettha, Tanit Sorat, the vice chairman of the Employers’ Confederation of Thai Trade and Industry, was cautious. “We can’t make a choice as they have ministerial post quotas, therefore we have to learn to work with them,” said Tanit.

He is not worried about the Finance Ministry, as he has faith in Krisada. But Tanit expressed apprehensions on whether Phumtham, at the helm of Commerce, is keen on free trade negotiations. Thailand needs to negotiate free trade agreements with the European Union and also the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that have been delayed for several years.

Heading the Commerce Ministry involves a lot of travel. Tanit wonders how Phumtham, who is nearly 70 years old, could handle that kind of proactive role, which is required to rekindle Thailand’s sliding exports that in the first seven months of the year contracted by 5.5 per cent. Tanit sees free trade agreements as the pathway to open more export opportunities.

Revisiting infrastructure plans

Tanit is not worried about the qualifications of the Transport minister, saying that Suriya, as a businessman, could follow up on the work started by the previous government.

Tanit, however, opposes a land bridge project extending from the deep sea port in Ranong province on the coast of the Andaman Sea and the deep sea port in Chumphon province, on the coast of the Gulf of Thailand. Studies by the Office of Transport and Traffic Policy and Planning estimate the cost of deep sea ports and the double rail system and motorways at around 1 trillion baht.

He said it would be a waste of money, similar to the joint-venture between Sri Lanka and Chinese state firms for the Hambantota port with almost no container traffic.

The cost of transporting goods by sea and then transferring goods by land to other ships is high. It would be cheaper for ships from Europe to take the route to Singapore, which takes only two days. Transportation by Thailand’s land bridge would take about 3-4 days, he said.

He urged the government to accelerate construction of the high-speed rail linking three international airports — Don Mueang, Suvarnabhumi and U-Tapao. The Thailand-China rail project linking Bangkok to the northeastern provinces and Laos should also get more attention, he noted.

Tanit warned the government against following a policy of sharply increasing wages. “It would shock businesses. How can you increase the monthly salaries of new graduates to 25,000 baht from 14,000 baht today?” Tanit asked. He was referring to the Pheu Thai Party’s pre-election pledge to increase the daily minimum wage from slightly over 300 baht a day to 600 baht and offer monthly salaries of 25,000 baht to those who have a bachelor’s degree.

Fiscal stability is key

Athiphat Muthitacharoen, associate professor at Chulalongkorn University’s Faculty of Economics, was not concerned about Srettha taking both PM and finance minister positions.

“I think he can manage his time. The greater challenge is of Thailand becoming an aging society, requiring greater spending on welfare, as well as the high pressure on tax revenue from rising costs,” said Athiphat.

In the short term, the economy needs a quick boost, he said. Athiphat raised the Pheu Thai Party’s pre-election promise of handing out every citizen aged over 16 years 10,000 baht as a digital wallet. He wondered how the government was going to implement the scheme, considering its high cost of about 500 to 600 billion baht, or equivalent up to 3.5 per cent of gross domestic product (GDP).

Another difficult balancing act before the government is implementation of energy subsidies. If the government cuts excise taxes it would adversely impact tax revenue, he said.

The Finance Ministry has laid out a medium-term fiscal plan to curb public debt at about 60 per cent of GDP. Rating agencies are watching Thailand’s public finance. If they doubt the government’s ability to honour debt obligations, they could downgrade Thailand’s sovereign rating. This would make it more difficult for the government to borrow money, or the cost could be higher.

Should the government need to borrow to finance its annual expenditure plan and the borrowing is not justified, then it would be troublesome, Athiphat warned. Thailand’s government as well as many governments spent a lot of money during the COVID-19 pandemic, while in the post-pandemic phase the challenge has been to control debt going forward, he added.

Increasing tax

Former finance minister Sommai Phasee has no objection to Srettha doubling up as prime minister and finance minister. He said Srettha’s two deputies — Krisada and Julapun Amornvivat — could carry out tasks at the Finance Ministry. He added that Krisada was capable of handling most of the responsibilities at the ministry, as he has the experience of being the top bureaucrat at the ministry.

Sommai predicted that the new government would not be able to avoid tax hikes. If they can prop the economy up in the first 8-9 months, then the government could raise tax rates later. For example, the value-added tax (VAT) rate could be increased by 1-2 per cent each time, as done by Singapore and Japan. Thailand’s VAT rate is 7 per cent currently. The taxes imposed on land ownership and building should be maintained, despite a section of society opposing them.

Budget cuts not easy

Regarding cutting low-priority projects, Sommai said that it would not be easy to cut the budgets of projects as all state agencies want their annual allocation to increase.

When Pheu Thai was in the opposition, it had campaigned to cut the Defence Ministry’s budget, making a case for the reduction in the purchase of military hardware.

Sutin Klungsang, who has been named the new defence minister, is only the sixth civilian to hold the post. In the past, he had often called for cuts in spending on submarines, fighter jets and drones.

In its filing to the Election Commission, Pheu Thai had elaborated on its plan to finance the 560-billion-baht digital wallet scheme. The party had said the funding would come from four sources: a 260-billion-baht increase in tax revenue, 100 billion baht additional revenue from government stimulus packages, reduce budgets worth 110 billion baht, and cut redundant welfare schemes worth 90 billion baht.

By Thai PBS World’s Business Desk