16 June 2024

The Pheu Thai Party’s economic platform is back in focus now that it has been tasked with the responsibility of forming the next government.

Pheu Thai, which has the second highest number of seats in the House of Representatives, finds itself in the driver’s seat after coalition leader Move Forward failed to get its candidate elected prime minister.

Populist leaning

In the run-up to the May 14 election, Pheu Thai’s economic policies faced criticism for being populist in order to win votes. Though the party made bold promises to hand out cash and raise the minimum wage substantially, its reform agenda is less attractive compared to the one proposed by Move Forward.

The most controversial Pheu Thai promise is to hand out 10,000 baht to everyone aged 16 and above as a digital wallet, which, if implemented, would cost the exchequer about 560 billion baht. The party’s executives justify the scheme, arguing that it is necessary to jump start the economy.

But economists believe that such a cash handout in the name of digital money, would lead to a spike in public debt and there is no clear way to fund it.

The party has forecast an additional revenue of around 260 billion baht for the government next year, while the multiplier effect of people spending the 10,000 baht would generate economic growth and 100 billion baht in revenue. The balance funding for the scheme is expected to come from cutting lower-priority projects worth 110 billion baht and duplicated welfare spending estimated at 90 billion baht.

Critics are still not convinced, saying the party has overestimated the multiplier effect on economic growth and generation of tax revenue.

Central bank governor Sethaput Suthiwartnarueput said he did not agree with a fiscal expansion policy aimed at boosting growth. He prefers cautious spending on the government side. “It is better to stabilize the economy rather than boost it. We should save money for hard times,” he said.

He believes that the economy is on the road to recovery, driven largely by the tourism sector and domestic consumption. The Bank of Thailand has forecast gross domestic product growth — a broad measure of economic well being — at 3.5 per cent this year, up from 2.6 per cent last year.

The World Bank also opposes blanket cash handout schemes, while it advises more targeted welfare.

“The government should focus on needy groups because if the government distributes money to everyone, each will get only a small amount. But if the same amount is given to targeted groups, that would be adequate to support their livelihood,” Kiatipong Ariyapruchya, senior country economist at World Bank Thailand, said.

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Higher minimum wage 

Another key policy of Pheu Thai is to increase the minimum wage by 2027 to 600 baht per day from the current over-300 baht.

Business leaders are worried that a sharp rise in minimum wage could increase their cost of production and it might encourage manufacturing to move out of the country.

“It is better to harvest the eggs rather than kill the hen,” says Vikrom Kromadit, founder and acting chief executive officer of Amata Corporation Pcl.

He said he agreed that the current minimum wage was too low but a wage hike should be done gradually to ensure businesses are not affected, he said.

Transaction tax vs capital gains tax

The current caretaker government has suspended its earlier move to collect transaction tax on share trading in the stock market after it was strongly opposed by the capital market.

The Move Forward Party pledged to collect capital gains tax, saying it was a part of its economic policy to reduce the widening income inequality. So, when the party won the highest number of MP seats, and led the coalition to form the new government, trading in the  stock market was lackluster. But once it became clear that the onus was on Pheu Thai to form the new government, the market moved positively.

Pheu Thai plans to collect neither transaction tax, nor capital gains tax.

Former finance minister Kittiratt Na Ranong, the vice chairman of Pheu Thai’s economic panel, said the party was opposed to the tax hike but would push for expansion of its tax base and get rid of corruption in tax collection.

He also said that the corporate income tax rate should be lower than the current 20 per cent. The party also wants to abandon the land and building tax, saying it was passed by the military-backed government in 2019 and had not undergone scrutiny by MPs. The new tax law replaced the local maintenance tax and household and land tax.

Pheu Thai wants to revive the previous household and land tax, according to Kittiratt, as the current law would not tackle the problem of inequality.

Supporting farmers 

Despite the bitter experience of the massive rice pledging scheme of the Yingluck Shinawatra government, Pheu Thai continues to espouse populist policies to support farmers, though on a much smaller scale.

The party has vowed to give farmers a moratorium on debt repayment for three years. During this period, they will not be required to repay the loan principal or interest rate. With all these measures and others, the party claims farmers’ income would increase threefold within four years. Pheu Thai says it also will promote precision agriculture and apply artificial intelligence to farming, aiming to increase farm productivity.

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Cause for concern 

Currently, Thailand’s public debt is a little over 60 per cent of GDP, but the debt is likely to rise further due to limited tax revenue, while the pressure on welfare spending is mounting. Additional financial burden could send the existing debt spiral out of control and make fiscal deficit unsustainable. This would be a challenge for the new government led by Pheu Thai.

Threat of political violence 

Many people have called for the quick formation of the new government for the sake of economic management, as delays could adversely impact economic growth.

Some believe that Pheu Thai can quickly form the new government if the party abandons the current coalition and joins hands with partners of the outgoing coalition government. But others raise questions about the legitimacy of such a government, as it would defy the mandate of voters who rejected the outgoing coalition.

An unprincipled coalition could result in street protests and even violence between supporters of the outgoing coalition and pro-democracy groups. Flash mobs were organized in Bangkok after Pita Limjaroenrat, leader of the Move Forward Party and candidate for prime minister, failed to get approval from senators. The senators appointed by the former junta led by outgoing Prime Minister General Prayut Chan-o-cha have been blamed for blocking Pita.

Vikrom said that some investors, who recently sought to invest in his industrial real estate, had deferred their decision as they were worried about potential political upheaval as in the past.

By Thai PBS World’s Business Desk