Will COVID-19 give birth to a welfare state in Thailand?
Thailand’s economy has been hit hard by the COVID-19 fallout, with numerous layoffs, working hours cut and people’s income plunging.
The government has implemented a raft of relief packages to keep businesses and households afloat. But the safety net provided by the state has not been enough to prevent many falling further into crisis and debt. Many people are now calling for the Thai government to adopt levels of social protection seen in the welfare states of Scandinavia.
Will the pandemic lead to a welfare state?
“Crises are often followed by an expansion of social protection. For example, the 1997 financial crisis led to the implementation of compensation for laid-off workers,” said Somchai Jitsuchon, research director at the Thailand Development Research Institute.
The General Prayut Chan-o-cha administration has implemented relief packages including handouts, soft loans and co-payment shopping schemes. But these are one-off packages rather than permanent welfare.
“The ongoing crisis has demonstrated that more systematic social protection is required,” said Somchai.
According to the Budget Bureau, annual spending on social protection rose to Bt456.7 billion in the 2021 fiscal year, up 10 per cent from the previous year. This safety net covers the elderly, families, children, the disabled and unemployed, as well as provides low-cost housing.
“But the coverage needs to be expanded,” Somchai said.
The challenge is how to fund the rising cost. Currently, Thailand’s public debt is about 52 per cent of gross domestic product – closing in on the 60-per-cent benchmark for fiscal discipline and sustainability.
Are higher taxes the answer?
Somchai, however, is optimistic about Thailand’s finances, saying that when the economy bounces back, the government will be able to collect more taxes.
One way this could be done is to get the rich to contribute more through inheritance, land, property and other taxes.
Somchai cited the land and property tax. “We need to turn this paper tiger into a real one,” he said, adding the tax rate was currently far too low for rich property owners.
The other option is to increase value-added tax (VAT) from 7 per cent to 8 to 10 per cent.
Though tax hikes would be unpopular and opposed, Somchai said the government could gain majority support for, say, the VAT hike by telling people that the extra revenue will be spent on the poor.
In 2019, Japan increased its sales tax rate from 8 per cent to 10 per cent on a promise to use the extra money to fund social-welfare programmes.
Somchai has long advocated for a wider social welfare net, particularly for children, but the Social Development and Human Security Ministry insists it does not have enough funds to finance this expansion.
“When the virus hit, Thailand was fiscally and financially better off than many countries due to its relatively low public debt,” said Pisit Puapan, executive director of Macroeconomic Policy Bureau at the Fiscal Policy Office.
The Finance Ministry is reviewing fiscal policy reforms to maintain medium-term fiscal strength, he said. For instance, e-business taxes will be considered to expand the tax base and address the new digital economy.
“The other factor for consideration is dealing with Thailand’s ageing society in the future. We would have to promote retirement schemes for the working-age group as well as improve human capital and productivity for the younger emerging workforce” he said.
Narrowing wealth gap
The virus-induced crisis has also played a role in the ongoing political unrest. Youth-led protesters demanding the resignation of Prayut and his government, a new Constitution and reform of the monarchy have also joined with academics to push for better state welfare amid the pandemic. Pro-democracy protesters say the budget for defence and the Palace should be slashed and the money spent on social welfare instead.
They also say that building a welfare state would help narrow a gap between the rich and the poor that is among the widest in the world.
Poor get poorer
Thailand ranks as one of the world’s most unequal countries and the pandemic has worsened matters, with more and more people falling below the poverty line.
Meanwhile, debate on the welfare state is also intense overseas.
Nobel laureate Joseph Stiglitz recently wrote: “A central tenet of a 21st-century welfare state is ensuring equality of opportunity, and that, of course, entails a particular focus on children, and their health and education … And there is increasing recognition that one can’t have equality of opportunity in a society with large disparities in income and wealth.”
Stiglitz also believes that welfare states perform better economically.
A merger that could essentially wipe out mom-and-pop stores in Thailand has sparked a public outcry leading to legal action. Consumer groups led by the Foundation for Consumers on March 15 filed a lawsuit against the Office of Trade Competition Commission (OTCC).
After the 1932 Siam Revolution, statesman Pridi Banomyong proposed the creation of a welfare state that guaranteed full employment. However, his proposal of jobs for everyone was strongly opposed by the conservative elite.
“After that, the idea of social welfare narrowed to just limited social protection,” said Anusorn Tamajai, president of Pridi Banomyong Institute.
Thailand’s first social security law was issued in 1954, but never enforced. Its first labour law – protecting workers’ rights and recognising trade unions – was introduced two years later.
Thailand’s first two national economic development plans (1961-1966 and 1967-1971) focused on high economic growth and resulted in a wider wealth gap.
The third plan, 1972-1976, began incorporating social protection in a bid to narrow that gap.
Thailand’s Social Security Act was only put in place in 1990, while the first major progress was made when the Thaksin Shinawatra government implemented the universal healthcare scheme in 2002.
Political will for welfare state
Pro-democracy protesters have slammed the current government for paying little attention to people’s welfare. Critics, however, say there is no political will to move towards a welfare state.
Lae Dilokvidhyarat, an economics lecturer at Chulalongkorn University, said the COVID-19 fallout clearly demonstrates that existing social protection is not enough and should at least be expanded to cover the many Thais who work in the “gig” or freelance economy.
“When we refer to social protection, it really means everybody is covered,” Lae said.
“Political will is necessary to expand social welfare,” said Somchai, adding he is optimistic the COVID-19 crisis will help boost political backing for a welfare state.
By Thai PBS Worlds’ Business Desk