The Cabinet recently approved a framework for government spending in fiscal year 2024 with planned expenditure of 3.35 trillion baht, up 5.18 percent from the current fiscal year. The spending is equal to 17.8 percent of gross domestic product (GDP).
The share of current spending, such as on salaries of state officials, represents 74.89 percent of the total budget, while capital spending accounts for 20.6 percent. Principal debt payment is set at 117.3 billion baht, accounting for 3.5 percent of total outlay. With revenue estimated at 2.757 trillion baht, fiscal 2024 will see a budget deficit of 593 billion baht.
Likelihood of disruption
Ministers and state officials have been asked to propose their budget items to the Budget Bureau Office, which is under the supervision of the prime minister.
Once the officials finalize budget details, the draft bill will be sent to the Cabinet for approval on May 16. The bill will then go to the House of Representatives at the end of May or early June for the first reading. If it gets the nod, committees will be set up to deliberate on the bill in June until August. The lower house will vote on the second and third readings in August. Once the senators have finished deliberations at the end of August, it will be sent to the King for final endorsement in September.
If things go as planned, the budget bill will be effective from October 1, 2023 — the start of the fiscal year — and run until September 30, 2024.
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Delay a possibility
The procedure in formulating the budget bill is likely to be disrupted if there is a change in government. The term of the current House of Representatives ends on March 23, and the next general election is expected to be held in May. There is also a chance that PM Prayut Chan-o-cha might dissolve Parliament sooner, leading to earlier polls.
Any delay in the formation of a new government after the election would only result in the budget bill hanging fire.
A new government may want to review the fiscal framework as they will try to fit in their own policy pledges to voters. The next government, at its discretion, may increase the amount of government spending or cut some spending items and add new ones.
“The total amount of spending is reasonable, but we may revise the details of the bill and incorporate our strategic plans,” said Korn Chatikavanij, leader of the Chart Pattana Kla Party, offering his opinion in the event of his medium-sized party becoming part of a new coalition government.
Korn, a former finance minister, suggested that there was no need to borrow more, but saw the need to squeeze fat out of the public sector. The current government has already lifted the ratio of public debt to GDP from 60 per cent to 70 per cent after the country had to borrow large sums of money to deal with the impact of the COVID-19 pandemic and rising energy prices.
Social welfare pressure
Korn’s party has pledged to exempt personal income tax on a salary of 40,000 baht, which would benefit an estimated 4 million people. Critics may raise eyebrows over such proposals given that the government has run a fiscal deficit for many consecutive years due to low tax revenue, while the state is under high pressure to increase social welfare and capital spending.
Other pledges include grants to the elderly. Meanwhile, other political parties have also promised policies that would increase social welfare spending, without specifying how they intend to finance them.
Economists agree that the country needs to spend more on a social safety net, but to make it sustainable and also maintain fiscal discipline, a tax hike would be needed, which is an unpopular proposition.
Support for critical groups
Somchai Jitsuchon, research director at the Thailand Development Research Institute — an independent think-tank — is advocating an expansion of the current social welfare system that will lead to more financial support to children, the elderly and low-income groups. Currently, the elderly receive a monthly grant of 600 to 1,000 baht, depending on their age. Somchai is proposing a multi-tier social protection, which also covers basic income guarantee.
The additional cost, on top of current social welfare, is estimated to be 476 billion baht annually. He suggested that in order to finance it, the government needed to increase land and building tax, corporate income tax or reform personal income tax. Alternatively, the government could raise the value-added tax from 7 percent currently to either 8 or even 10 percent.
Clear message to voters
Realizing how unpopular a tax hike would be, he advised the government to communicate clearly with voters that revenue from any tax hike would be re-invested in universal social welfare. A critical area is grants for children. The government currently gives each child from low-income families 600 baht a month until they reach six years old.
But Somchai wants such a scheme to be made universal in order to overcome the issue of many poor families getting left out due to poor data collection. Investment in early childhood in other countries has been proved to yield high returns.
Review of public spending
Since the 1997 financial crisis, Thailand’s capital spending has been relatively small due to constraints caused by slower economic growth and a shortfall in tax revenue.
Failure to implement public sector reforms would only result in greater current spending on items such as salary, pension, and healthcare for state officials, at the expense of capital spending.
“The new government after the election needs to bring down the share of current spending and it should not be more than 70 percent of total outlay,” said Anusorn Tamajai, member of the executive board at Pridi Banomyong International College. It could be done by downsizing the public sector and by deploying more digital technology to improve its public services, he suggested.
He also wants to see an increase in capital spending by 5-10 percent on top of the planned 690 billion baht. The government should invest more to improve the country’s competitiveness, innovation, human development, healthcare and child care.
To deal with rising public debt, he suggested that the government increase principal repayment to 5 percent from 3.5 percent, while the budget deficit should be pegged at 450-500 billion baht instead of 593 billion baht.
He also wants the ratio of public debt to GDP be restored to 60 percent within two years.
Spending priorities
Opposition parties have often blamed the current government for excessive borrowing. The parties have also vowed to cut spending on military hardware, while some parties want to cut spending of the Royal Palace.
It would be interesting to see how things will play out after the upcoming general election, especially when it comes to government spending in fiscal year 2024.
By Thai PBS World’s Business Desk
