Govt focus on boosting domestic consumption

Deputy Premier and Commerce Minister Kittiratt Na-Ranong has unveiled the government's blueprint to re-balance the Thai economy, with an initial target to boost domestic consumption by Bt250 billion in the first year.

In an interview with Nation Multimedia Group, Kittiratt said Thailand should reduce its dependence on the export sector, which currently accounts for 60-70 per cent of Gross Domestic Product.

Instead, the country should boost domestic consumption to drive economic growth.

Kittiratt said the Yingluck government's key economic policies would help re-balance the economy over the next several years.

One of these policies is to guarantee paddy rice at Bt15,000 per tonne, compared to the prevailing market price of less than Bt10,000, via the government's rice-pledging scheme.

Another key policy is to increase the daily minimum wage nationwide by 40 per cent, with Bangkok and six other provinces taking the lead from January 2012 onwards by raising the wage from about Bt220 to Bt300 per day.

Kittiratt said the government's temporary suspension of Oil Fund levies on petrol, gasohol and diesel, making energy prices cheaper by Bt2-7 per litre, was also part of this economic re-balancing agenda.

All these measures are inter-linked, as the government aims to reduce the cost of energy for consumers and businesses while boosting farmers' and workers' incomes, he said.

Kittiratt, who was previously president of Shinawatra University founded by ex-premier Thaksin Shinawatra, said the economic-re-balancing, if successful, would add an estimated Bt250 billion to the Bt10-trillion Thai economy.

This would represent 2.5 per cent of annual GDP, largely resulting from more purchasing power for the grass-roots population, whose incomes will be increased by higher rice prices and minimum wages. Unlike the rich and middle-income earners, low-income people tend to spend most additional income to improve their quality of life so the domestic economy would directly benefit from the government's re-balancing policy, he said.

However, the rice-pledging scheme - to boost the domestic price of paddy rice to Bt15,000 per tonne - is controversial. It has drawn strong opposition from rice exporters, who predict Thailand will lose a significant share of the world rice market due to the price hike.

Critics are also concerned that there could be massive corruption in the scheme, which requires the government to borrow as much as Bt400 billion in the first year.

The Bt300 daily minimum wage is also facing strong opposition from the private sector, who said a 40-per-cent jump in labour costs was not practical because productivity would not increase correspondingly.

Kittiratt said the government would cut the corporate income tax rate from 30 per cent to 23 per cent next year to help the private sector, while the Finance Ministry will offer tax incentives on machinery investment to boost productivity.

The Deputy PM said that Thailand's inflation - at around 4 per cent - was still relatively low compared to other trading partners and competitors. As a result, he was not worried that wage and rice price policies would spur cost of living rises to an extent they destabilise the economy.