Friday, September 20, 2019

Government stimulus package not sustainable, economist warns

Aug 19. 2019
Uttama Savanayana
Uttama Savanayana
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By Wichit Chaitrong
The Nation

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The government stimulus package will not make much difference and might not be sustainable, an economist with Rangsit University cautioned on Sunday.

The Cabinet is expected this week to approve an economic stimulus package worth Bt370 billion, covering cash handouts for farmers and low income earners, grants for children and incentives for domestic travellers as well as tax incentives to support small businesses. The government aims to boost economic growth by 3 per cent to counter both uncertain domestic conditions and the impact of trade war between the United States and China.

 

Finance Minister Uttama Savanayana said last week that the package would prevent economic growth sliding to below 3 per cent this year.

“Short-term spending as part of populist policies will not help much as the Thai economy is monopolised by big business,” said Anusorn Tamajai of Rangsit University’s Economic and Business Research Centre for Reform.

Most of the spending by low income groups will end up as revenue for large businesses, he noted. 

He did however agree with the government plan to reduce the tax burden for small and medium-sized enterprises which could lead to more private investment. The government plans to offer generous tax reductions for those who import machinery to upgrade their production with a five-year depreciation allowance. Two state run banks; Government Savings Bank and Krung Thai Bank will also provide combined soft loans worth about Bt100 billion.

Currently, total investment in GDP is 24 per cent which is considered low compared to the peak of more than 40 per cent before the crisis of 1997. The ratio of private investment to GDP is 18 per cent GDP to government investment of 6 per cent.

Private consumption accounts for 51 per cent of GDP, and if boosted sustainably would drive the economy, he said.

The government also plans to direct other state run banks to provide soft loans to farmers and lower income groups. The Bank for Agriculture and Agricultural Cooperatives, The Government Housing Bank, and the Small and Medium Enterprise Development Bank of Thailand are expected to join the lending under the government stimulus plan. Anusorn warned that it may not be sustainable because its effectiveness depends on public confidence in the future.

Thai governments often resort to state run bank lending, quasi-fiscal measures that usually increase the burden for banks and then translate into a burden for tax players later.

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