Populism Fallout: Thai Middle Class Braced for Tax Hikes as Credit Rating Teeters Near ‘Junk’
Economists warn that short-term handouts are creating a fiscal trap for Thailand, threatening a credit downgrade and a heavy tax burden for the middle class
- Economists warn that short-term populist policies, such as cash handouts, are creating a "fiscal trap" for Thailand's economy.
- The resulting government debt is expected to be shouldered by the middle class, particularly salaried workers, through inevitable tax increases.
- Rising debt service costs are pushing Thailand's credit rating towards a potential downgrade to "Junk Bond" status, which would increase borrowing costs for the country.
- The nation's fiscal problems are worsened by a falling tax-to-GDP ratio, which has dropped from 17% to 14% due to a cycle of tax exemptions and rebates.
Economists warn that short-term handouts are creating a fiscal trap for Thailand, threatening a credit downgrade and a heavy tax burden for the middle class.
Leading economists have issued a stark warning over the proliferation of short-term populist campaign pledges, asserting that these policies are laying a "fiscal trap" that threatens Thailand’s long-term economic sovereignty and its international credit standing.
Speaking at a seminar hosted by the Thailand Development Research Institute (TDRI) entitled “They Hand Out, But We Pay: Time to End Populism,” Dr Athiphat Muthitacharoen of Chulalongkorn University’s Faculty of Economics warned that the nation is entering a "deeply concerning" fiscal phase.
He argued that the middle class—specifically salaried earners whose income is easily monitored by the Revenue Department—will be forced to shoulder the resulting debt through inevitable tax increases.
The ‘Short-Termism’ Trap
Dr Athiphat criticised the "political formula" of deploying immediate stimulus measures, such as the Digital Wallet, the ‘First Car’ scheme, and the ‘Half-and-Half’ co-payment programme.
While these schemes provide a transient boost to consumption, they fail to address structural economic weaknesses.
“Thai politicians have become experts in short-termism,” Dr Athiphat said. “These handouts do not build new skills for the workforce, nor do they encourage small businesses to enter the formal tax system sustainably. In reality, we are simply cannibalising future budgets. The money distributed today is a liability for tomorrow.”
Data spanning the last two decades reveals a troubling trend: Thailand’s tax-to-GDP ratio has plummeted from 17% to just 14%.
This "policy gap" is attributed to a cycle of tax exemptions and rebates that have left the public habituated to continuous fiscal concessions.
A ‘Junk Bond’ Warning
The most immediate threat lies in the government’s escalating debt service costs.
Interest payments currently account for 11% of net revenue and are projected to hit the critical 12% benchmark next year.
Financial analysts warn that exceeding this 12% threshold without significant structural reform could trigger a credit rating downgrade to "Junk Bond" status.
Such a move would lead to an immediate surge in borrowing costs for both the public sector and private enterprises, further stifling growth.
“We are now paying the price for neglecting fiscal discipline,” Dr Athiphat noted, pointing out that fiscal deficits of 4–5% of GDP have become alarmingly normalised.
This erodes the fiscal stability that was historically regarded as one of Thailand’s core economic strengths.
The Road Ahead
Future administrations face a narrowed path. With the national debt ceiling already raised to 70%, the room for fiscal manoeuvre is severely limited by a mounting interest burden.
As the 19 January deadline approaches for political parties to submit the funding sources for their manifestos to the Election Commission, the public is being urged to scrutinise these filings.
The consensus among academics is clear: voters must distinguish between parties "selling a dream" and those offering a fiscally responsible roadmap for the nation’s future.
