It’s election time in Thailand and most parties have now adopted “populism” as their main campaign strategy. Puea Thai seeks to increase the minimum wage to 300 baht/day; bump up salaries of university graduates to 15,000 baht/month and provide credit cards to farmers. The Democrats want to increase low-interest student loans to 25,000 baht/year; raise the minimum wage by 25% in 2 years and extend the income insurance scheme to increase farmers’ profits by 25%. Bhum Jai Thai boasts a plan to install ATM machines in rice fields in the North and Isarn; create 1 million new jobs and build marketplaces for an additional 1 million people working in the informal sector. Chart Thai Pattana, while short on the specifics, also promises 5 trillion baht in investment to improve the livelihood of farmers and vows to double everyone’s income in 5 years.
Redistributive politics is the name of the game for all major parties in Thailand. Yet, no one explains how they’re going to pay for this….
The latest political crisis raises an issue of social injustice and inequality. Social welfare and well-being is not equally distributed among all Thais. Indeed, whether or not Thailand can get out of the current crisis will partly depend on the ability of future governments to deal with economic disparities and improve the welfare of the poor.
Integrating the informal sector into the formal one is crucial to making Thailand a fairer society, argues Dr. Jaras Suwanmala of Chulalongkorn University. Due to the decline in both the productivity of the agricultural sector and the number of jobs in the formal sector, more people will be searching for opportunities in the informal economy where the cost of setting up food stalls, for instance, remains relatively cheap and profits can be quickly made.
Yet, the current pension system, which provides basic sickness, child, unemployment and old-aged benefits, extends coverage to less than a quarter of the total workforce. The majority of the people employed in the informal sector, which accounts for around two-thirds of the total workforce, have very little of this social safety net. They need this social security to help offset rising living costs.
It is no wonder that redistributive platforms proposed by Thaksin, such as the 30-baht health scheme, farmer’s debt relief, village funds and micro credit programs, resonated so well with millions of voters, many of whom work in the informal sector. Such stimulus schemes, aimed largely to boost purchasing power, have been put forward by the subsequent Abhisit administration and are now proposed by most major parties. Nonetheless, many of these pro-poor, populist policies have either failed to meet their objectives (in the long run) or have had adverse effects, i.e bankrupting hospitals, sharply increasing personal debt, etc. The questions then become: are redistributive policies necessary to bridge the income gap and if so, what kind of redistributive policies would work? More importantly, can we afford it?
Redistributive policies are costly. Dr. Jaras estimates that a full scheme of social welfare needs 21% of GDP to make it work. At the moment, the government spends less than 10% of GDP on welfare. A report by Dr. Somchai from the TDRI identifies 4 major sources of revenue that could make a full scheme social security a reality:
- Remove exemption clauses for personal and corporate income tax. Rich people hardly pay any income tax. Out of the 1.5 million people in the higher income bracket, only 500,000 people pay income tax in full.
- Raise corporate income tax by 5%. Thailand only taxes 16-7% for corporations while the World Band estimates we could tax up to 22% without losing a competitive edge.
- Tax land and property. Land and property is mostly not being taxed at the moment.
- Increase royalties from natural resources, which are relatively low compared to other Asian countries. Most revenue gained from royalties at present is also “lost” due to corruption.
“Yes, we do need to redistribute wealth and yes, we can afford it,” argue Dr. Jaras and the TDRI team led by Dr. Somchai. Their research suggests a way to pay for a sustainable redistributive policy, one that the nation can afford and one that would benefit up to 40 million people. Such a policy deserves serious consideration by political parties, bureaucrats and the business community alike.
We don’t need more ATM machines or credit cards. But we do need a more equitable social welfare.