Govt budget deficit over 50% likely to crowd out investment, only 20% of govt spending on investment, govt revenue only 20% of GDP .
Board urges budget restraint, Cap deficit-to-GDP at 50%, economists say by Wichit Chantanusornsiri
The Pheu Thai government has been warned that it should not push the limit of the budget deficit beyond 50% of gross domestic product (GDP) although by law it is permitted to go as far as 60% of the GDP.
The newly elected government should set a target for a balanced budget and public debt should by no means exceed 50% of GDP, said Narongchai Akrasanee, a former commerce minister and current member of the National Economic and Social Development Board (NESDB).
Dr Narongchai said many countries had set deficit budgets to ward off recession and promote growth amid the sluggish world economy.
"As for Thailand the public debt at around 41% of GDP is still manageable and the Ministry of Finance set a public debt framework within 60% of GDP but I think that the public debt of Thailand should not exceed 50% of GDP because the size of the government is small relative to the private sector's," he said at seminar held by the Fiscal Policy Research Institute Foundation last week.
The government's revenue makes up a mere 20% of the country's total revenue and of this portion, 80% is spent on fixed expenditures such as salaries and other routine expenses, leaving 20% for investment purposes, he pointed out.
Dr Narongchai said that if the government pushed the public debt beyond half of GDP, it would be burdened with higher interest and have less money to spend on development projects. When the investment budget falls below 20% of total expenditures, growth will stutter.
He added that the 11th plan aimed for sustainable growth and to achieve this, an investment of around 4 trillion baht is needed. Of the amount, 8% should be dedicated to projects that improve the quality of life and national resources and another 8% to water management. The remaining 84% should focus on logistics and infrastructure projects to enhance the country's competitiveness and help pull it out of the middle-income trap that now threatens many developing economies.
He said that for the economy to grow by 5-6%, an investment budget of around 30% or 2 trillion baht will be needed in five years.
Since the central budget will not be sufficient to make it happen, other financial sources must be found such as infrastructure funds to raise money for the development project, he said.
Kanit Sangsubhan, director of the Policy Research Institute, said Thailand's public debt was relatively low, particularly when the guarantees of state enterprises' well-backed loans are excluded.
The real burden of government will therefore be direct borrowing and the Financial Institutions Development Fund's (FIDF) burden, which now accounts for a combined 28% of GDP.
Dr Kanit said that solutions must be found to offset the anticipated smaller revenue as a result of the planned reduction of the corporate income tax and to shore up its revenue.
"The government of Prime Minister Yingluck Shinawatra has said that they would lower the corporate income tax from 30% today to 23% in 2012 and 20% in 2013 to improve the private sector's competitiveness.
"Therefore, we need to look at the whole tax structure to determine how to shore up the revenue. For example, one way might be to raise the VAT to 10% from 7%, as each percentage rise in VAT would bring in about 70-80 billion baht to the state coffers," he said.
(Source: Bangkok Post, Board urges budget restraint, Cap deficit-to-GDP at 50%, economists say, 7/09/2011, Wichit Chantanusornsiri, link)
Government Spending Vocabulary
National Economic and Social Development Board (NESDB) - ("Sa-pa-pat"), National Economic and Social Development Board, Thailand's state planning agency that makes long-term plans for economic development, creates five year plans with an agenda of: 1. Alleviation of Poverty and Income Distribution problems, 2. Enhancing Thailand’s Competitiveness, 3. Promoting Social Capital Development, 4. Promoting Sustainable Development (See Wikipedia)
the 11th plan - the 11th National Development Plan for Thailand, prepared by the NESDB (See website with current plan and previous plans, also see previous Bangkok Post article and useful diagram)
budget - 1. the plan for spending during a period of time within a company or organization, 2. the amounts that will be available to be spent on different projects and by different departments งบประมาณ (See Wikipedia)
budget deficit - when the government spends more than the taxes that it collects (must borrow money to pay for the difference) (See Wikipedia on government budget deficit and )
deficit - budget deficit; when the govdeficit spendingernment spends more than it receives (has to be financed or funded by borrowing)
public debt - government borrowing, the amount that the government owes (from borrowing to pay for budget deficits in the past)
debt - an amount of money that you owe หนี้
exceed - to be more than something; to go beyond a limit เกินกว่าที่กำหนด เกินปริมาณ
public debt should by no means exceed 50% of GDP
cap deficit-to-GDP - the highest deficit as a percentage of GDP allowed (highest deficit/GDP allowed)
limit - the highest or lowest amount possible; an upper or lower limit
cap - an upper limit; the highest amount
the limit of the budget deficit - the highest budget deficit possible (higher not allowed)
restraint - 1. limiting or preventing someone from doing something; 2. preventing something from increasing too much or being done at all
budget restraint - limiting government spending
gross domestic product (GDP) - the total value of all the goods and services produced by a country in one year (See Wikipedia)
domestic - within the country ภายในประเทศ
balanced budget - when government spending equals taxes collected (so no borrowing needed to finance a deficit)
target - a goal, the amount you are planning to achieve เป้าหมาย
set a target for a balanced budget - make a balanced government budget (with spending paid for by taxes collected, so no need to borrow)
enhance - to improve the quality, amount or strength of something ทำให้ดีเพิ่มขึ้น; ปรับปรุง
competitiveness - how well a company is able to maintain or gain customers in a market (does it have lower price or higher quality?) การแข่งขัน
enhance the country's competitiveness - making the counry better able to produce high quality inexpensive export goods (that other country's will choose over the goods of other countries)
middle-income trap - when a developing country reaches a certain point in their development when they cannot grow rapidly anymore and remain relatively poor (Read previous Bangkok Post article)
income - money that people receive from work or some other source, used for household consumption and savings
sufficient - enough พอเพียง
sufficient budget - have enough money in the budget (to spend on a project)
guarantees of state enterprises' well-backed loans - meaning: state-owned companies have the government behind them to pay back loans if they cannot (loan guarantee), so they get more borrowing opportunities and loans at better terms (so they may be "crowding out" of private companies from the loan market and opportunities to get loans, this also might reduce investment)
crowding out - "a reduction in private investment that occurs because of an increase in government borrowing. If an increase in government spending and/or a decrease in tax revenues leads to a deficit that is financed by increased borrowing, then the borrowing can increase interest rates, leading to a reduction in private investment" (See Wikipedia)
Financial Institutions Development Fund (FIDF) - the fund under the central bank responsible for bailing out banks and other financial insitutions after the 1997 financial crisis
Financial Institutions Development Fund's (FIDF) burden - the money that the FIDF has to pay back from the 1997 economic crisis (See previous articles: #1 (17/08/2011) , #2 (01/12/2010) , #3 (12/11/2011).
burden - a serious or difficult responsibility that you have to deal with ภาระ (See glossary)
recession - a period of reduced economic activity and growth with high unemployment, starts with at least two quarters of negative GDP growth (See Wikipedia and list of recessions in US) ภาวะเศรษฐกิจถดถอย
ward off recession - prevent a recession from happening
promote growth - help the economy grow at a faster rate (which will increase people's incomes)
sluggish - moving much slower than usual; not performing or reacting as well as usual (เศรษฐกิจ) ที่ซบเซา
sluggish world economy - the economies of countries are moving slowly, business is bad and incomes are down
framework - a system of rules, ideas or beliefs that is used to plan or decide something ขอบข่ายงาน, โครงร่าง
public debt framework
the size of the government is small relative to the private sector
X small relative to Y - X is a lot smaller than Y, X is small compared to Y
revenue - income from taxes or business activities รายได้
mere - not large or important เพียงเท่านั้น
The government's revenue makes up a mere 20% of the country's total revenue
portion - a part of something ส่วน
fixed expenditures - the same amount is spent every year (for example: government salaries must be paid each year)
salaries - money paid to employees each month (or every two weeks) for their work
routine - the usual series of tasks that are done as part or a job or work กิจวัตร
routine expenses - money that always has to be paid (for example, rent on an office must be paid each month)
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
for investment purposes - to be used for investment
interest - payments made for the use of another's money for a period of time
burdened with higher interest
development projects - economic development projects
stutter - sometimes does good and sometimes bad; even performance; inconsistent
growth will stutter - sometimes good growth and increasing incomes (happy people) adn sometimes not so good (unhappy people)
sustainable - is an activity that can continue over long periods of time, without being forced to stop (some activities, like spending more money than you have, are not sustainable) แบบยั่งยืน ที่ดำเนินต่อไป ถาวร
aimed for sustainable growth - have as a goal continued growth over a long period of time
X dedicated to Y - amount of money X is spent on project Y
improve - to make better ทำให้ดีขึ้น
quality of life - all the things that make life enjoyable (money of course, but other things, like traffic, pollution, healthcare, etc)
improve the quality of life
resources - 1. things such as money, workers and equipment that can be used to run some business; 2. things used to help you achieve your goals; 3. things needed for proper functioning, to get a job done ทรัพยากร
national resources - all the workers, factories, raw materials, etc used to run businesses and keep the country operating
water management - managing all of a country's water resources: water for farming, drinking, industry, homes; flooding and drainage during the rainy season; waste water disposal and recycling (See Wikipedia)
focus on - think about and work on one thing Y (rather than waste time on many), concentrate time and attention on one thing Y ให้ความสำคัญ
logistics - 1. a country's transporation networks (roads, railways, air system, seaports); 2. transporting, storing and tracking goods on the way from factory to consumer (See Wikipedia and previous article)
infrastructure - the high-cost facilities that everyone in the economy shares (water, roads, electricity, trains, telephone, internet) สาธารณูปโภค
funds - money to be used for a special purpose เงินทุน
state - government รัฐ
backed - supported ให้การสนับสนุน
excluded - not included
offset - reduce by moving in the opposite direction, counter-balance, compensate in the opposite direction ("x offsets y" means "x reduces the effect of y"), make up for (profits from the manufacturing business offset losses from the retail business) (See glossary)
anticipated - believe will happen, expected คาดว่าจะเกิดขึ้น
offset the anticipated smaller revenue - reduce the loss from smaller revenue
corporate income tax - money paid by larger companies on the money they make
shore up its revenue - increase revenue again after it has falled, preventing revenue from falling