Budget must be spent carefully

Budget must be spent carefully

The military-backed government's decision to set the highest budget deficit since it took office for fiscal 2018 reflects the urgent need to boost the economy after private investment over the past few years remained lower than the government's expectations. Deputy Prime Minister Somkid Jatusripitak said on Friday that the next fiscal year's budget expenditure has been set at 2.9 trillion baht, with revenue collection of 2.45 trillion baht, leaving a deficit of 450 billion baht.

He has yet to give details of the spending. Nonetheless, the budget is set to rev up private investment as the investment budget accounts for 23% of the 2018 budget, slightly up from 22% in fiscal 2017.

Mr Somkid earlier expressed disappointment that the private sector had not invested as much as the government had hoped, even though the state has provided a series of investment incentives to boost private investment.

The country has traditionally relied on domestic consumption, export earnings, public spending and private investment to promote growth. However, the economic slump has seen low consumer confidence, less competitive exports and low private investment.

In addition to the overall global economic sentiment, the private sector has been reluctant to invest amid the current political situation. The business sector prefers predictability. Thus, their investment decisions hinge on the prospective general election, for which the government has yet to set the date.

With private investment at a low ebb, the government has decided to use the budget to trigger economic activities.

The government, for instance, will soon dole out a supplementary budget worth 190 billion baht, focusing on economic clusters in the provinces. It remains to be seen whether such a supplementary budget will serve its purpose as there are questions over whether the investment will reach the targeted small industries as determined by the government. At any rate, the larger deficit will disrupt the government's fiscal stability if the budget deficit does not produce the intended results.

The budget deficit in the next fiscal year could weaken fiscal standing next year if the government's spending spree does not produce the multiplier effect to promote investment growth.

The government stated that public debt was set to be 45% of GDP in fiscal 2018. The chances are the actual budget ratio could be higher than 45%, particularly if the government has to approve another supplementary budget if 2018 GDP growth is lower than 3.8% according to the government's assumption. The government must ensure that its spending will not lead the public debt to hit the fiscal stability threshold of 60%.

As private investment has been low for many years, economists have begun warning of the downside of the private sector on the country's economic competitiveness. For instance, a number of factories still use outdated technology because of a lack of technology investment.

Thailand's declining competitiveness is evident in the export sector, which has not been the major engine for growth it once was. It is almost useless to promote goods that are no longer competitive in terms of price and quality.

The government said it plans to use the budget to create the infrastructure to promote private investment to achieve GDP growth.

More important than GDP, however, tax money should produce effective and sustainable results to enable Thailand escape the middle-income trap.

Moreover, the government's future investments should take into consideration an attempt to bridge the wealth gap among people in different regions by creating equal access to opportunity for all instead of providing benefits to a handful of big-time investors.

The majority of Thais are employed in the agricultural sector and small and medium-sized enterprises. The budget should create access to resources to enable the majority of people to survive.

Government regulations should be conducive to encourage these entrepreneurs to flourish instead of hindering their opportunities by providing benefits to a small group of investors via monopolies and concessions.

The deficit is not necessarily a bad thing. But the government's execution of the policy will determine whether it is worthwhile. Budget spending should create a balanced economy, leading to a highly productive and growing economy rather than an irresponsible fiscal policy that squanders public money for unsustainable short-term targets.

Editorial

Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

Email : anchaleek@bangkokpost.co.th

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