At a glance, despite public debt accounting for 44% of GDP, it appears the government remains safe from the immediate risk of fiscal crises and is still able to acquire low-interest loans from domestic sources.
But that is no reason for the government to be complacent. In fact, permanent secretary for finance Somchai Sajjapongse said the need for fiscal reform is imminent, without which the country may experience a fiscal crisis in the next 10 to 15 years.
This is because the country will have to deal with increasing pressure from a fast-approaching ageing society.
According to a study by the Fiscal Policy Office, the number of people reaching retirement age which is now 14% of the total population, will reach 17.5% in 2020, 21.2% in 2025, and 25.2% in 2030. This means in the next 16 years, this group of people will comprise one quarter of the entire population.
As a result, the government has had to allocate an immense budget for the retirement safety net, which accounted for 270 billion baht in 2014 or 2.1% of GDP. Half of the sum went to pensions for retired state officials. The rest went on living allowances for the elderly, and contributions to the Government Pension Fund, the Social Security Fund (SSF) and the newly-established National Savings Fund.
In 2024, the amount is estimated at 680 billion baht, or 3% of GDP. Of the total, some 470 billion will be used for the retirement safety net.
Despite the enormous burden, the government has yet to suffer a financial crunch and managed under a deficit budget for two decades. But the pressure will intensify each year.
The first burden is the contribution of the unpaid portion to the SSF from 2012-2016 which accounts for 98.4 billion baht or 19.7 billion baht a year, starting 2017 until 2021. This will add a 0.6% to 0.7% burden to the annual budget.
With the need to relieve the financial burden, the government and the Office of the Civil Service Commission have considered raising the retirement age of civil servants to 65 years old from 60 which will ease the burden on pension payments for the retired and curb recruitment in the bureaucracy.
As the burden grows bigger, there has been little, if any progress in tax reform measures including a proposed hike in value-added tax while the introduction of housing and land taxes, due to public opposition, have been put on hold indefinitely. Though the new taxes can ensure social justice, no government dares introduce them for fear of the political impact.
But a new fiscal reform approach means more than tax increases. On the contrary, reform measures can include tax cuts -- both in personal or corporate income tax -- which are aimed primarily at boosting competitiveness and public acceptance. The measures for small- and medium-sized enterprises are a case in point. The Finance Ministry has offered an amnesty for SME operators to persuade them to duly pay tax in accordance with the single financial account project. Those eligible to join the project are operators with maximum registered capital of 5 million baht, and a sales performance not exceeding 30 million baht a year. Cooperative operators will be exempt from corporate tax this year.
Moreover, the ministry recognises the need to improve the efficacy of the tax system which is vital given that tax money accounts for 80% of the government's total income. It is hoped that when the economy improves and people have more income, they will be more willing to pay tax, while the use of e-payments should significantly help heighten efficiency and improve revenue collection.
Reform of the tax system is not enough. In fact, the government needs to look at spending reform to prevent flawed projects such as the rice-pledging scheme that became an enormous budget burden.
Damages from the rice scheme, plus past mistakes made before the 1997 crisis, became a massive burden amounting to 2 trillion baht or 35% of public debt for the current administration. An improvement in spending that prevents unnecessary losses or graft would ensure a stronger economy while taxpayers will be more willing to make contributions as they could be certain their money will be wisely used, with national development the ultimate goal.
It requires political will to implement fiscal reform that will lead to sustainability, not just immediate political gains.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.