The Thailand Development Research Institute has proposed that the Yingluck Shinawatra administration focus on improving productivity in the service and manufacturing sectors over the next decade to boost economic growth and avert public debt crisis.
Somchai Jitsuchon, a senior economist, said public debt will increase rapidly as the government has implemented many large-budget policies; namely, rice pledging, infrastructure investment, flood prevention and reduction of corporate income tax.
Economic growth should reach 6% if the country wants to keep public debt below 60%. The rice pledging policy will weigh heavily on the fiscal burden, considering the cost from the first year of operation in 2012 could reach 300 billion baht and the ruling Pheu Thai Party holds it as one of its signature policies.
The government's planned 2-trillion-baht investment in transportation projects over the next seven years will boost economic growth. But measures to lift the productivity of the workforce, technology and institutions are imperative to push growth to 6% in the future, Mr Somchai said.
He expected the Thai economy to be on an upward trend, but a drop in China's growth is a risk in the short term.
"The country's tax income is highly sensitive to economic growth. There are risks in the long term if the country can avert the middle income trap," Mr Somchai said. "The government has no proper plan to reform tax to increase revenue. It should increase fiscal space over the next five years to prepare for uncertainty in the world economy."
He proposed that the government dilute spending on the costly rice pledging scheme.
Somkiat Tangkitvanich, TDRI's president, said that the minimum wage hike to 300 baht would be even more beneficial for the economy if labour productivity doubled to 8% from the current 4%.
The wage hike could cause losses for firms in the textile, wooden products, shoe and leather and furniture sectors - most having thin profit margins - particularly when the baht appreciates.
Deunden Nikomborirak, a senior researcher, said that the service sector employed half of the country's labour force and generated half of the economic output, but productivity of labour stagnates at a low level. She proposed that the government amend regulations to encourage greater competition both from foreign and local businesses.
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- Writer: Parista Yuthamanop