City Hall needs a much larger budget
This article is a welcome gift to Bangkok's new governor, Chadchart Sittipunt.
First, a fact of life: to successfully run a national government or a city government requires one common key factor -- money. With a poor fiscal position, high level of debt and inadequate domestic liquidity, the Thai government is nothing but a lame duck. It can only envy the Singaporean and Malaysian governments, which are offering their people financial assistances to cope with inflation. Indeed, if the Thai government had more money we would be seeing much cheaper petrol prices.
The Bangkok Metropolitan Administration (BMA) is pretty much in the same position. Governor Chadchart has dreams of various projects from an affordable mass transit system, efficient trash management system and a flood-free city, to housing for low-income people and music in the parks. But these cannot be realised without money -- lots of money.
The annual budget for BMA is about 80 billion baht for about 8.3 million Bangkokians. That averages to 26.36 baht per person per day. If one thinks that the budget is meant to provide services to the entire metropolitan Bangkok area of 14.6 million residents, the average spending drops to 14.98 baht per day per person.
What kind of public service and assistance can one expect from a 15-26-baht-per-day budget? Not much. For a start, affordable mass-transit fares are out of the question.
To give readers a comparison, the Tokyo Metropolitan government has an annual budget of 15.2 trillion yen or about 291 baht per person per day to service its 37.2 million people residing in the Tokyo Metro area. Factor in Tokyo's higher cost of living, and the per-person budget is still 10-15 times larger than that of the BMA.
It should be noted that Bangkok is an expensive city to live. Based on the Economist Intelligence Unit's report on Worldwide Cost of Living 2021, the cost of living in Bangkok is 10% higher than Perth, Australia and Guangzhou, China, and only 4% cheaper than Rome, Dusseldorf, Brussels and Amsterdam. These facts are more disturbing when one compares cost of living to local income. The average monthly per capita income of a Guangzhou resident is approximately 70,000 baht a month, compared to a Bangkokian's average monthly income of 37,751 baht. The people of Guangzhou have almost twice the income while at the same time enjoying a cost of living at 10% less. Is it time to move?
Given Bangkok's high cost of living and low-income base, it is clear that city residents need public financial assistance in the form of low-income housing, affordable transport and to community loans. Otherwise, only Bangkok elites will enjoy jogging in the parks while other city-dwellers will be running like mad just to make ends meet.
To ensure Bangkok is a liveable city, it must first be an affordable city.
Obviously, the reason the BMA has a tiny expense budget is because of its tiny revenue. Moreover, it cannot even control its revenue. According to the BMA's budget documents, the revenue budget is 79 billion baht -- 15 billion baht from its own revenue collection and 64 billion from central-government income transfers.
To elaborate, the BMA, like any local government, gets a (small) part of VAT collection from the central government. Last year, VAT revenue transfers to the BMA came to 28.6 billion baht, which, by the way, is the largest source of income for the BMA. Before I examined BMA's budget, I thought that it would get a substantial amount of revenue from land tax, as land prices in Bangkok are astronomically high. But no. In fiscal year 2021, the BMA collected only 1.8 billion baht in land taxes.
BMA's income budget is, frankly, anaemic. It is not only inadequate for the city's needs, but no less than 81% of such income relies on central government transfers.
I would like to propose three new sources of income for the BMA without pleading for more money from the central government.
The first source is Development Rights (fees). According to Department of Treasury appraisal values, the most expensive land in Bangkok is in Silom with a valuation of 1 million baht per square wah (though the actual transactional value of land in Silom is said to be as high as 3.3 million baht per square wah), while the cheapest land is agricultural land in Bang Khunthian with a valuation of 500 baht per square wah. Who should benefit from this vast price difference? Lucky Silom landowners? And how does the BMA benefit by providing all necessary infrastructure for Silom to become and remain a financial centre?
My suggestion is not to mess with existing land tax laws. My suggestion is for BMA to introduce development fees for large-scale commercial development projects. For example, a 400,000-baht-per-square-wah development fee would be imposed for large commercial projects on Silom Road. In this case, the project developer would still pay 1 million baht per square wah. But the landowner would get 600,000 baht and the BMA would get 400,000 baht for making such land worthy of high-priced development projects. The concept of Development Rights has been around since I worked at the Thailand Development Research Institute (TDRI) some 30 years ago. It is meant to normalise uneven development benefits among richer and poorer parts of town. People in richer parts have to purchase (or bid) for development rights from people in poorer parts. Under this concept, those in slum areas will benefit from the construction of five-star hotels on the other side of town.
The second new source of income is real estate development. While almost all mass-transit systems in the world run at a loss, the Hong Kong Mass Rail Transit (HKMRT) makes money. Last year, and despite Covid, HKMRT generated US$1.22 billion of profit. Why? Because half its income comes from real estate. The HKMRT manages 47 real estate developments over its 93 stations and depots.
The BMA should learn from Hong Kong and turn BTS into a money-making machine. One possible project is to enable real estate development along the BTS link to Don Mueang airport. If successful, Mr Chadchart could not only lower BTS ticket fares, he might also be able to offer free BTS rides.
The third source of income would be borrowing. Surely the governor doesn't want to wait five to 10 years for income streams from Development Rights and real estate developments to arrive. Instead, I suggest issuing debt instruments backed by those expected income streams -- so-called securitisation.
Welcome, governor, and may all your dreams come true.
Chartchai Parasuk, PhD, is a freelance economist.
Chartchai Parasuk, PhD, is a freelance economist.