It has become the pattern that every time the Ministry of Finance floats the idea of raising value-added tax (VAT) or making any changes at all, critics come out to bombard the plan, sending officials running for cover.
The latest example came on Sunday when the Ministry of Finance's spokesman Pornchai Theeravej, also head of the ministry's Fiscal Policy Office, had to come out to deny reports of a forthcoming VAT hike from the current 7% to 10% in a bid to boost the retirement pot for the elderly.
The reports were not groundless, though, as they followed comments made by Worawan Plikhamin, deputy secretary-general of the Office of the National Economic and Social Development Council (NESDC), to a seminar on Friday about exactly such a plan to introduce a two-tier value-added tax (VAT) rate to finance welfare for elders.
Indeed, the finance ministry has wanted to collect VAT at a 10% rate instead of 7% for several years. All attempts failed because no government or politicians dared to do it.
Of course, the idea of hiking VAT comes at a bad time as the Thai economy is just rebounding from Covid, and economies both locally and globally are not in good health.
But it is about time that critics and society gave an ear to the NESDC and Ministry of Finance.
The recent general election shows voters tend to cast votes for parties that promise handsome welfare payments such as a universal retirement pension and better monthly allowances for the disabled to broader economic stimulus plans. These handouts will require a lot of money. For instance, the one-time 10,000-baht digital wallets that the Pheu Thai-led government will launch early next year will cost over 560 billion baht, while a universal pension that pays the elderly allowances of 600-1,000 baht based on age will cost over 80 billion annually.
The question is, how can the government finance these pensions in a sustainable way?
Politicians often come up with rote answers such as cutting army spending and government official head counts and welfare. The question is whether the money from budget cuts like these can really amount to enough to fund long-term spending. In contrast, almost no politicians have dared to mention VAT which accounts for over 40% of total collected tax revenue.
According to a recent World Bank study, a rise in VAT from 7% to 10% would lift revenue by up to 1.6% of GDP, with a bigger impact on high-income groups. To cushion the effect on low-income groups, tax experts have proposed measures such as tax rebates or a two-tier system. The World Bank, early this year, proposed that the Thai government could raise the rate, which would broaden the personal income tax base as well as remove exemptions and expand the collection of property tax.
The onus will fall on the Srettha government to come up with smart, creative policies to raise revenue without causing unacceptable economic impacts. Without money and sound financial management, welfare promises made during election campaigns may prove as empty as people's wallets for the foreseeable future.