There could be a four-win solution to the 10,000-baht cash handout scheme.
This article will displease many people, including myself. As an economist, I have economic theories and principles to adhere to, but at the same time I have to be practical in this imperfect world. It is an indisputable fact that, if not using excess liquidity, the scheme will take from the economy no less than it gives. There is no doubt that the 10,000-baht cash handout scheme, costing 3% of GDP, will boost economic growth when launched. The World Bank estimates that 1% more would be added to GDP growth in 2024, but I, being a generous person, estimate the GDP growth benefit to be 2%. My calculation is from this "MV=PQ" equation. Once putting numbers in, the equation becomes "(0.5*0.7)/17.5=0.02" or, in percentage form, 2%.
Yet the issue is not 1% or 2% GDP gain at the disbursement stage. The issue is when the 500-billion-baht borrowing is repaid as a reversal of a money injection could take as much as 3% of GDP growth out of the economy. No need for a PhD in economics to explain this one. A 10-year-old kid would tell you that putting in 3 baht and getting back 1-2 baht is not smart. The scheme will be beneficial only if it can generate more than 3% GDP growth.
But the country has to move on and cannot allow itself to get stuck with this 10,000-baht cash handout debate. The scheme has been promised and it will have to be carried out, or it could mean the disintegration of the government.
Thailand is facing several severe economic risks. It is most imperative that the government, Bank of Thailand, and Office of National Social and Development Council focus their energy to eliminate or lessen those risks, not fumble over one single policy.
The consistently declining GDP growth is a red flag of many fatal economic risks to come. The solution proposed in this article does not represent an optimum theoretical solution. Therefore, there would be ample room for criticism. But in my opinion, it might be the best alternative under real-world conditions. If I may talk economics, this is not a "pareto optimal" solution as it is formulated under "the second-best theory".
As described in the title, this a four-win solution. There would be four winners under my proposal -- the Pheu Thai Party, ie, the government, the Move Forward Party and other critics, low-income people, and, most importantly, the economy as a whole.
The proposal is formulated based on four key principles: (1) strict adherence to fiscal discipline, (2) repayments would be finished within the present government term; (3) repayments would come entirely from fiscal budgets; and (4) most repayments would be burdened by the rich. Let me explain the mechanism of the proposal.
The government would go ahead with the 10,000-baht cash handout to 50 million Thais as announced by the prime minister on Nov 10. The government would finance the scheme by borrowing, not from a domestic source but from a foreign one. The foreign borrowing would be repaid equally in four installments over the course of four years. The method of raising money for repayments will be given in a borrowing act, preferably in the Annual Budget Expenditure Act of 2024.
Under the borrowing act, the government will issue four tranches of dollar sovereign bonds. Each tranche will be issued with an equal amount of US$3.6 billion (about 125 billion baht). The first tranche will carry one-year (or less) maturity, the second tranche will carry two-year maturity, the third tranche will carry three-year maturity, and the final tranche will carry four-year maturity.
The method of funding each annual repayment of 125 billion baht would come from fiscal budgets. The source of repayment, including the amount, will be clearly specified. They are: (1) 9,615 million baht cut from the Ministry of Defence budget; (2) 5,771 million baht cut from central budget; (3) a 19,230-million-baht budget cut from unnecessary projects; (4) 2,500 million baht from more contributions from state enterprises; (5) 11,538 million baht from wealth tax; (6) 28,846 million baht from land taxes; (7) 17,692 million baht from taxes on large corporates; (8) 962 million baht in benefit reductions for BOI-promoted companies; (9) 19,231 million baht from increased tax revenue from collection improvement; and (10) 9,615 million baht from a new lottery scheme.
I am sorry for the long and complicated list. The list is the exact funding list that the Move Forward Party (MFP) proposed to raise 650 billion baht annually to finance their welfare scheme during the election campaign. Of course, the amount is divided by 5.2 as the government needs only 125 billion baht to finance the cash handout scheme annually. The MFP might argue that their financing proposal is to find money for welfare policy which is not meant for well to do citizens. But how could the MFP be sure that recipients of a monthly payment of 3,000 baht do not fall in the hands of aged multi-billionaires?
To avoid exchange-rate complications and impacts on the exchange market, dollar borrowing proceeds would be sold to the Bank of Thailand at a fixed rate, say 35 baht to the dollar. The government would then buy a Forward Exchange Contract from the Bank of Thailand to cover the entire amount at the rate of 35 baht to the dollar. Therefore, annual repayments would be fixed at 125 billion baht. A forward contract could also be purchased for interest payments.
Pheu Thai wins as it can fulfill a key campaign promise and boost GDP growth further by 1-2% in 2024. Moreover, since financing can be immediately acquired from abroad, the disbursement of cash can be expedited as early as Jan 1 2024.
The MFP wins as it can achieve fiscal budget restructuring, paving the way for future welfare programme financing. Difficult tax laws such as wealth tax, land tax, and large corporate tax would be in place. Most importantly, about half of the financing of the 125 billion baht annual repayment would come from a "tax-on-the-rich" package.
Low-income people win as they receive the much needed 10,000-baht cash handout. According to the Bank of Thailand's deposit by size data, 88.8% of 127 million deposit accounts have an average of 3,923 baht in each account. Simply put, 88.8% of Thais qualify as low-income as individual savings are not enough even to sustain a month of living expenses. This 10,000-baht cash handout would be a gift from heaven to them. Do not forget that the gift is paid for by the rich!
Last but not least, the economy wins (somewhat). By borrowing from abroad to the tune of $14.4 billion, a fresh 500 billion baht of cash would be injected into our desperate liquidity market. Short-term liquidity is better than no new liquidity. Maybe the government's "jump start" theory might become a reality. My proposal does have flaws. Those with better ideas are most welcome to propose counter proposals.
Chartchai Parasuk, PhD, is a freelance economist.