Gross wealth inequality restricts growth

Gross wealth inequality restricts growth

The government just resurrected the possibility of a land and property tax, apparently buoyed by the ease with which its inheritance tax was passed — 145-5 votes — with a 5% and 10% tax rate for offspring and others, respectively, on amounts over 100 million baht. However, the inheritance tax was watered down from a 50-million-baht allowance and a 10% flat rate. This followed aggressive lobbying by the country's economic and political elites.

Unless the government holds the line on the land and property tax, its effects may also be diminished by lobbying. However, the weakening of the inheritance tax means the country desperately needs the money from the land and property tax, as the Ministry of Finance admits. Even then, the bill at present will generate only 200 billion baht via a 0.1% tax on homes' appraised value, a 0.05% tax on agricultural land and 0.2% tax on commercial use, after allowances.

In the long term, this government realises the necessity of increasing the tax revenue base from 17% to 20% of GDP to fund infrastructure projects and address problems of inequality, such as the absolute poverty of over 18% which prevails in the Northeast according to the UNDP, together with an education system that causes one-third of Thai teenagers to be "functionally illiterate" — meaning unable to read newspapers. 

The main justification for weak taxes on Thailand's super rich is that they will see less incentive to keep their money in the country and invest, reducing the effect of "trickle down" economics. However, the super-rich already do not keep all their money in Thailand, except for a significant portion in land and property speculation, which further drives up inequity as the poor can no longer afford to buy or even rent land. What tycoons do is buy luxury goods not made in Thailand, such as yachts, art work, or fast cars — often many of them. In the past few years the world has witnessed the sale of the most expensive yacht (20 billion baht), production cars (135 million baht) and painting (10 billion baht).

Furthermore, trickle down economics is a myth, no longer supported by mainstream economists on any side of the political spectrum. Instead, wealth concentrates with the super-rich due to a higher marginal propensity to save — which in turn supports the plutocracy's hold over government policy.

Globally, wealth inequality is rising. Credit Suisse suggests the top 1% of the world now owns nearly 50% of the world's wealth. Further, the accelerating disparity could start a recession, as wealth inequality correlates with structural problems such as differences between demand and supply of skillsets, income disparity, regressive taxation, discrimination by gender or ethnicity, and unequal access to health and education, all of which are chronic and severe problems in Thailand according to the UNDP and the World Bank.

Inequity via these social effects in turn causes socio-political instability — also a protracted problem for Thailand — because social cohesion requires trust and social capital such as mutual sympathy and goodwill, all of which are presently lacking. This can be seen in the Global Peace Index, where Thailand has fallen from 115th in 2011 to 127th in 2014.

Just how bad is wealth inequality? A 2012 National and Economic Social Development Board study found 0.1% of Thais are so rich they own at least 46.5% of the country's total assets.

This breaks down into the top quintile of Thais possessing 326 times more land than the poor — approximately 80% of all land obtainable via ownership documents — as the poorest quintile own only 0.3% of land. And Thailand's rich are only getting richer. The Forbes Thailand's Top 50 Richest List now shows the country's moguls own more than 3,355 trillion baht — meaning the richest 0.0007% own approximately 25% of Thailand's total GDP.

The 2014 UNDP National Human Development Report, meanwhile, points out that there are still over eight million Thais who live in absolute poverty — below the minimal survival level. This includes hundreds of thousands of children who do not even have the food necessary to avoid malnutrition, stunting and wasting, and, compounded by a failed education system, high levels of intellectual disability. The poor quality of labour that results is one reason why companies like Samsung are moving production to Vietnam.

The economy is, therefore, suffering. According to the World Bank's 2015 Economic Monitor, the recommendations of which focus on improving the quality of education, 2012 to 2014 exports grew by an average of just 1% annually. GDP growth in 2014 was only 0.7% with forecasts for 2015 being at most 3.5%, meaning Thailand's performance over the past two years has dropped behind every other Asean economy.

This country does not just need a more progressive taxation system. It must also close tax loopholes to prevent tycoons from shifting funds to offshore accounts. Globally, this is a severe problem, and HSBC just paid 1.4 billion baht to Swiss regulators for allowing its accounts to be used for money laundering and tax evasion.

Noted economist Thomas Piketty has suggested the concentration of wealth occurring globally is simply due to the rate of return on capital being greater than the actual rate of economic growth. Picketty also argues that increasing wealth disparity creates the conditions for the collapse of democracy, and the majority of economists now agree that both extreme wealth equality and inequality restrict growth.

If Thailand's millionaires continue to lobby against, evade, and dodge taxation, the country risks a downwards spiral of unequal growth, underdeveloped domestic markets, and worsening fundamental human rights until social cohesion finally snaps.

The survival of their businesses then would be at risk, as implied by the civil disobedience which overtook Bangkok and some provinces in 2010-2014. Thus, the super-rich need to give back to society through the taxation system as well as philanthropy and so permit the economy to grow, if necessary by a capital gains tax.

John Draper is a Khon Kaen-based analyst. Peerasit Kamnuansilpa, Phd, is founder and former dean of the College of Local Administration, Khon Kaen University. 

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