Economists have advised the government to exercise caution when spending because the economic slowdown and high inflation may affect tax revenue and delay budget disbursement in the next fiscal year.

The government should therefore focus on efficient spending to ensure that the money is utilised wisely, said Somchai Jitsuchon, research director of the Thailand Development Research Institute, an independent think-thank.

Some analysts speculate that the government will not be able to balance the 2007 budget with corporate earnings likely to decline.

The government plans to spend Bt1.476 trillion in the next fiscal year from October, up from Bt1.36 trillion the current fiscal year, a rise of 8.53 per cent.

However, Caretaker Finance Minister Thanong Bidaya earlier admitted that the government was not in a position to disburse the budget for the next fiscal year on time because the House had yet to be convened to approve it.

Somchai said he thought the budget for the next fiscal year would be a balanced one because a number of very expensive public-works projects had been delayed.

He predicted that if economic growth was 4-5 per cent in 2007 and inflation 5-6 per cent the government should have no problem.

He said the negative factor affecting the economy was the crude-oil price and if this rose to US$80 a barrel in Dubai the impact would be severe and economic growth less than 4 per cent. However, Somchai added that there was little chance that growth would be below 4 per cent as exports were still expanding and he did not think crude oil would hit $80.

Oil is fluctuating around $70 because of speculation and investor panic rather than actual supply and demand in international markets, he said, and this psychological factor would not sustain the surge.

He suggested the government use the market price to bring about energy saving with high electricity charges during peak hours.

Teerana Bhongmakapat, Economics lecturer at Chulalong-korn University took a more negative view, predicting that economic growth might well drop below 4 per cent next year, down from 4-4.5 per cent this year, which would have a severe impact on the private sector, thus making a dent in tax revenue and threatening a budget deficit.

He did not want to see the government increase public spending because that would fuel already escalating inflation.

Headline inflation in April was 6 per cent year on year, he said, and the full year's inflation rate could be 5 per cent, rising to 5-6 per cent in 2007, burdening consumers with both rising prices and rising taxes given a 7-per-cent value-added tax.

"The government should prepare for a sharp economic slowdown and higher inflation. It as well as the private sector should be extremely cautious about spending," Teerana warned.

It would be wise to save for a highly uncertain future, he said, predicting that crude oil would remain at $70 a barrel and could bring down the global economy.

He also said the Thaksin government had spent too much in boosting the economy in the past five years, causing the current disruption in government cash flow with the administration running out of treasury reserves.

He suggested the government prioritise spending and said that if it mismanaged economic policy further, conditions would worsen.

Aat Pisanwanich, economist at the University of the Thai Chamber of Commerce, was concerned about the impact of rising interest rates and fuel prices on corporate performance.

"I would say that small and medium-sized firms are now finished," Aat said, suggesting they revise their spending and hire finance and marketing advisers to tide them over.

A fall in corporate earnings will lead to a deficit in the 2007 budget, he said.

Finance Ministry spokesman Somchai Sujjapongse, however, gave assurances that the government would balance the budget this and next years, noting that last year's corporate earnings had been higher than the previous year's and tax on them would be paid this year. He acknowledged they would go down this year but said that would not cause a shortfall in government revenue for fiscal 2007 as government budget growth was only about 8 per cent, which could be met by tax returns.

He conceded that the rise in corporate earnings had been partly caused by rising prices as well as rising spending.

Value-added tax in March rose to 10.9 per cent year on year to Bt34.29 billion, he said, exceeding target by only 0.6 per cent, while corporate income tax rose by 26.3 per cent year on year to Bt13.44 billion, or 24.2 per cent higher than targeted, and personal income tax increased 9.6 per cent year on year to Bt23.28 billion, a marginal 0.3 per cent over target.

The Revenue Department, which collects income tax and value-added tax, largely contributed to the government's rising revenue, he said, which was 4.2 per cent over target, whereas the Excise Department and Customs Department were 9.8 per cent and 27.6 per cent under target respectively.

As consumers were careful about spending on durable goods, which the spokesman put down to confidence in the economic outlook, excise from cars and motorcycles were, he said, under target by 8.7 per cent and 17.5 per cent respectively, while excise on electrical home appliances in March exceeded target by 5.8 per cent, though it had fallen 2.7 per cent short from October 2005 to March 2006.

Decelerating imports and the impact of tariff cuts written into free-trade agreements slashed Customs Department takings, some analysts observed, which would lead to lower private investment this year and next.

Caretaker Deputy Finance Minister Varathep Rattanakorn said the ministry would allow local governments to draw budget subsidies every three months instead of every six, which would lessen government cash-flow shortfall.

The government has earmarked Bt6.88 billion for local government subsidies in fiscal 2007, up from Bt6.18 billion this year, he said.

Wichit Chaitrong

The Nation