Deputy Finance Minister Sommai Phasee yesterday conceded his ministry had limited tools to boost the economy, while shrugging off calls from the private sector for tax incentives to lift investment.

Speaking at a seminar hosted by Thansettakij newspaper, he said it was unlikely the government would cut the corporate income tax to stimulate spending, but he also gave assurances that the Finance Ministry would not increase the value-added tax (VAT) from 7 per cent to 10 per cent as widely speculated.

While saying, "There is no room to make a major tax cut," Sommai stated that the ministry was considering using tax and other incentives to stop the economic slow-down.

Sommai said public spending accounted for 19 per cent of gross domestic product (GDP) and that even though the government runs a fiscal deficit to boost growth, it actually could not do too much.

Any cut in income tax or consumption tax - VAT - will hurt government revenues, which is currently below expectations, he said, adding that there was the option of cutting the specific business tax to boost the real-estate sector. The current rate for specific business tax is 3.3 per cent.

Finance Ministry spokesman Somchai Sujjapongse said government revenues in March were 3.4 per cent, or Bt3.64 billion, short of expectations. And the revenues in the first six fiscal months to March were 0.3 per cent off target but 6.6 per cent higher than the same period last year.

The ministry considers the slow-down in domestic consumption the reason for the lower-than-expected income from VAT and corporate income tax. Excise tax revenues from vehicles and auto products also dropped. Total revenues in the first six months to March totalled Bt608.39 billion.

The private sector has called for the government to seek investment in the industrial, exports and property sectors with proper policies after signs of the economic slow-down became clearer.

At the seminar "Economic Direction the Country Should Go", representatives from the three sectors said they did not expect much from the current government, which has only one year to solve many problems. However, they urged the government to launch policies that would strengthen the country's structural foundation.

"If I were the government, I would spend the budget on developing the country's infrastructure," said Sawasdi Horrungruang, chairman of Hemaraj Land and Development.

He said the government should not suspend any mega-projects, because they would generate real investment in the country. "I don't understand. If the government does not have enough money, why doesn't it grant concessions to private companies?" he posed.

Private-sector investment will reduce the government's risk and burden. However, he said it must be operated under conditions that are fair to both the public and the concessionaires.

Sawasdi said he was worried more about multinational conglomerates rather than the unstable political situation. He suggested local companies form conglomerates with potential foreign-company partners to benefit from economies of scale.

Thai Frozen Foods Association president Poj Aramwattananont agreed with Sawasdi that standalone companies would face tough situations in the future.

As a representative of exporters, he said the government should curb the baht's strength, which was 18 per cent higher than at the beginning of last year.

"Although this government said it would not focus on exporters, it should recall it was the export sector that helped the country come out of the 1997 economic crisis," he said.

Last year, Thailand's GDP was about Bt8 trillion, half of which came from the export sector. He said the export sector could be divide into two parts: local-content industries like agro-products; and hard industries.

Local-content industries were worth about Bt1.5 trillion and hired about 20 million workers. However, there were only 1 million workers in heavy industries like electronic parts and metals.

"If local-content operators are not able to export their products, the vacancy rate of employment will be hiked," he said.

He said political turmoil would not have any effect on exports. "However, the government policy should head in one direction and create trust among the people," he said.

Anuphong Assavabhokhin, the third speaker and also CEO of Asian Property Development, said the property business usually grew at the same rate as the Kingdom's GDP.

"Some analysts have forecast that GDP will grow lower than 4 per cent this year. If that is true, it will be reflected in the growth of the property sector, too," he said.

He said operators had raised their marketing budgets from 7 per cent to 25 per cent. Hence, gross margins in this business will decrease dramatically from last year.

Small and medium-sized property companies are facing tougher measures from banks and financial institutions, he said.

However, he said the government should announce an echo-account law, to boost consumer confidence in purchasing accommodation.

In addition, it should register all property companies in Thailand, in order to help operators forecast business conditions more accurately.

It was earlier reported that Thailand could miss its revenue target of Bt1.42 trillion due to the economic slow-down.

Sommai said his ministry had ordered state-owned banks and specialised financial institutions, including the Government Savings Bank, the Government Housing Bank and the Bank for Agriculture and Agricultural Cooperatives, to maintain their target lending even though some of them had earlier told the ministry they might cut their lending targets, due to higher bad debt and the economic downturn.

New central-bank regulations aimed at commercial banks have also influenced lending policy, he noted. In 2005, the Bank of Thailand (BOT) introduced a new accounting standard known as Basel II as it realised that banks had recovered from the 1997 Asian crisis. But the new rules, coupled with economic deceleration, have forced banks to lend aggressively, he said.

Sommai said even though the BOT was likely to cut the key interest rate tomorrow, many investors were sceptical about its effectiveness in boosting growth.

Sommai also said the ministry had planned to revive the role of Secondary Mortgage (SMC), which was supposed to provide cheap mortgage loans. SMC however, so far has failed to do its job.

Industry Minister Kosit Panpiemras told the seminar Thailand's economy would recover in the third quarter.

He said the government had spent Bt400 billion in the last two months and would speed up spending next month.

The government has also told all public bodies to complete bidding for all projects in June, in an attempt to increase private-sector investment. Moreover, it plans to approve giant projects in Map Ta Phut soon.

"We'll try to end the economic slow-down as soon as possible. However, we will not use populist policies to solve economic problems like the former government did," he said.

Wichit Chaitrong

Chalida Ekvitthayavechnukul

The Nation