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Published on November 9, 2007

We can hardly see any differences in the policy platforms of the political parties. Virtually all of them have dished out promises to spend more. Unfortunately, none of them have explained where they are going to get the money.

Intentionally or unintentionally, all the parties are embracing the concept of a welfare state. They believe in an active government handling the country's economic and social problems. The proportion of government spending per gross domestic product, now standing at around 20 per cent, is going to increase. The parties might not believe that money can solve all economic and social ills, but they hope at least to get the votes in exchange for their promises.

The Democrat Party, for instance, has promised mandatory free education for 12 years, not to mention free medicare, more financial benefits for retirees, water projects, and debt restructuring for the poor. It used to sharply criticise the populist economic policies of the former Thai Rak Thai government. But political realities have forced it to take a big bite of economic populism too, because the stakes in this election are so high.

Samak Sundaravej's People Power Party, which represents the remnants of the Thai Rak Thai Party, can claim to be the rightful heir to economic populism, which was introduced in 2001 and implemented substantially between 2002 and 2004. After that period, the Thai Rak Thai government trimmed its populist spending due to budget constraints. Besides, a chunk of the populist spending also went through off the budget's balance sheets, via the books of state-controlled banks.

The PPP still banks on the distinct features of economic populism such as debt forgiveness. Samak also promises to invest in mass transit mega-projects, and says commuters will be charged Bt15 each for whole routes - despite the fact the minimum cost for a fare is around Bt18.

Prachai Leophairatana of the Matchima Thipataya Party has also promised to turn Thailand into a welfare state, with big-ticket mega-projects. Where is the money going to come from? No problem, he says, he will skim it from the Bank of Thailand's huge foreign reserves, while the Finance Ministry will issue bonds for the reserves.

Instead of raising taxes or finding additional revenue to finance this proposed spending, all the parties have vowed to do the opposite: they have promised to cut taxes to stimulate the economy. Corporate income taxes will be slashed, while individual income taxes will be subject to more reductions.

The Value Added Tax, originally set at 10 per cent, has been kept at 7 per cent to stimulate the economy. Since its introduction no politician has dared go near this sensitive issue for fear of losing popularity. But VAT should be raised to 10 per cent as the first order of the day in order to strengthen the fiscal programme. Any excess consumption such as mobile phone usage should be taxed to raise extra revenue.

By refusing to raise taxes, politicians have already committed to populism. But by going forward this way, the fiscal burden will become even greater. Thailand has been running a deficit for two years, each equivalent to almost 2 per cent of GDP. Most politicians take the complacent view we still have room to spend money in the future because the public debt is pretty low at 35 per cent of the GDP. They say there is room to bring it up to 50 per cent of the GDP without hurting the fiscal discipline.

This is a dangerous way of thinking. Once we are hooked on populist spending, we can't stop. And the amount spent is going to become even greater in the future.

Fiscal prudence is what Thailand needs in to assure economic stability. When Thailand faced the 1997 financial crisis, it was in a position to tackle the problem because the government's fiscal position was strong. The private sector went bust, but the public sector stepped in to bail out the country. Another crisis will certainly come at some point - and we will definitely need to be in a strong fiscal position to pay out the liabilities.

But never mind the populist platforms during this campaign season. For most voters are paying more attention to personalities rather than issues. After the political crisis that has gripped the country for the past two years, everybody wants things to return to normal through the election. If the Democrats fail to make a strong showing, Banharn Silapa-archa of the Chat Thai Party might spring a surprise by taking the lion's share.

Thanong Khanthong

The Nation