Populism in Thailand is like old whisky in a new bottle, with a coalition government poised to implement populist policies to live up to pledges made during the election campaign.
While there is a need to address the plight of the rural poor and the have-nots, the whiff of populism has a conundrum, whereby mismanagement and over-the-top populist policies could potentially be a recipe for damage to the country's fiscal budget and economic structure.
More than 100 billion baht a year is needed to fund welfare schemes vowed by the new government, according to Fiscal Policy Office estimates.
Raising the daily minimum wage was among the flagship election campaign promises of the Palang Pracharath Party (PPRP) and other parties in the new coalition government.
While it may be music to the ears of labourers and low-income earners, it raises an alarm among businesses because higher wages will compound a series of struggles for entrepreneurs amid lukewarm economic growth.
"One rate for the entire country is improper," said Kalin Sarasin, chairman of the Thai Chamber of Commerce. "A sharp rise will deliver a serious blow to the country's overall economy. Even worse, if manufacturers decide to relocate their factories [to stave off higher costs from a wage rise], local employees will lose their jobs."
NEGATIVE REPERCUSSIONS
As a tactic to garner support from the masses, the PPRP pledged that the daily minimum wage would increase by roughly 30% to 400-425 baht.
But such a steep wage hike is a key concern among business operators nationwide, as the last minimum wage hike still haunts entrepreneurs, particularly those involved with small and medium-sized enterprises (SMEs).
The last nationwide increase was in January 2013, when a base rate of 300 baht was adopted by the Yingluck Shinawatra government.
The current daily minimum wage has seven rates: 308, 310, 315, 318, 320, 325 and 330 baht.
While the new government looks set to implement the wage hike, the Federation of Thai Industries (FTI) predicts that ministers in charge of economic affairs would feel reluctant to adopt the policy because many companies would suffer from the sharp hike.
"Negative momentum would come from rising inflation, making prices of consumer goods and services more expensive while the overall cost of living in the country will increase significantly," said FTI vice-chairman Kriengkrai Thiennukul.
A sharp rise in the minimum wage will force factories and companies to lay off their employees and shut down their operations, Mr Kriengkrai said.
"Small and medium-sized enterprises will suffer the most from the labour campaign," he said.
The FTI also gave voice to business operators' worries about the minimum wage hike leading to increased operating costs at labour-intensive companies and factories.
The previous hike in the daily minimum wage six years ago resulted in a huge outcry and suffering for businesses.
"Many factories in leatherwork, garments and textiles had to move their operations to neighbouring countries, namely Vietnam and Cambodia," said Sompol Tanadumrongsak, managing director of Fortune Parts Industry. "As far as I know, Taiwanese companies changed their plans and localised their operations in Vietnam to avoid the wage hike in Thailand."
The Yingluck government sought to increase the daily minimum wage from 159-221 baht in 2011 (depending on region and province) to 300 baht nationwide.
Wages rose to 222-300 baht in 2012, then reached 300 baht overall.
"In the auto parts sector, many companies have to invest more in robotics and automation at their manufacturing lines in a bid to reduce their labour costs," said Mr Sompol, who is also vice-president of the Thai Auto Parts Manufacturers Association.
As one of the witnesses to the negative repercussions of the last wage hike, Mr Sompol said a new wage hike would certainly have an impact on the overall industrial sector.
"No one can adjust to handle this policy," he said. "Our association has roughly 3,000 auto parts companies who are SMEs and rely on labour costs [not rising]."
Auto parts SMEs are also in the second and third tiers of the country's auto supply chain and are labour-intensive companies, unlike the first-tier manufacturers that can invest in robotics and automation systems to replace human workers, Mr Sompol said.
Foreign investors may look to localise their operations in other Asean countries that offer lower labour costs, with Vietnam and Indonesia coming to mind, he said.
TAX CONUNDRUM
The PPRP campaign promise to cut personal income tax by 10 percentage points across brackets would bring local taxes on a par with those in Malaysia and Singapore, but the new government should be wary of fiscal discipline, said Athiphat Muthitacharoen, a lecturer in economics at Chulalongkorn University.
To ward off harm to fiscal stability, the government should scrap or lower some tax allowances considered to be inappropriate for the circumstances so that tax liabilities increase, Mr Athiphat said.
The new government must decide whether a tax perk from long-term equity fund (LTF) investment, expiring this year, should be renewed, he said.
Since tax deductions from the tax-saving mutual fund investment started a decade ago to encourage savings and investment in Thailand's stock market, the government should consider whether the privilege is still necessary.
On the other hand, some may argue that LTF investment is a tool to enhance long-term savings among Thais.
Apart from cutting some tax allowances to offset the planned tax reduction, seeking new sources of tax income is another option, Mr Athiphat said.
The government should push the e-business tax, a levy on foreign-based online platform operators earning income in Thailand, and go beyond arm's-length principles by taxing multinational firms, particularly those operating on digital platforms, based on use, he said.
In Mr Athiphat's view, the law stipulating tax collection from companies with a physical presence in Thailand is obsolete because business can be done on digital platforms these days.
For example, Thailand can tax Facebook based on the share of its users in the country as a proportion of global users.
Mr Athipat's comments echoed those of Revenue Department head Ekniti Nitithanprapas, who has asked the government to seek measures, including reducing or calling off some tax allowances, to offset forgone tax revenue if populist campaign promises of lower taxes are realised.
A warning on achieving a balanced budget has also been voiced by Pisit Puapan, director of the Macroeconomic Policy Bureau at the Fiscal Policy Office.
According to Mr Pisit, the Finance Ministry is likely to delay the goal of a balanced budget if the new government strictly pursues populist campaign promises.
Thailand has run a budget deficit since fiscal 1999, except for in fiscal 2005 and 2006.
Kitipong Urapeepatanapong, chairman of Baker & McKenzie's Bangkok office, ruled out the possibility of a value-added tax (VAT) cut as promised by parties in the coalition, as fiscal stability could be ruined in the long run if a new or additional tax income source to make up for lost revenue is not set up.
The VAT rate, in fact, must be raised, he said, but no government dares do so. This is because a VAT increase could create a hostile attitude among consumers as a whole.
Although every one-percentage-point hike in VAT would boost state revenue by 70 billion baht, the increase would take a toll on people nationwide, especially those who are at the bottom end of the income range, Mr Kitipong said.
He agreed with reviewing personal income tax deductions and allowances by replacing deductions, the amounts for which are capped on each item, with the gross amount eligible for tax deductions to allow individual taxpayers to manage tax planning as is suitable to their situation.
The maximum amount eligible for tax deduction should be lowered from the existing 1.1 million baht to offset the forgone revenue from implementing election promises on personal income tax, Mr Kitipong said.
EV POLICY UP IN THE AIR
Elements of the PPRP-led coalition campaigned for a 100,000-baht discount to trade in fuel-based conventional cars for new electric vehicles (EV).
Details have yet to be officially announced regarding the specifications of old cars and the types of EVs.
Yossapong Laoonual, president of the Electric Vehicle Association of Thailand, said the discount would be a cash subsidy in an effort to put new EVs on local roads.
The government supports EV buyers with excise tax exemptions for three years (2020-22) to lower retail price tags. But Thailand is in the initial stage of EV manufacturing localisation, and many EVs are imported with customs duties, except those from China that are covered by the Asean-China Free Trade Area.
Mr Yossapong said the government must design a management plan for trading in used cars under EV policy because used cars are normally resold to the second-hand market.
"It seems to encourage Thai motorists to only buy new EVs, but the government has not thought about where the trade-in used cars will be sent," he said. "Once these cars are sold in the second-hand market, this policy will just raise the total car population."
A source in the automotive circle said the government is focusing on new EVs and the offered cash discount is similar to the one in a previous populist policy: the Yingluck government's tax rebate scheme for first-time car buyers of 50,000-100,000 baht.
"Trading in used cars for a 100,000-baht discount on a new EV will create new EV demand during the effective period," the source said. "After the scheme expires, EV sales will drop sharply, as happened for new-car sales during 2013-16."
