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Government must beware of ballooning budget deficits

The opposition Democrat Party has cautioned that the country's off-budget deficit could balloon in 2013 as the Yingluck government struggles to keep its populist policy pledges.

Last Wednesday, the government's overall state expenditure budget of Bt2.4 trillion for fiscal year 2013, which begins on October 1 this year, sailed through Parliament in its first reading.

Under the 2013 budget planning, the government's net income is estimated at Bt2.1 trillion, which will result in a deficit of Bt300 billion.

The 2013 fiscal spending plan includes Bt449.3 billion for investment, Bt1.9 trillion for regular expenses and Bt49.14 billion for the payment of loan principals.

The budget includes Bt30 billion set aside for the new phrase of the nationwide village fund, covering a total of 80,000 small, medium and large communities.

Prime Minister Yingluck Shinawatra said this new village fund is called the SML village and community development programme, aimed at providing credit access to the rural poor who want to develop small businesses.

A small village with a population of no more than 500 will be granted a credit facility of Bt300,000, while a medium-sized village with population of 501-1,000 will get a credit facility of Bt400,000. A large village with a population of more than 1,000 will get a credit facility of Bt500,000.

The nationwide village fund was initiated by the Thaksin Shinawatra government in the early 2000s with a total budget of over Bt77 billion or a credit facility of Bt1 million per village. Then, Thailand had a total of around 77,000 villages.

Yingluck said the government is now ready to transfer the additional budget of Bt30 billion to each of the 80,000 villages nationwide, once these villages have set up their own committees to take responsibility for use of the money.

The village fund programme was one of the original populist policies used by the previous Thaksin government to draw broad-based support from grassroots voters.

Besides this, the ruling Pheu Thai Party won the last general election on a pledge to cut the diesel oil tax, a measure which currently costs the government Bt9 billion per month or more than Bt40 billion since the start of this year.

The ruling party also won the poll with the rice subsidy scheme for farmers, to give them a price of Bt15,000 per tonne, but the government is expected to lose tens of billions of baht from this scheme. Such a likely loss will show up on the books of state-owned banks such as the Bank of Agriculture and Agricultural Cooperatives.

According to Kiat Sitti-amorn of the opposition Democrats, the government's rice scheme may lead to losses of as much as Bt50-60 billion off the state expenditure budget due to the high prices set by the government for rice.

The rising rice stock accumulated by the government has depressed export rice prices. In the end, middlemen will benefit the most from this scheme, not the farmers, as the scheme is now only 30 per cent completed.

Another populist policy that is hurting state coffers is the ruling party's corporate income tax cut from 30 per cent to 23 per cent. This has reduced state coffers by nearly Bt50 billion in tax revenue losses this year.

On the other hand, the government needs to set aside additional budgets for flood prevention and related schemes following last year's massive deluge. This resulted in across-the-board budget cuts for many other state units, with the likelihood that taxes will have to be raised soon.


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