World Bank report harps on need for Thai govt to raise more revenue

The report, “Thailand Public Revenue and Spending Assessment - Promoting an Inclusive and Sustainable Future”, outlines the reforms required to alleviate rising fiscal pressure.

The report looks into the challenges associated with an ageing population, which would mean higher outlays on public pensions and healthcare, while limiting economic growth.

Fabrizio Zarcone, World Bank country manager for Thailand, said at the launch of the report that by improving the efficiency of public spending, increasing revenue, and implementing policies to support the most vulnerable and respond to climate-related challenges, Thailand could achieve a more equitable and resilient economy.

He pointed out that the new government would face numerous challenges. However, he believed that the country's new leader could find strategic solutions, and the World Bank was ready to assist Thailand undertake fiscal reforms to achieve those goals.

Increased public spending

The report highlights the need for increased public spending on social protection, education, and climate adaptation.

Thailand's “Old Age Allowance”, as well as other social assistance payments, are low by global standards. Pre-primary and secondary education spending per student lags behind international benchmarks.

Increased investment in these areas has the potential to increase equity and human capital, the World Bank report noted.

Ronald Mustase, World Bank practice leader for human development, added that human capital investment has been shown to be more efficient and equitable in fostering long-term growth.

He noted that over the last few decades, the quality of Thailand's human capital has been lower than that of its regional and income peers.Therefore, in order to improve the nation's human capital, Thailand needed to reform its healthcare system, with a focus on non-communicable diseases, medical technology, and ageing, which would reduce the need for more expensive treatments later.

Focus on education

He advised the country to pursue education financing and delivery reforms in order to address learning quality and inequity.

Consolidating small schools and increasing per-student spending at the primary and secondary levels could lead to improvements in learning outcomes, he said, adding that reforming social assistance programmes for the most vulnerable sections is essential.

Besides, adding attention to service delivery reform, pensions, and financing to meet the demands of an ageing society will reduce fragmentation of social assistance and social insurance systems.

The World Bank report also pointed out that significant investments are also needed in climate change adaptation to reduce the costs of increasingly frequent and severe flooding, storms, and coastal erosion.

While public debt had shot up from the response to the pandemic, overall fiscal risks are still manageable.

According to the report, the government can afford to increase spending on public infrastructure and other priority areas in the near term while consolidating spending elsewhere.

Need for tax reforms

In the longer term, meeting these spending needs while maintaining a sustainable public debt position will necessitate an increase in public revenues. The report suggests a series of progressive tax reforms that could increase revenue by 3.5% of gross domestic product.

These include raising the value-added tax rate, currently at 7%, and eliminating exemptions, broadening the personal income tax base and streamlining allowances and deductions, and expanding property tax collection.

These reforms, if implemented gradually over the rest of this decade, would promote equity while providing the revenue required to fund increased spending. The negative effects on the poor could be mitigated by social assistance reforms while still achieving significant net revenue gains, the World Bank said.

Thailand 'on the right track'

In his opening remarks, Thailand's Finance Minister Arkhom Termpittayapaisith said that the report was a useful guideline for Thailand to continue its healthy growth while improving people's quality of living without burdening the national budget.

He remains convinced that Thailand's economy is expanding positively, owing to faster-than-expected growth in the tourism sector in the first three months of this year and the government's strong revenue collection.

Arkhom also said that proactive and prudent fiscal and monetary policies had assisted with the country’s economic recovery and that the new government should maintain these fiscal and monetary practices.

Kim Alan Edwards, senior economist and programme leader at the World Bank, believes that increasing revenue collection will be necessary and that there is also room to improve the efficiency of government spending on social assistance, education, and health.

"Better targeting of social assistance benefits, for example, would reduce the overall fiscal cost of increasing benefit amounts while ensuring poverty reduction gains," he said.