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The incoming government, whatever its political complexion, will face an immediate obstacle as it is unlikely to be able to generate sufficient revenue this fiscal year to support its populist policies, according to leading economists.
They share the view that even if the new administration were to undertake tax restructuring, it might not create enough income to fund ambitious spending plans in the near term.
The current fiscal year ends on September 30.
In any case, it is regarded as impossible for the government to opt for an early increase in value-added tax (VAT), given the rising cost of living.
Moreover, if the new government were to borrow more from international financial organisations, the move would lead to higher public debt and have a domino effect on the Kingdom's economy in the long run, particularly in terms of an increased budget deficit and higher interest rates.
Sethaput Suthiwart-narueput, a leading independent economist, said two key methods enabling the government to achieve additional funding would be to focus on overseas loans and the squeezing of its investment budget.
However, neither approach would have a positive impact on the economy in the long term, as the country would be landed with a higher public debt burden and budget deficit, among other negative effects.
He stressed that increases in VAT, excise duty and inheritance tax would not generate sufficient income to pay for populist projects.
"The government investment budget is the most essential expenditure, as [it provides for] the Kingdom's long-term economic fundamentals," Sethaput said, adding that the government should not ignore budgetary-prudence principles, otherwise the country would end up in a state of financial collapse like Greece.
In addition, there is a limit under constitutional law on how much the government can transfer its investment budget for other expenditure, as well as on its borrowing from overseas, he said.
"We fear populist policies will cause Thailand to be saddled with a further debt burden, lower economic growth, and reduced productivity and competitiveness. The parties are not looking ahead to the country's long-term sustainable development," Sethaput said, pointing to the huge debt burden still facing the Kingdom.
Nitinai Sirismatthakarn, former director of the Macro Fiscal Policy Analysis Section of the Finance Ministry, said the government would not be able to collect more tax, either directly and indirectly.
At present, revenue from tax collection accounts for 90 per cent of the Kingdom's income, with the remainder coming from income generated by state enterprises and the Treasury Department.
Thailand will also have lower collection from import tariffs due to its various free-trade agreements, most notably the Asean Economic Community, besides which excise duty is already levied on a wide range of goods, including oil, cigarettes, automobiles, motorcycles, liquor and a variety of other drinks, he said.
"Not only has the [current] government thought of ways to increase revenue from excise collection, but the ideas have been in focus since the time of King Rama IV, and there are no more options," he added.
As regards turning to foreign loans, the next administration must take into account Articles 21 and 22 of the Public Debt Management Act of 2005, which impose restrictions on borrowing by the government.
Article 21 sets out that in the event of the Finance Ministry seeking loans to finance the budget when expenditure exceeds revenue, the aggregate amount shall not exceed 20 per cent of the existing annual budget and 80 per cent of budget appropriation as set out for the repayment of principal.
Article 22 restricts the raising of loans for economic and social development, with the ministry having to borrow in foreign currency and the aggregate amount not exceeding 10 per cent of the annual budget.
Considering the current fiscal year's estimated revenue of Bt1.9 trillion and projected deficit of Bt420 billion, the government would not have enough additional funds to support populist projects from borrowing or restructuring its expenditure, Nitinai said.
"The new government would have to wait for 2012 budget approval to rearrange its new spending to match income. They can do nothing this fiscal year," he added.
Vorapol Socatiyanurak, an economist at the National Institute of Development Administration, said the government could instead provide social-welfare programmes that would not cause public debt to rise.
In order to reduce budgetary constraints, the government needs to target its measures at specific groups, he said. For example, the current subsidy provided on the use of electricity also benefits a large number of people who cannot be considered poor.
Moreover, removal of the diesel subsidy would result in more tax income, which the government could then allocate to improving mass transit or the overall rail system, thus reducing the cost of both travel and logistics.
The government has to ensure that infrastructure investment projects will generate future income, he said, adding that private firms should play a greater role in financing such projects, as the government could not find adequate revenue to do so.
The government must also be very careful about new borrowings, as the country's public debt is about 41 per cent of gross domestic product. This may not very high at the moment but it could increase in later years, he warned.
Vorapol cited the example of Greece, which until a decade ago did not have a particularly high level of public debt, but which was now mired in a public-debt crisis.
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