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Thailand Public Finance
By the mid-1980s, government revenues averaged around 14
percent of GDP and consumption averaged around 13 percent,
leaving a public savings net of interest payments of 1 percent of
GDP. This was low compared with an average savings of 7 percent
for the lower middle-income countries and 10 percent for the
upper middle-income countries.
The financing of public expenditures caused a major imbalance
because of high deficit and low public savings. Although not a
new problem, increases in public expenditure needed to be matched
by increases in revenues. Efforts were made to tackle the
problem, and the public capital expenditures annual growth rate
had dropped from 64.7 percent in 1980 to 8.5 percent in 1982 and
7.4 percent by the mid-1980s. The problem remained serious,
however, because of political unwillingness to raise public
revenue to the required level. In fact, the central government
managed to finance only its public current expenditures with its
revenues. Almost all capital expenditures, which averaged around
3.5 percent of GDP by the mid-1980s, were financed with borrowed
funds, and often even some of the current expenditures had been
financed with borrowed funds, thus increasing the debt-servicing
burden.
Total revenue averaged around 13 percent of GDP in the 1970s
and remained at the same level in the mid-1980s. In view of the
disappointing revenue level, a new tax package was instituted in
1984-85 to raise revenues, including an increase in the tax rates
on interest earnings from 10 percent to 12.5 percent, a reduction
in the standard deduction for self-employed persons, the
introduction of an estate tax, the abolition of preferential
rates for companies listed on the stock exchange, the abolition
of tax exemptions for selected state enterprises, streamlined
exemptions and deductions for business taxes, and other measures.
The resulting gains in revenue were, however, partially offset by
measures to simplify the personal and corporate tax system. No
effort had been made to reduce legal exemptions and illegal
evasions. The net revenue effect of the package was therefore
negligible.
Some experts concluded that a broader tax base, less
complicated tax structure, and lower tax rates needed to be
considered in the tax reform. Also, contributions and taxes paid
by the state-owned enterprises should be increased because they
had dropped from 41 percent of profit in the late 1970s to only
23 percent by the mid-1980s.
The Ministry of Finance required state enterprises to make
specific improvements in their financial condition as a
prerequisite for obtaining guarantees for borrowing. The measures
included financing 25 percent of new investment from the state
enterprises' own resources, forwarding at least 30 percent of
their profits to the treasury, privatizing commercial
enterprises, introducing corporate-planning systems, and limiting
debt financing. Such measures did not lessen the burden of state
enterprises on the budget, and their capital expenditure financed
by the government had stayed at the same average annual rate of
3.5 percent of GDP in the 1970s and mid-1980s. It was noteworthy,
however, that their performance had improved, with savings rising
from 0.2 percent of GDP during the Fourth Economic Development
Plan period (1977-81) to 1.4 percent of GDP by the mid-1980s.
With approximately 68 state-owned enterprises, Thailand had
fewer than the average in other Southeast Asian countries, such
as the Philippines, with 264. Nevertheless, the government was
very concerned with their performance. The largest ones in terms
of assets were in public utilities, transport and communication,
financial institutions, and petroleum. The smaller ones were in
manufacturing, agriculture, commerce, and services. The state
enterprises did not represent the entire extent of public
ownership in the economy; in the mid-1980s, the government
received 75 percent of the shares of 24 troubled finance
companies in order to rescue them from bankruptcy. In addition,
the Ministry of Finance held minority shares in eighty-eight
other private firms. All state enterprises were attached to a
parent ministry or to the Office of the Prime Minister, and there
were five core agencies and two committees to supervise their
activities. Some experts suggested that, in order to improve the
efficiency of state enterprises, the enterprises needed to be
more decentralized and exposed to free market competition.
The government spent approximately US$16 billion during the
period from 1982 to 1985 (see
table 6, Appendix). In real terms,
this represented an increase of about 52 percent over public
expenditures from 1977 to 1981, the fourth plan period. Because
an increasing percentage of the budget was devoted to recurring
obligations, fewer funds were available for capital investment.
Close to 70 percent of current expenditure was used for wages,
salaries, interest costs, and defense. Investment in energy,
transport, and communication had taken nearly 64 percent of total
capital expenditure by the mid-1980s. Agriculture received a
fairly constant proportion of about 15 percent of total public
capital expenditure, and industry dropped from 1.3 percent to 0.9
percent between the end of the 1970s and the mid-1980s.
Education, health, and welfare together continued to receive
about 12 percent throughout the same period.
Data as of September 1987
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