After a significant fiscal response to COVID-19, Thailand now needs to address growing spending needs, while keeping public debt under control, according to a new World Bank report released today.
The Thailand Public Revenue and Spending Assessment - Promoting an Inclusive and Sustainable Future details the reforms needed to mitigate rising fiscal pressures. These include challenges associated with the aging population, which will increase the costs of public pensions and healthcare, while constraining economic growth.
"Thailand can achieve a more equitable and resilient economy by improving the efficiency of public spending, raising revenues, and implementing policies to support the most vulnerable and respond to climate-related challenges," said Fabrizio Zarcone, World Bank Country Manager for Thailand. "The World Bank stands ready to assist Thailand with its fiscal reforms to achieve these goals."
The report highlights the need for increased public spending on social protection, education, and climate adaptation. Thailand's Old Age Allowance, among other social assistance payments, is low compared to global standards. Per-student education spending at the pre-primary and secondary levels lags behind international benchmarks. Increased spending in these areas has the potential to improve equity and boost human capital. Significant investments in climate change adaptation are also required to mitigate the costs associated with increasingly frequent and severe flooding, storms, and coastal erosion.
While public debt rose due to the pandemic response, overall fiscal risks remain manageable. The report suggests that in the near term the government can afford to increase spending on public infrastructure and other priority areas, whilst consolidating spending elsewhere.
Over the longer term, meeting these spending needs while maintaining a sustainable public debt position will require an increase in public revenues. The report recommends a series of progressive tax reforms that could collectively increase revenues by 3.5 percentage points of GDP. These include raising the VAT rate and removing exemptions, broadening the personal income tax base and streamlining allowances and deductions, and expanding property tax collection. If implemented gradually over the rest of this decade, these reforms would promote equity while providing the revenue needed to fund increased spending. Negative impacts on the poor could be offset by social assistance reforms, while still achieving substantial net revenue gains.
"Raising revenue collection will be necessary, and there is also room to improve the efficiency of public spending on social assistance, education, and health," said Kim Alan Edwards, Senior Economist and Program Leader at the World Bank. "For instance, better targeting of social assistance benefits would reduce the overall fiscal cost of raising benefit amounts while ensuring gains in poverty reduction."
The report suggests that in education, consolidation and better resourcing of primary schools could lead to improvements in learning outcomes. In health, better screening of non-communicable diseases and more focus on preventative measures would reduce the need for more expensive treatments later. The design of public health insurance purchasing arrangements could also be improved to reduce costs.
