VAT hikes alone won’t narrow deficit

ECONOMY TALK

- Chartchai Parasuk

This article is not meant to attack Finance Minister Ekniti Nitithanprapas’s Medium-Term Fiscal Framework (MTFF) for FY2026-FY2030. It is meant to emphasise the fragility of a Thai fiscal position that requires multiple revenue enhancement measures.

The MTFF is much talked about because it includes a VAT hike of 1.5% in FY2028 and another 1.5% hike in FY2030. But VAT increases do not seem to be enough to narrow fiscal deficits to the required level of below 3% of GDP. Another tax increase measure is required for FY2029.

My guess from the size of the revenue increase in FY2023, it is likely to be a petrol tax hike of 2 baht per litre, bringing in additional revenue of 87 billion baht. If my guessing is incorrect, the government should explain why fiscal revenue is projected to rise by 4.1%

Please look at the MTFF Table and notice the revenue growth for FY2028, FY2029, and FY2030. (See table)

The MTFF is nothing new. It is required by Section 15 of the State Fiscal and Financial Disciplines Act. I have a copy of Srettha Thavisin’s MTFF for FY2024-FY2028. His MTFF would also have reduced the fiscal deficit to below 3.0% of GDP but he was able to maintain public debt/GDP at below 65% of GDP throughout the plan. There was no need for any kind of tax hike as economic growth was strong. The Pheu Thai-led government boasted that GDP growth would be as high as 5%. Of course, the actual outcome was different as night and day.

I have high hopes for Finance Minister Ekniti’s MTFF. My hope is that he will do the right thing in correcting the fiscal imbalance, which is a sore spot in the economy highlighted by credit rating agencies and the IMF. That right thing means curbing excessive and unnecessary expenses.