Populist budget close to legal limit

Around 870 billion baht of the 2.9-trillion baht budget this year is outlay on populist-type programmes including (above) using welfare cards for ‘free’ transportation on Bangkok buses. (Photo by Sorrapon Phayaklum)

Little room remains in the budget for the government to spend further on populist policies through state-owned financial institutions, as populist spending is nearing the cap of 30% of the annual budget, says an informed source at the Finance Ministry.

Pork-barrel spending will reach 29.6% of the 2018 annual budget after the cabinet approved debt repayment extension and lower lending rates for small-scale farmers and a price stability scheme for the 2018-19 rice harvest, the source said.

Before both projects won approval, the government’s spending for populist policies stood at 27-28% of the 2018 budget.

Based on the 30% ceiling and this year’s budget of 2.9 trillion baht, up to 870 billion baht is available to finance populist policies through specialised financial institutions or quasi-fiscal activities.

Without payments from these populist policies, the government’s pork-barrel spending for the next fiscal year will be quite limited, as up to 900 billion baht can be spent for quasi-fiscal policies based on the 3-trillion-baht annual budget expenditure set for fiscal 2019, but almost 870 billion has been spent this fiscal year.

This fiscal year runs until the end of September.

The populist budget restriction was imposed by a committee formed to set a framework for fiscal discipline under the Fiscal Responsibility Act, aiming to prohibit politicians from spending lavishly on populist schemes to please voters.

The largest public debt burden from populist policies stems from Yingluck Shinawatra’s government, under which officials bought rice at a pledged price of 15,000-20,000 baht per tonne of paddy — 40-50% above the market rate. The scheme cost taxpayers at least 500 billion baht.

The cabinet at the end of last month approved financial assistance measures for farmers to help shore up the agricultural sector.

In the first of the two measures, the government will cut lending rates for small-scale farmers from Aug 1 to July 31, 2019, covering only the first 300,000 baht in loans.

The state will subsidise 2.5% of the interest rate annually, while the Bank for Agriculture and Agricultural Cooperatives (BAAC) will shoulder 0.5% a year.

The subsidy programme is estimated to cost about 16.3 billion baht, 2.71 billion of which will be allocated from the fiscal 2018 budget for the first two months (Aug 1-Sept 31) of this year. The remaining 13.6 billion baht for the last 10 months will be from the fiscal 2019 budget.

In the other measure, 3.81 million BAAC borrowers will be allowed to reschedule their debt repayment for three years from Aug 1, 2018 to July 31, 2021. Farmers who want to take part in the project are required to submit applications to the BAAC by Dec 31 this year.

The Fiscal Responsibility Act, which came into force on April 20, is designed to maximise budget spending and prevent politicians from repeatedly using off-budget borrowing to finance projects, particularly populist schemes.

The committee also requires the government to allocate 2.5-3.5% of annual budget to repay the principal.

Article source: https://www.bangkokpost.com/business/news/1521254/populist-budget-close-to-legal-limit

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