Organization: Central Michigan University
Newsgroups: bit.listserv.seasia-l
Date:         Mon, 14 Dec 1992 08:01:02 EST
From:         Elliott Parker <3ZLUFUR@CMUVM.CSV.CMICH.EDU>
Subject:      TH: Negative income tax proposed

=======================  Forwarded  Message  ===========================
Date: Sun, 13 Dec 92 23:13:15+0700
From: Kamol Hengkietisak <kamol@ipied.tu.ac.th>

by Peter Mytri Ungphakorn in Pattaya

A "NEGATIVE income-tax" programme to raise the poor above the poverty
line would be the best way to assist directly the poorest households
and would "only" cost 30 billion baht, a leading economist said
yesterday.

The assertion came from Dr Chalongphob Sussangkarn, programme director
at the Thailand Development Research Institute at TDRI's year-end
conference here in Jomtien.

His call for a negative income tax in order to "eradicate poverty for
all by the year 2000", brought to life the two-day conference whose
theme this year has been Thailand's economic structure and balanced
development.

Several speakers questioned whether negative income tax, in which the
government would pay money to households below the poverty line, is
desirable or administratively feasible.

But many participants welcomed Dr Chalongphob's proposal at least
because it directed the focus of attention on two important issues:
the need for tax reform, and how to devise anti-poverty policies that
do not end up channeling government money towards the better-off.

TDRI president Ammar Siamwalla, who confessed to having some doubts
about the wisdom of negative income tax, said that at least Dr
Chalongphob had successfully put a figure on the amount of money the
Government could be spending to tackle poverty.

Even if the true figure turns out to be triple the 30 billion-baht
estimate, this would be less than many of the policies the Government
currently employs in the name of poverty alleviation -- money that
often fails to reach the poorest people, Dr Ammar agreed.

In his 71-page conference paper, the Cambridge-trained former World
Bank economist warned that while many imbalances in the economy have
in the past tended to decline in severity -- either because they are
self-correcting or through policy intervention -- some could become
explosive if they reach a "critical threshold".

Government policy should be alert to the danger of imbalances, such as
ecological problems reaching critical levels that would head them in
catastrophic directions, Dr Chalongphob implied.

Poverty is one of the easiest imbalances to measure. Currently between
a quarter and one-fifth of the population are estimated to be living
below the poverty line of 20,705 baht per year for a rural family of
two adults and three children, or 31,620 baht annually for an urban
family.

This could prove an explosive issue in coming years, Dr Chalongphob
warned. He also described the problem as one of human rights. By the
year 2000, when Thailand's per capita income is expected to reach
about $4,650 per year, having one fifth of the population below the
poverty line will be unacceptable, he said.

"Growth, especially the relatively high rates of growth achieved in
Thailand in the past and expected in the future, tend to lead to a
general improvement in living standards." he said.

"If people are concerned only with their own income-growth over time,
then they will certainly feel satisfied. However, concerns about
income inequality -- as opposed to poverty -- address the issue that
relative income positions may also affect a person's sense of
well-being.

"This may be more and more the case in this information age where the
media, and especially television, have spread everywhere, so that
people in all parts of the country know very well of the level of
development and lifestyles in Bangkok. Thus, while much of a person's
economic satisfaction may depend on how his or her income changes over
time, the relative income aspect presumably is also important.

"Therefore, one should be seriously concerned about the worsening
trend of income inequality ... in Thailand, as it can lead to social
discontent which may lead to serious imbalances, and can take society
beyond the critical threshold of imbalances."

His estimate of the annual cost to the Government of 30 billion baht
per year was based on latest social and economic statistics. He
stressed that the negative income tax could not be considered as
charity or extravagant welfare subsidies, because it would only bring
recipients up to a minimum subsistence level.

In many cases payment would be temporary, to assist farmers whose
crops have been damaged or industrial workers who are unemployed, and
it would help the poor to strengthen their ability to produce.

"This is not charity but a recognition that everyone can be
productive," he said.

Whereas such programmes such as crop price support subsidies are often
most beneficial for more able farmers, a negative income tax would
directly benefit the poorest households, Dr Chalongphob argued.

It could also give the Government a net profit because one necessary
condition would be to bring everyone into the tax system and to charge
value added tax -- at a lower rate than the present 7% -- on all
products, including farm produce which is currently exempt, he said.

Dr Chalongphob wants to expand value added and other taxes in this way
in order to allow easier monitoring and checking of incomes. Even
without a negative income tax, by the beginning of the next decade the
tax base would have to be expanded, he predicted.

With two million farming households already within the top 40% of
income-earners, keeping agriculture exempt from income tax and VAT
will be increasingly untenable, he said.

"There will of course be attempts to under-report incomes, over report
expenditures (for the self-employed), to report income below the
poverty line when in fact this is not the case, etc. However, this is
to be expected. Rich people evade taxes as well."

Dr Chalongphob also warned that successive governments' failure to
improve secondary education could close the door to migration and
job-changes that have so far helped many Thais escape poverty.
Secondary education will become an increasingly important
qualification, but with 75% of the population likely to remain with no
more than six years of schooling for several decades to come,
disparities and tension could worsen, he said.

Commenting on his presentation, Dr Philippe Annez, chief of the World
Bank mission in Bangkok, described negative income tax as a "Loch Ness
monster" in the United States, much discussed but never seen.

He warned that World Bank experience suggest such methods for dealing
with poverty often are difficult to administer, fail to reach target
groups and cost much more than expected.

He agreed that pockets of "abject poverty" remain in Thailand, for
example among hilltribes, people along borders, farmers squatting on
degraded forests without proper land title, and in city slums.

Dr Annez recommended improved use of existing institutions such as the
government's Bank for Agriculture and Agricultural Cooperatives and
commercial banks for rural credit, the National Housing Authority and
Government Housing Bank in the slums, and non-governmental voluntary
organisations.

Fiscal Policy Office Director-General Somchai Richupan argued that a
negative income tax would be inappropriate in Thailand where the poor
need more specific assistance to improve their ability to earn
incomes.

Several speakers from the audience argued that the experience of
welfare payments in the West suggest that a negative income tax would
act as a disincentive to work.

Dr Direk Patmasiriwat, economist at Naresuan University, warned that
"delivering" the negative income tax could prove costly through
inefficiency and corruption.
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