วันพฤหัสบดีที่ 29 กันยายน พ.ศ. 2554

Yingluck Government Scheme by Wannaphong

บทความโดย วรรณพงษ์ ดุรงคเวโรจน์

                  All societies have made some provision for the poor and destitute. We call programs that transfer cash and consumption goods and services to the poor public assistance or welfare programs. In modern societies, governments play a major role. The grassroots people should normally be the one who mainly get the benefit from the government provision so as to help reduce poverty in country.
              However, most of the Pheu Thai’s policies seem to be populism – creates the programs to gain vote without carefully consideration on the actual effects of the scheme - which attracts the poor and middle-class to vote for. Firstly it seems to coddle the poor by ascertaining that their living standard would be improved and every policy could ultimately utilize everyone. When everyone heard that surely, it was able to distract them without a careful deliberation and adored in scheme but policy makers might not deliberately consider about how it could be true in reality – cost and benefit analysis is quite important but I think they might lack of. They thought solely based on populism. I’ll only talk about the populism without concerning the general acting that each government should do such as drug outbreaks or social problems – it’s out of our concept. The populism is interesting because citizens express their preferences through voting and surely they anticipate their representatives to provide them maximized benefit without any distortion that citizens would be disappointed and worse off. Now these policies seem to be controversy and the eligibility standard is still quite argued.
              Populism policy of this government is composed of rice pledging, tax rebate in first car and first home, minimal wage ฿300 and starting salary of
฿15,000 bachelor degree graduates.
Rice Pledging:

     It is reintroduction. The rice pleading policy aims to guarantee the farmers the rice price. However there were several problems existed as the Thaksin’s government. If it’s evoked again, the problems farmers facing is that prior to rice pledging scheme begins, rice millers have already bought the rich from the farmer with the low price. Then they could take these tons of rice into this project and earn the profit from the difference between gross price received from this project and price received from the farmers. Not only funds used to give to farmer but also payment about the additional costs for rice storage and maintaining the quality and other management expenses for Commerce Ministry officials to survey and also inspect the rice throughout the country. When the government authorities buy that rice from farmers or the rice miller at guaranteed price, it’s required to stock. Unfortunately, if the market doesn’t well operate, government has to bear this leftover. About price pledging, the farmers based their production with that guaranteed price. So, it causes overproduction of that rice. Moreover, all grains including rice are determined by global market price mechanisms, not by an exporting nation, even if Thailand is the leading rice exporter. In short, Thai rice exporters are price takers, not price makers. Surely, the market price of rice is higher. Then, consumers are widely worse off because they have to bear this price due to its function of necessary goods.
     Also, I think it causes corruption cycle recurring again because money would not fall into the hands of farmers as claimed by the government but go to the pockets of other people that will gain benefit from this scheme such as the owners of rice mills. There was so much corruption during the terms of all previous governments that carried out the rice pledging scheme. Without any corruption, the scheme will lose up to 50% of the allocated fund because the government has to sell this paddy stockpiles at price that lower than buying. I think state can’t prevent the problem of this corruption cycle from rice pledging scheme because there are incentives to do without considering about penalty – don’t talk about penalty I think it seems to be nil in Thailand.
     From the flood problem throughout the country, it inevitably affects to agriculture outputs. However, the government will expand the duration of this project taken.

Tax rebate:

1.     First car. First cat tax should be a social contemplation. It’s the program offers buyer an excise tax rebate of up to ฿100,000. It initially encompassed all type of vehicles but was after adjusted to include only passenger cars with an engine capacity of no more than 1,500 CC or pickups priced below ฿1,000,000.The advantage of this scheme is to encourage the automotive that has just recovered from earthquake in Japan that affects its production and transfer car to Thailand. The tax rebate up to ฿100,000 boosts the demand for new car and induce consumer to purchase car faster. Also, the car credit market (financial leasing, cash to car, car loan) will recover as well. However, it’s also populism that is controversy with the high speed train and subway. In spite of public transports that encourage the reduction in environmental pollution, first car tax rebate seems to support the individual vehicles that cause negative externalities or spillover effect on the society in case of pollution such as Carbon Dioxide which deteriorate the global warming problem.
     Also, First car tax rebate is likely to create many problems. Firstly, the considerable condition that seems to be too complicated including with the tax rebate recipient has only to be buyer from 1 October 2011 to 31 December 2012. The eligible car is that be produced in Thailand, its size is less than 1,500 CC and its price is less than ฿1 million such as Toyota(Vios, Yaris,), Honda ( Jazz, City), Mazda 2, Eco-car ( Nissan March, Honda Brio) and etc. Moreover, down payment must be more than 30 percent. Tax rebate recipient is more 21 years old and has to occupy his or her own car over 5 years – can’t transfer. For the tax rebate payment, payment is not over ฿100,000. The details are
In general, 2 doors Pick-up is levied 3 percent of its capital price, tax rebate payment is only about baht10,000. 4 doors pick-up is levied 12 percent of its capital price, tax rebate payment is only about ฿60,000 – 80,000.Eco-car is levied 17 percent of its capital price, tax rebate payment is   only about ฿40,000-50,000     Sedan 1,500 cc is levied 25 percent, tax rebate payment is only about ฿80,000 – 90,000 (less than ฿100,000 claimed).   Now, after received complaints from importers and automakers, government said it will alter the plan to include 1,600 CC.
     Secondly, according to these conditions, market is so confused-             consumers are nervous which model they should buy. Many buyers can       misunderstand and be disadvantage from the ambiguous information.   It’s moral hazard problem that come from the unequal information            between car leasing and buyers. It seems to be increase the sale of cars            and many companies are happy from this policy. It can boost economy up despite only short run. However, when the car sales rise, surely the          problem of traffic and congestion are more severe. The city is covered      with the pollution and everyone might be affected in long run. I think,            from the perspective of other car companies who aren’t eligible, it’s    unfair because not everyone is better off. Every policy faces the trade-    offs between equity and efficiency whether politicians concern about    the impact of each policy.
     Thirdly, importantly about the first car tax rebate, the tax revenue loses         more than ฿30,000 million for coddling the car company. I don’t agree     with the way that policies cause loss in government revenue.    Government run deficit every year because its outlay falls short with its           revenue and then government should to borrow money and increases   the public debt again. The solution is either cut spending or raising tax             but this Pheu Thai government expands its expenditure and reduces its    revenue. Despite deficit, government has already spent future money         and shifted this burden to future generation by raising tax. Government    should consider too much about this impact of tax because it directly      affects individuals. However, I think it’s possible to stimulus package    like the Omaba’s proposal last Monday (September 12,2011) about tax super rich inasmuch as government will have more revenue to finance     its outlay and also reduce the inequality among citizens in term of      eliminating gab between the wealthy and the poor especially in Thai, the      problem of income distribution is the main problem stuck with Thai     society for a long period of time. Due to reducing gab, the problems of     unequal access of government-supplied goods and services will be   corrected and surely when government issues the new policy, we can         make sure everyone is better off and can enjoy the benefits. Such as the policy about 3G, it raises the upper middle-income people’s utility             because they can ultimately use it. But what’s about farmer? Surely he or she doesn’t get the benefits from 3G because the unequal access in technology.
     I think the lump-sum amount should be offered for all vehicles without a       condition of engine capacity for ensuring the fairness. Every automaker   will happy. And also consumer will be better off. They will buy the    model they really want without worrying about how big a tax rebate they will get from the government. Now excise tax on pickups is 3%.         Thus, buyer can get approximately ฿20,000 for rebate while the rebate for a small eco-car is about ฿40,000 bath. In spite of helping the   grassroots people, this scheme tends to help the buyer of city car that can afford from their higher purchasing power. I think helping the      grassroots people is likely to be more beneficial because most of all is   farmer. If agriculturists have more potential to farm, the productivity   will rise and it will in turn lead to economic growth. People will see that  farmers are helped very much from government programs and there         are many scheme aimed to help them but actually, farmers are still      became poverty-stricken due to the burden of personal debt, destroyed agriculture outputs from the flood problem and also the inequality in income distribution.
2.      First Home. The concept of first home tax rebate is almost similar to the first car scheme. It’s very controversial and there is the question about who are the actual beneficiaries derived from this project. The first house tax rebate is to cut taxes to support first-time home buyers. A tax reduction at a maximum 10 per cent for property prices will be applied to people buying a flat or a home costing five million baht of less. The tax cut will be applied in the same amount each year for five consecutive years in the calculation of personal income taxes. Tax reduction policy for first time buyers will favor for people whose monthly salary is over 20,000 baht and entitled to pay taxes. But the poor that his income is lowered than first tax bracket and pay no tax who is the one should to gain benefit first but they will receive nothing. Now there is no program about first home serve for the poor who have low income or his income is less than ฿150,000 per year. I strongly disagree with this scheme more than the first car tax rebate. For the first car tax rebate, even though not at all the poor gain but there is still benefit to the poorer in society, this first home tax rebate has no any benefit to the actual poor. I think government should stop it or revise it.
Minimal wage 300 baht
              The minimal wage 300 baht per day aimed to response the living standard in Thailand that quite sored.This policy is a hot issue among Thai people. Lots of researchers worry about the effects in the future.However, it’s controversy about this scheme. The SMEs have to bear the full burden of this scheme because they have to pay for unskilled worker higher. Several SMEs are protesting against the 300 baht minimum wages. Due to the decreased in demand of every company, it’s not favor to increase the production cost unnecessarily. Though the production cost about paying to worker is only 10% of overall cost but company has to bear an additional cost without an additional output. I think the solution is increasing the productivity of worker. Productivity leads to more output available so as to offset the additional cost used to pay to worker. However, it’s quite hard to increase one’s productivity and also take time to do that because company has to set work shop or make a special course to develop their worker’s productivity – which means it’s required to spend more money. An inevitably cost might lead some factory move the production base to neighbor due to lower wage such as one company has already move all production to Vietnam because company does not want to bear the ambiguous status in Thailand and also higher in production cost. As we consider the effect in the rural area, in generally, workers such as cutting the grass. It’s small job but he or she could claim about 300 baht as minimal so it destroys the system of wage rate in rural area not only job that require special skills or normal job that use only efforts.
              Also, there is an inflation problem in Thailand. If the minimum wage rises, the cost of everything will be rising too. Because the cost of the producing is higher in term of inputs, of course, the companies can’t bear and have to increase their products and services prices. Although the people can get the higher income from this 300 baht as minimum, they also spend more money than the past. In addition, labor is one of the factors of production. As a result, the middle and small companies might shut down because they cannot bear with these additional costs of production. The big companies will reduce their production cost by firing labor. Lots of employees will face the unemployed problem. The unemployment of unskilled labor will inevitably soar. They are hard to find job in this modern society and lead to social problems such as crime. Also, if the company turns to use the illegal labor, the problem of unemployment rate could be more severe. And if a minimal wage is 300 baht per day, monthly is 9,000 baht. It affects the system of wage in market especially about wage in the people who are vocational certificate vocational diploma that stating with 6,500 baht per month. So, it’s required to change all system of wage bracket. The next 5 years, AEC is the hottest topic that we have to concern about our economy necessary to make the potential within our economy for competing with each other. AEC has a free flow with a zero tax rate and flows in 5 categories: goods, services, investment, capital and labor. If we have only resources but lack of quality, it’s not sufficient compared with others.

       Something important is that the price of goods and services always soar more than an increase in individual income. We should elaborately consider the real income or subsistence level. I think subsistence level in Thailand is relatively higher compared to the last two years. An increase in income is meaningless if the price of goods increase faster which means that citizen's purchasing power or real income is worse instead of increase as government claimed. 
Starting salary of ฿15,000 bachelor degree graduates
              The first effects are the overall structure of wage system- the level of salary of others position such as previous workers that receive payment prior to this project announced. Is it fair? If the new workers who graduated a bachelor receive 15,000 baht meanwhile the workers who graduated the bachelor degree and have worked for 3 years receive only 9,000 baht. Surely the new graduate is less experience than the previous workers. As a result, it has to change all of the salary brackets. Presently, there are many ways to fast graduate without using any attempt. So, the quantity of labor will rise but where is the quality? If we don’t care quality, we won’t achieve the goal of competitive ability. For instance, if A and B both graduated simultaneously. A is good student, his GPA is 3.75 but B’s GPA is 2.21. I think it isn’t fair that give everyone equally. Should they get the same rate of salary? I don’t think so. We should stop coddling the unskilled labor with the guaranteed wage – wage should depend on own skills. By the way, about minimal 300 per day or 15,000 baht should pay to the productive labors that are teemed with skills. When the productivity of labor increases, of course, they can make more output and lead to economic growth. The subsidized salary would be waste if it’s paid for the unskilled labors because they’re not mean to company. In the period of waiting for scheme announced, the cost of living aggressively rises. I think it indirectly accelerates the inflation. Because now the cost of everything goes up but quality does not increase but we have to use more money to afford many goods and services. About the advantage, this scheme attempts to change the wage system in response to the higher cost of living. According to income effect, this scheme is shift individual budget constraint and the consumption of commodities could rise and could increase the GDP. However, it’s feasible that recipient might spend this money about the luxury goods instead of necessities.

Other scheme
-          Cut oil funds collection from Benzene 95, Benzene 91 and diesel, causing their prices to fall. It destroys the structure of fuel price in Thailand. I don’t know why government forgoes the revenue about two and three million baht per day for coddling the consumer. I think we should use the principal of benefit use – you pas as you use. Government should spend this money to aid the poor. Social welfare in Thailand is less than other countries. The grassroots people are poor on and off. However, there is benefit from this scheme - Oil is only one factor among many that affect our production costs. If the diesel price falls to 25 baht per litre and remains at that level for a longer period, it might be possible for us to reduce consumer product prices. The volatile price of oil presently is very dangerous for our country that is the major cost of production. It’s very sensitive to market to rise or reduce the fuel price.
-         Tablet to children. I think it’s very dud to do that because I observe no benefit from this scheme. Government should this funds to finance other expenditure seemed to have more advantage than this because nowadays most of the social problems stem from children such as child molest or drug. I think this tablet will have the negative effects to society. In spite of buying tablet, I think government should spend this fund to reboot the wholly Thai education structure. It’s necessary to have well-organized in this system because it develops the young generation to be good and they will be productive labor further. If everyone in Thailand has well-educated, the economic growth can easily achieve.
So If we have some amount of money, we have to repeatedly consider how to distribute this fund to other? Who is the eligible recipient? How to redistribute equally among citizen? What are direct and indirect about cost and benefit of each scheme? Who is seemed to take advantage of an occasion? And it’s important to learn the past scheme and consider about its impact on citizen. About 100,000 baht that we pay back to consumer, if we use to build the street in suburb, is it more beneficial? Government should turn back to strongly consider about production that can boost the GDP of country. The technology, the retrain course for labor or the other way to improve its productivity should be concern now.  We have to find more revenue to offset the outlay used instead of using debt finance – borrowing. United States is always borrow money to finance its outlay from the budget deficit but each year, even though it is able to pay the principal and survive but payment in interest to creditor is very high and it still increase. Government should make workshop that private individual and government officials can consider together about each scheme for finding the best way to improve our country. Surely, it’s impossible to make every happy but we should minimize the negative impact to society instead of learning to be with them. They (government and private) should debate about direct and indirect about cost and benefit took place from each scheme before announcing the projects that satisfy everyone.
              Eventually, importer and exporter should always up to date U.S. and E.U. economy because it is risk factor in clothes and shoes market as E.U. and U.S.A. market is very important to Thailand. Meanwhile, domestic market is facing the problem due to flooding by year 2011. The agricultural product is destroyed. We should encourage the domestic market for offsetting the foreign revenue. The stimulus package for boosting economy is waste. The first car and home tax rebate encourages the purchasing power of specific individuals. The grassroots people gain a little bit. The distribution income is still important to Thailand because the inequality reduce the unity in society. However, the government is the most important in public sector that should pay attention about every scheme that has different impacts to citizens. Thus, government can maintain stability and continue growth with the full employment from the collaboration between government intervention and private individuals.  

วันพุธที่ 28 กันยายน พ.ศ. 2554

Warren Buffet, tax super rich and Stimulus Package by Wannaphong

บทความโดย วรรณพงษ์ ดุรงคเวโรจน์ 

Warren Buffet, the third wealthiest person in the world and son of a former Republican congressman, message to congress about taxing super rich American. He makes a big fracture with his father’s party by pressing for tax increase on the wealthy and makes the relationship with president Obama, Democrats. He called on congress to stop coddling the rich and proposed raising $500 billion tax revenue.
He said “The wealthy should pay more. The poor and middle-class fight for us in Afghanistan and are often required to contribute a greater portion of their income to the government. ” So, Republican congressman such as Michele Bachman quite resists his proposal because Republican’s base is middle income. If there is raising tax, they might be disappointed. The advocate of Buffet’s proposal is Alan Ace Greenberg, former CEO of Bear Stearns he supports the higher tax on the wealthy.
Well, Obama’s plan focuses on applying income tax rates to some earnings.
Two weeks later, 12 September 2011. Obama pronounce the stimulus package or an urgent issue. To summarize, it mainly composes of
-          Raise tax revenue almost $500 billion by taxing the rich through expand the two top brackets of marginal tax rate from 33% to 36% and 35% to 39.6%
-          Repeal oil subsidies that will raise revenue almost $40 billion
-          Reduce the deduction or exemption from tax bill to 28%.
-          Reduce the payroll tax

In my opinion, income tax is the most important source of federal revenue but only tax is not raise nearly enough to finance all government expenditure. However, designing tax system should minimize an inefficiency or deadweight loss. But
First time, I read about the progressive tax, it refers to take a larger percentage of income for higher income than lower income in term of applying the different tax rate to different level of income corresponding to vertical equity. It can reduce inequity among citizens followed the ability to pay measured from each income. But there are two problems I found.
1. It levied a higher tax rate only on an excess over each bracket with a flat rate tax. It’s fair for the poor the pay in low marginal tax rate but Is it better if individuals are levied in the percentage of all taxable income in which there income is. At least, it maintains the role of vertical equity and ability to pay. Also, the poor still pay in the lower marginal tax rate and surely the tax revenue increase.
2. Progressive tax is not good at all. The more progressive tax is the higher marginal rate. The higher marginal rate provides a larger magnitude of substitution effect. In group of individual that is very elastic such as labor market that as tax rate increase, the greatly reduce their labor supply because they prefer leisure to work if they have to forgo the additional income to pay tax at higher rate. So an increase in the income tax rate make the labor supply more elastic that mean it’s easy to substitute their work with other activities such as leisure. Then it reduces the overall labor supply that create a deadweight loss as the marginal tax rate.

So, it’s trade off in progressive tax that is basic trade off in tax system design. More progressive tax system have greater a deadweight loss but in provide more equity among citizens. In this progressive tax, equalitarian social welfare functions will choose more progressive tax because their social welfare places more weight on equity.
However, according to stimulus package
-                          I agree with tax the rich heavily because it causes tax revenue increase from the people that low marginal utility of income.
-                          I also agree with reduce the possibility of deduction or exemption because it also raise the tax revenue when deduction is less.
-                          But I don’t agree with cutting payroll tax because it seems coddle some individuals and contrast with the tax super rich idea. If the proposals try to raise revenue but why there is cutting payroll tax proposed.

                   By the way, designing tax system to satisfy everyone equally is such difficult because members in society have different preference so they value different. As a result, when you express your preference by voting the candidate, make sure he or she is able to utilize and provide you the need unless you want to do something undesirable such as paying a higher tax rate.