The cost of the rice-subsidy scheme threatens fiscal sustainability and may leave the government with little money for much-needed investment in infrastructure projects, experts have warned.

The cost of populist policies such as tax breaks for first-time buyers of vehicles and homes, and a guaranteed monthly income of Bt15,000 for newly graduated civil servants, will not be very high, said Narongchai Akrasanee, economist and former commerce minister.

"But we are worried about the rice-pledging scheme, as we don't know how much it will cost," he said yesterday on the sidelines of a seminar on fiscal sustainability hosted by the Fiscal Policy Research Institute, which is part of the Finance Ministry.

The Pheu Thai-led government will start to implement the rice-pledging project next month, with the party having promised during its election campaign to buy rice from farmers at the high prices of Bt15,000 per tonne for white rice and Bt25,000 per tonne for fragrance rice.

Olarn Chaipravat, adviser to Prime Minister Yingluk Shinawatra, earlier said the government would buy up to 25 million tonnes of rice from farmers at a cost of about Bt400 billion in the first year.

Kanit Sangsubhan, director of the Fiscal Policy Research Institute, shared Narongchai's concern, saying that the damage caused by the cost of the rice-pledging scheme was difficult to estimate.

"Populist policies implemented by governments have drawn money away from much-needed investment in infrastructure projects,"he said.

For example, the farmers' income-guarantee scheme implemented by the Abhisit Vejjajiva administration cost as much as Bt55 billion.

"If the damage from the new government's rice-subsidy programme is not great, then we will have a cushion, but we don't know how much of a negative impact [on the fiscal position] there will be," he added.

Kanit said the country over the next five years needed to invest about Bt4.4 trillion in water management, railroads, port facilities, energy and healthcare in order to improve its competitiveness. Water management alone, including measures to prevent flooding, requires an investment of about Bt300 billion over the period.

Gross investment, public and private, has declined sharply since the 1997 financial crisis to 25 per cent of gross domestic product from 1997 to 2010, against 39 per cent of GDP between 1993 and1997.

Public investment should be about 25 per cent of the annual budget, but it has not yet met the target, currently standing at just 19 per cent, he said.

Ticking time bomb

The rising cost of the Social Security Fund, the universal healthcare scheme and student loans will also pose a greater risk to government finances, Kanit warned.

He said the social-security burden would rise to Bt430 billion over the next 40 years, if there is no reform.

Reform is therefore needed to lower the fiscal burden in order to support universal healthcare and student loans.

He said the government may need to increase value-added tax from 7 per cent to 10 per cent in 2014, as the plan to cut corporate income tax to 20 per cent will result in a revenue loss of Bt160 billion annually.

Tax reform could help the government to balance the budget in 2016, he added.

Source: The Nation