Thai Cabinet approves budget deficit, new policies

BANGKOK: Thailand's Cabinet approved a raft of policies on Tuesday -- from tax breaks for first-time car buyers to a guarantee on rice prices -- aimed at lifting the incomes of poorer Thais whose votes swept the new government to power.

Prime Minister Yingluck Shinawatra, a 44-year-old political novice barely known to the public four months ago, has said her priority was to stabilise the economy and boost incomes with policies ranging from corporate tax cuts to debt relief for farmers, village development funds and lower fuel prices.

The Cabinet pushed those policies forward on Tuesday. It also approved a budget deficit of 350 billion baht ($11.6 billion), or 3 percent of gross domestic product, for the next fiscal year from Oct. 1, capped at the same level as that planned by the previous administration.

"The government is trying to keep the budget deficit at 350 billion baht, the same level as this year's," Finance Minister Thirachai Phuvanatnaranubala told reporters.

The budget projects spending of 2.33 trillion baht ($77.3 billion) and revenue of 1.98 trillion baht ($65.7 billion), higher than previously expected. It assumes economic growth of 4.5-5.5 percent and inflation of 3-4 percent.

On spending plans, about 384 billion baht, or 16.5 percent of the total, will be for investment, 54 billion baht for treasury reserves, 51 billion baht for debt repayment and the rest for current expenditure, he said.

Higher-than-expected revenue would come from tax collection but details had not been finalised, Thirachai said.

Bank of Thailand Governor Prasarn Trairatvorakul said the 350 billion baht budget deficit was "appropriate". He had previously said a bigger deficit could cause monetary policy to be tightened more than it would be otherwise.

MORE POLICIES APPROVED

The Cabinet has also approved some of a trove of populist policies aimed at cutting the cost of living, echoing the free-spending policies of Yingluck's elder brother, former premier Thaksin.

It gave a go ahead to a tax refund of up to 100,000 baht for buyers of first cars, which the Finance Ministry said could cost the government as much as 30 billion baht ($1 billion) in lost revenue. .

Under the new policy, excise taxes will be refunded to car buyers a year after the date of purchase under the condition that the buyer keeps the car for at least five years.

The tax rebate would not affect excise tax collection in the next fiscal year because it would be paid back the following fiscal year, said Deputy Finance Minister Boonsong Teriyaphirom.

The Excise Department is to meet with carmakers on Wednesday to discuss details, Boonsong said.

Industry officials and analysts expect the programme to boost domestic car sales.

"The scheme is expected to boost demand for new cars by 500,000 units and would significantly drive the tax collection in 2012 higher," Phongpanu Svetarundra, director-general of the Excise Department, has said.

Thailand is expected to produce 1.9 million vehicles in 2011, of which 1 million will be for exports and the remaining sold in the domestic markets, industry data show.

"This will support sales of car priced below 1 million baht," Kim Eng Securities analyst Woraphon Wiroonsri said.

Cabinet also agreed with a plan to buy unmilled rice from farmers at a guaranteed price of 15,000 baht per tonne, double the market price at election time, and Jasmine rice will be bought at 20,000 baht between Oct. 7 and Feb. 29, 2012.

The government said the scheme would cost it about 400 billion baht ($13.3 billion) in lost revenue.

The cabinet also agreed to extend the excise tax cut for diesel for another three months to the end of 2011, and Thirachai said this would cost the government about 25 billion baht ($830 million) in lost revenue. The excise tax for diesel was cut to 0.005 baht per litre from 5.31 baht by the previous government as it tried to cap the retail price at 30 baht.

Copyright Reuters, 2011