SOMCHAI JITSUCHON THAILAND DEVELOPMENT RESEARCH INSTITUTE 30 NOVEMBER 2011 BANGKOK, THAILAND Some Remarks on Costing, Affordability and Financing of Social Protection in Thailand

Costing Issues on Budget Cost  Two approaches (  Include overhead cost  Exclude overhead cost  Thailand’s fiscal structure might makes government cost too ‘overhead-intensive’, and lessen the government’s ability to support SPF.

Costing Issues on Poverty Line  Poverty line in Thailand has become ‘subjective’, and will be even more so in the near future.  Setting ‘minimum income’ = poverty line (for children, old age, disabled), can thus make SPF somewhat high and uncontrollable.

Affordability 2 Dimensions  Societal Affordability  Fiscal Affordability (or Sustainability) Societal Financial Sustainability  Depends on national income (per capita) Fiscal Affordability  Depends on national income  Tax collection/Tax reform  Non-social expenditure, such as economic infrastructure  Crisis Spending (stimulus, flood-prevention, etc)

Macroeconomic Projection Thailand might be at an important juncture with respect to its long-term economic growth 3 possible scenarios  Past-Path ‘Potential Output’ Approach (this is ‘business- as-usual’ projection), or Base Case  Structural Changes to overcome Middle-Income Country Trap, or High Case  Suffered from ‘Institutional Weakness’, or Low Case

Fiscal Affordability 3 Possible Scenarios  High Revenue (high GDP, stringent tax reform)  Medium Revenue (medium GDP, moderate tax reform)  Low Revenue (low GDP, minimal tax reform) Or other ‘combinations’  High GDP but moderate tax reform  Medium GDP with stringent tax reform

Possible Tax Reform Scenarios Tax Reform StringentModerateMinimal VAT (12.5%)  VAT (10%)  PIT Tax Base Expansion  CIT (educed tax rate, to 20%)  BOI (priviledge reduction)  Estate Tax  Capital Gain Tax (stock)  Windfall Tax  More/Higher Excise Tax 

Macro Projections Government Revenue Projections Education Innovation Institutional Quality Etc. Potential Output Structural Reforms Education 3 GDP Projections 3 Revenue Projections Tax Reforms, Formal/Informal Inequality

Financing Welfare System A general framework  Basic Level ---- Tax-financing  Additional Level ---- Co-financing  Premium Level Out-of-Pocket  (Possible some overlapping) How much basic is ‘basic Level’ depends on government affordability. Co-financing and out-of-pocket require careful management/market regulations