The Thai government’s handout of 2,000 Baht

The new government’s approval of a 115 billion baht stimulus package was recently the talk of the town. One measure in the limelight was a cash handout of 2,000 baht per salaried worker earning less than 14,999 baht per month, at a cost to the government of 19 billion baht overall.

Though this is a direct consumer subsidization measure (often called negative tax), that has been launched for the first time in Thailand, it is not new in developed countries. Similar measures are utilized in many countries in North America and Europe in order to reduce poverty. For example, the United States grants Earn Income Tax Credit (EITC) to low income earners every year. In the United States, negative tax is also implemented as one programme in a stimulus package, for instance, early last year the Bush government granted $300 - $1,200 in cashier cheques to many American families. Bush’s cash handout measure in the early part of last year and Abhisit’s cash handout measure are not unalike.

While I agree to the cash handout measure in principle, I have one recommendation for improving its specific implementation, and I will elaborate on this in my next article. However, overall it is a measure that I support for at least three reasons, which are:

First, a direct money injection to the household sector may stimulate the economy more quickly than any other approach can, for example if regular government expenditure is authorized, it may involve a long succession of small payments made to qualifying citizens. In addition, as government expenditure must pass through companies working for government projects, any money aimed for injection at grassroots level, as usual, may be delayed and not arrive in its entirety.

Secondly, the cash handout measure is aimed to reach low income earners, who tend to spend their handouts, unlike high earners, who tend to save their money. A key to stimulate the economy is to increase private consumption, which during an economic crisis period will plummet, leaving the business sector unable to operate without buyers. For this reason, a money injection to the grassroots is a sensible and efficient approach to stimulate the economy, because more than any other policy stimulation measure, it will boost private consumption, with efficiency.

Lastly, a cash handout must be transferred to a household bank account, which is a transparent method of administration relying on clear beneficiary data and with traceable evidence of payment. Therefore, unlike a government investment project that may leave available loopholes for crooks, corruption is not that easy where government money is transferred via direct bank transfer to private accounts.

Although this cash handout measure is agreeable in principle, its administration still requires some improvements. I will elaborate on this process in my next article.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com