Thailand should focus on developing its service industry and strengthening the public sector to hasten its escape from the middle-income trap and upgrade to a high-income country in 14 years, says the Thailand Development Research Institute (TDRI).
Thailand’s service industry should shift from a labour-intensive system to a skill- and knowledge-based structure to enhance productivity, TDRI president Somkiat Tangkitvanich told the think tank’s annual seminar yesterday.
He said the move would induce Thailand’s annual economic growth to increase beyond 5% over the next 30 years, while real GDP per capita would reach US$28,402, pushing the country to high-income status by 2028.
On the other hand, if Thailand continues its moderate development, the country’s annual economic growth is estimated at 3.55% by 2045 and real GDP per capita at $17,016, extending its stay in the middle-income trap to 2036.
A stronger service industry would also lend support to the agricultural and manufacturing sectors.
Thailand has been stuck in the middle-income trap for decades, and academics are urging the government to seek ways to upgrade it.
Mr Somkiat said Thailand could continue developing its manufacturing sector, but the development proportion should be reduced since this sector is associated mainly with exports, which are at risk of falling, given fragile global economic growth.
“Export growth this year is negative, so we cannot rely solely on exports, and we must adjust our economic model by focusing more on the service industry,” he said.
Deunden Nikomborirak, the TDRI’s research director for economic governance, said despite Thailand’s strength in macroeconomic management, the country’s problem was low productivity from capital and human resources.
“In the past, our development model concentrated on excessive injection of capital and labour, but we cannot go on following this model, as our workforce is limited and our capital inefficient,” she said.
The government is the key factor to Thailand’s development over the next 30 years, Mrs. Deunden said, citing the World Economic Forum’s Global Competitiveness Report 2014-2015, which indicated that he country’s public sector was the weakest pillar.
Bangkok Bank executive chairman Kosit Panpiemras said three main issues kept Thailand from developing — economic growth productivity, exports and household debt accumulation.
Thailand’s economic growth was roughly 7% during the 36 years prior to 1997, but the growth rate fell to about 3% after 1997, he said.
Meanwhile, Thais’ savings do not match their longer life expectancy, contributing to an increase in debt accumulation, Mr Kosit said.
He said the government must shoulder the ageing population’s social security but collects only 17% of tax revenue, and this could become problematic in the future.
Somchai Jitsuchon, the TDRI’s research director for inclusive development, said tax reform in Thailand should be aimed at increasing tax revenue rather than imposing taxation targeted at enhancing social equality, as the country faced insufficient tax revenue compared with the hefty public expenditure it had planned.
Taxation based on property, namely the inheritance and gift taxes as well as the land and buildings tax, is not expected substantially to boost the tax revenue stream for the government, he said.
Mr Somchai said increasing value-added tax and expanding the brackets of personal income tax were more practical.
Tax revenue may have to increase to as much as 20% of GDP in the next 10-20 years to offset higher public spending on social welfare, health care and education, he said.
He also supports the government’s idea of implementing a negative income tax.
Negative income tax is a system that allows people earning below a certain amount to receive a subsidy from the government for the shortfall portion instead of paying taxes.
This article is first published in Bangkok Post on November 25, 2014.