Subsidised Thailand: A fool's paradise

Subsidised Thailand: A fool's paradise

The Supreme Court's decision last week to order former prime minister Yingluck Shinawatra to stand trial on May 19 over her government's rice-pledging scheme was not unexpected.

But rather than feeling sorry for her or satisfied with her demise, Thai society as a whole needs to ponder the big picture.

The chief question we need to ask: Are subsidies, now and in the future, necessary for Thailand? If something goes wrong, who should be held responsible and on what grounds?

First, we need to realise that Thais are now accustomed to many forms of subsidies.

In the health sector, millions can seek medical treatment for Bt30 (S$1.30) per visit.

In the agricultural sector, farmers enjoy price guarantees plus subsidised-fuel vouchers and discounts on fertilisers.

Rice farmers enjoy the lion's share of state benefits, worth about Bt200 billion per year according to official estimates.

Subsidies are also extended to farmers who grow rubber, cassava, oil palm or even red onion or garlic. If the world sugar price drops, we can expect sugarcane growers out on the streets demanding subsidies.

However, the biggest subsidies go to the energy sector.

The most common methods the government uses to keep fuel prices low is to fix them below the world market rate, to offer grants such as fuel allowances for farmers and fishermen, to hand out free or discounted fuel (eg, lPG cylinders) and offer tax breaks for commercial or industrial users.

"Fuel and electricity subsidies are clearly benefiting some consumers, including the poor, who rely on subsidised liquefied petroleum gas (LPG) for cooking and free electricity. However, evidence shows that energy subsidies have unintended consequences for the economy, the environment and social equity. They strain public finances, encourage over-consumption, and benefit wealthier citizens far more than the poor," the International Institute for Sustainable Development said in its report "A Citizen's Guide to Energy Subsidies in Thailand".

Subsidies divert government budget away from productive investment. T

hey also encourage over-consumption that leads to pollution. Subsidised diesel has proven especially popular among Thais, accounting for about half of all the petroleum products we consume.

In 2012 alone, the subsidy bill for the energy sector cost the taxpayer an estimated Bt195 billion.

That amount is more than half of the budget the junta is setting aside for the high-speed rail link from Bangkok to Nong Khai, and nearly four times higher than the budget approved last week for water and road projects.

Still, few of us complain about the energy subsidies. One possible reason is that they benefit vehicle owners, the middle class. Another could be that nearly all of the 50,000-plus taxis have shifted from oil to gas in the past few years.

Lower gas prices mean lower fares for passengers.

Things are a little different in agriculture.

Farmers who grow other crops cried foul over the Yingluck government's huge Bt200 billion handout to rice growers.

Well, rice fields account for about 150 million rai of land, compared to just 49 million rai for other crops combined and 14 million rai for trees (with or without fruits).

Rubber growers also enjoy sizeable aid from the public purse.

The junta government has added an assistance fund worth Bt8.5 billion to the Bt20 billion the Yingluck administration set aside to buy rubber for government investment stocks.

This is on top of Bt10 billion for a low-interest-loan scheme.

At 22 million rai, rubber plantations cover an area only one-seventh that of rice farms. Government assistance for rubber growers is one fourth of the amount enjoyed by rice farmers.

No one is asking who would take responsibility if the Bt10 billion loan scheme turns sour.

The rice-pledging programme lost up to Bt200 billion annually, or Bt600 billion in total, according to the National Anti-Corruption Commission and public prosecutors. Few asked how much benefit actually reached farmers.

Subsidies are mostly politically motivated and few create long-term benefits.

There are exceptions: No one wants to scrap the universal health scheme, as public health services are a necessity.

Likewise, part of the energy subsidy goes to renewable energy producers, which tend to benefit the environment on which we all depend.

But generally, it is difficult to single out good subsidies from bad ones, which enables people in power to continue buying support through public funds. And the beneficiaries will always keep quiet.

In countries like Thailand that lack the administrative capacity to offer social and economic support through other policy mechanisms, subsidies will remain a tangible way for governments to show that they are supporting their people.

Sadly, bringing Yingluck to court will not end this vicious cycle. Worse, the international community is puzzled that a former leader may be convicted because of a government policy.

It is unlikely that Obamacare, however poorly planned and executed, will lead to something similar.

Subsidies will only be done away with when policymakers and the general public as a whole realise that they do not equate to long-term benefits and that they just pass the burden onto other sections of the population.

Everybody is footing the bill, one way or another.

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