How long will the Thai middle class support Ying luck’s populist policies?

Sorry, I don’t know the answer.

But something that continually amazes me is how people outside Thailand seem fixated on the fact that Thailand has a female Prime Minister. I didnt even think about it and was surprised when someone asked me what I thought about her. To be honest, I havent thought much about it. Most people consider her to be a puppet of her brother Thaksin and brought to power on the wave of pro-Thaksinism (and anti-military coup sentiments). Oh yes, and many men comment on her good figure but I guess thats fair as many women thought Abhisit was eye candy.

In a recent Nation editorial, the question of how long will the Thai middle class (a misleading term used to refer to Bangkok Thai) stand by as Ying Luck institutes populist policies was posed. The suggestion was that her populist polices for raising the minimum wage will create more harm in the long run:

The small number of people who actually pay taxes in Thailand are being forced to finance potentially disastrous schemes they don’t support

It is now almost certain that the Yingluck government will not make balancing the budget one of its policy priorities, largely because the Pheu Thai Party has to fulfil its campaign promises to supporters. But has the government asked the nation’s small number of taxpayers whether they want these massive spending schemes?


The country’s tax revenue is provided by only a small group of people. According to statistics released last year, only 2.3 million people nationwide pay personal income tax to help finance public spending for the country’s population of more than 64 million. Some 9 million people file personal income tax returns each year, but the majority are exempt from tax liability as they earn less than Bt20,000 per month.

In the meanwhile, middle-income earners have been squeezed between the rich and poor. Some 60,000 people each year pay taxes in the highest bracket of 37 per cent, which applies for an annual income of more than Bt4 million per year. This group of 60,000 accounts for as much as 50 per cent of total personal income tax collected each year. And a full one-third of income tax collected is paid by just 2,400 people in the country who earn over Bt10 million per year. The richest 20 per cent of the population accounts for 54 per cent of total income, while the poorest 20 per cent accounts for just 4.8 per cent, according to the Finance Ministry.

The Yingluck government’s populist policies are unlikely to address this inequality in income figures. But even worse, they could make the gap even wider.

This small group of taxpayers does not expect a populist windfall to benefit them, but it does expect a decent return for hard work and a productive, fair and conducive environment for their businesses to thrive on. Unfortunately, their voices are being ignored by the government.

One Asian Correspondent (a Red Shirt Pheu Thai supporter?) questions the Nation’s logic. He points to the Asian Development Bank report in relation to Indonesia, which states that raising the minimum wage does address inequality in income and will not make the gap wider :

Between 1993 and 2007, nominal minimum wages have increased more than eight-fold while real minimum wages have increased by roughly 50%.


Wage inequality has decreased in Indonesia over the past few decades. Our results suggest that minimum wage legislation has played a significant role in reducing wage inequality in Indonesia by raising the wage levels of working individuals in the formal sector who initially have monthly wages below 90% of the monthly minimum wage line, while having no effect on working individuals with monthly wages 90% and above the monthly minimum wage line. We found these results are robust to variations in the specification. Our findings are in contrast to much of the development literature on minimum wages (Fajnzylber 2001 and Maloney and Nunez 2001) that have found that increases in the minimum wages in the formal sector often spill over to the self-employed or informal sector, as we find no such effect.

Rises in minimum wages however are accompanied by significant and substantial increases in the number of hours worked per week for those who make roughly the minimum wage. Moreover, increases in minimum wages are accompanied by a decrease in the probability of employment in the formal sector. These potentially negative effects can work to mitigate

any overall benefits that may accrue from increases in the minimum wage. In particular, given that formal sector work provides more stable and consistent income streams and leads to better health outcomes as emphasized by Loewenson (1998), especially at the bottom end of the wage distribution, then gains in wages make it difficult to assess whether the lower end of the distribution of working individuals are actually better off overall given that they also experience significant decreases in formal sector employment. Bird and Manning (2008) suggest that on the whole, minimum wages really do not have a positive beneficial effect for the majority of the population. Our results seem to confirm this conclusion as working individuals throughout the wage distribution appear to lose formal sector employment. However, if policy makers are simply concerned with combating rising wage inequality in Indonesia, it does appear that marginally raising minimum wages may serve as a somewhat effective tool as the increase in monthly wages at the bottom end of the wage distribution overall outpaced any loss in monthly wages from people transitioning to the self-employed sector. Further work is needed to assess whether minimum wage legislation is truly an effective tool for combating inequities between the rich and poor populations by jointly estimating the wages, hours worked, and sector of employment.

The Asian Correspondent accepts that increases in the minimum wage will not always have benefits, but it is relevant that for Thailand as unemployment is very low and wage increases have not kept pace with productivity. In my view, there are definitely economic disparities that must be resolved. Thailand has one of the widest wealth gaps between the rich and poor with 20% of the country purportedly holding 80% of the wealth. Thaksin did nothing to help that gap but benefited from it. I have my reservations about Ying Luck – will she change the system that brought her to power?

 

 

 

 

 

 

It is a wait and see game for Thailand. Ying Luck has several difficult choices to make and the country is watching closely. The main dilemmas revolve firstly around whether and how she will bring her brother back to Thailand (who is striving to be back in the country before his daughter’s wedding at the end of the year!) , how she will bring about economic growth in a fair and just way, how she will deal with the Deep South insurgency which was aggravated by her brother’s damaging policies and whether she can successfully play the political game. In general, the middle class accepts it needs to give the current government time. However, there will be a limit: bringing Thaksin back will only rub the festering wounds…..

Time will tell.

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