Report No. 574-TH = A Study of Public Finances !r , in Thailand E$k (In Four Volumes) IN Volume II: Annex A-The Public Sector of Thailand 0NE Annex B-Public Sector Accounts Annex C-Quantitative Examination of Public Finances October 31, 1974 East Asia and Pacific Department Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsiblity for the accuracy or completeness of the report. CURRENCY EQUIVALENTS Ourrency Unit - Baht us $1.00 = B20.00 $1.00 = US$0.05 $ 1.00 million us $50,000 $ 1.00 billion US $50 million Note: The Baht was maintained at a parity of $ 20.8 = US$1.00 until July 1973 when it was revalued to $-20.0 US$1.00. An average exchange rate of $ 20. = US$1.00 has been used for 1973 in this report. FORXWORD This report is based on the finding of a Public Finance Study Mission that visited Thailand from January 10 to February 8, 1974. The Mission consisted of Oktay Yenal (Chief), Kazuko Artus (Fiscal Economist), Karl Stichenwirth (Public Enterprises), Kenneth Hubbell (Local Finance and Regional Development), James Theberge (Industrial Incentives), and was assisted by Lawrence Hinkle (Country Economist) and Bernard Schmutz (Resident Economist). Woo Sik Kee contributed to the analysis of taxation. Ubolwann Binmahmood was secretary to the Mission. The report was updated and revised after discussions of the draft with the Government. The Mission gratefully acknowledges the assistance of the Thai Working Group under the chairmanship of Dr. Amnuay Viravan and later Mr. Nukul Prachuabmoh. The members of the Working Group contributed substantially to the preparation of the report and commented on an earlier draft. Naturally, they bear no responsibility for the contents, inter- pretations and the conclusions of the report. TABLE OF CONTENTS ANNEX A: The Public Sector in Thailand ANNEX B: Public Sector Accounts ANNEX C: Quantitative Examination of Public Finances ANNEX A: The Public Sector in Thailand ANNEX A: THE PUBLIC SECTOR IN THAILAND Table of Contents Page No. I. INTRODUCTION ...................................... 1 II. PUBLIC SECTOR ...................., 1 Central Government ................................ 1 Local Government .................................. 3 State Enterprises ................................. 6 Decentralized Agencies ............................ 7 III. PUBLIC FINAICE .................................... 7 Central Government Finance . ....................... 12 Local Government Finance .......................... 18 State Enterprise Finance .......................... 20 Suggestions for Reform ............................ 21 I. INTRODUCTION 1.01 This annex provides a summary description of the public sector in Thailand, focussing on the financial relationship among its branches. State enterprises and local government are given detailed attention in Annexes D and E respectively. II. PUBLIC SECTOR 2.01 The public sector in Thailand consists of the Royal Thai Government (RTG), local governments, a number of state enterprises and decentralized agencies. This public sector is characterized by the strong concentration of power in the central government (RTG). The activities of the rest of the public sector are substantially controlled by the central government. 2.02 However, the central government itself is an uncentralized entity. It is probably more accurate to conceive of the Royal Thai Government as a collection of agencies which independently seek to control the activities of various sections of the public sector than to conceive of it as a monolithic entity at the core of the public sector. Central Government 2.03 The Ryoal Thai Government comprises the Prime Minister's Office, eleven ministries and five independent units including the Parliament and the Royal Household. Each ministry consists of the Under-Secretary's Office and several departments. Each department in turn consists of a few divisions. The Prime Minister's Office also consists of several agencies similar to departments. 2.04 As mentioned above, the lRTG is a decentralized entity. Many agencies at sub-ministerial levels have considerable autonomy. The Under-Secretarv is the highest ranking civil servant in each ministry, but hie/she does not ne- cessarily supervise the activities of individual departments in the ministry. There is often very little coordination among the departments in a ministry, despite that they are usually engaged in similar or closely related activities. Annex A Page 2 2.05 The central government is the principal supplier of public services in the country. It is exclusively responsible for defense, police service, industrial promotion, exoort promotion, irrigation and land settlement (ex- pansion of cultivated land). It also provides most social services, although local governments participate in these activities; in education, municipal governments are responsible for primary schools in their precincts, but the central government is responsible for all other services including the super- vision of private and municipal schools. In health care, too, local governments make a minor contribution, but most public health care services are provided by the central government through government hospitals and health centers. 2.06 The central government is directly responsible for construction and maintenance of highways. water works in non-metropolitan areas, 1/ the oostal service and the international teleplhone service. 2/ Other public utilities (electricity, metropolitan water works, TV broadcasting, domestic telephone service, air transportation, port administration, railway services, anCi. housing) are provided by state enterprises, but the central government controls their pricing policies and investment projects. 3/ In addition, the central government directly undertakes local administration and controls the activities of local governments. 4/ 2.07 Within the central government, the responsibility for various public services is spread over many departments and in some cases over many ministries. For example, the responsibility for provincial water works is shared by the Dtepartment of Public W4orks (Ministry of Interior), the Department of Mineral Resouirces (Ministry of Industry), Rural Water Supply Division (Department of Public HIealth Promotion, Ministry of Public Health), and Accelerated Rural Development Office (Ministry of Interior). To coordinate inter-ministerial 1works, the representatives from these agencies form the National Water Supply Committee. 1/ A state enterprise (the Metropolitan W4ater Works Authority) is in cfharge of water works in the Bangkok and in two adjacent provinces. 2/ The Post and Telegraph Office is a department of the Ministry of Communications. / See Annex 1). 4/ See Annex E. ANNEX A Page 3 2.08 Education is another service within the jurisdiction of several ministries. At the primary level, the Department of Local Administration (DOLA, Ministry of Interior) is responsible for most government schools, and the Department of Elementary Education (Ministry of Education) is in charge of only a small number of demonstration schools. 1/ The principal responsibil- ities of the Ministry of Education are secondary education, vocational educ- ation, post-secondary technical education, teacher training, and adult education. However, the responsibility for education planning rests with the Office of the National Education Council and the National Economic and Social Development Board (both in the Primary Minister's Office). Universities are supervised by the Office of State Universities (also in the Prime Minister's Office), but they are endowed with departmental status and hence with a con- siderable autonomy. Unlike the case of provincial water works, the agencies involved in education services have not established an inter-ministerial organization. 2.09 This segmentation of related activities combined with the lack of inter-departmental and inter-ministerial coordination of works tends to cause wasteful use of resources in the central government. As mentioned later, the fiscal administration and the allocation of public funds are also spread over a number of agencies, making efficient use of resources almost impossible. Local Government 2.10 There are two categories of local administration agency in tiic country. The first are the central government branches in the provinces, referred to as "provincial administration' in Annex E. The second are local government bodies outside the central governmrent, which exist in four forms; the Bangkok Metropolitan Government, provincial government, municipal govern- ment, and sanitary district government. 1/ At the beginning of 1974, the government is considering the transfer of the Primary Education Division of DOLA to the Ministry of Education. ANNEX A Page 14 2.11 The main function of local governments is the delivery of social/ community services, whnile provincial administration offices are in charge of general administrative works in provinces - including budget control. lowever, the local governments and the provincial administrations are closely related. Several officers of the central government in provincial administration offices participate directly in local governments. 2.12 The provinces are the largest geographical unit of the central government local administration. In all provinces except for Bangkok the central government has its representative (or branch) office, the Provincial Administration Office, consisting of the governor, the deputy governor, and the chiefs of the provincial branch offices of various central government ministries and departments. 2.13 The governors in non-metropolitan provinces are central government civil servants responsible to the Under-Secretary of the Ministry of Interior, and they are assigned the governorship by appointment of the Minister of interior. The deputy governors are the officials of the Department of Local Administration (Ministry of Interior). The chiefs of other central government ministry/department offices are civil servants of the respective ministries/ departments; they report directly to their home agencies, and not to the governor. There is no Provincial Administration Office in the Bangkok 4etro- polis, but the governor of Bangkok Metropolis is a political appointee of the Cabinet. 2.14 Each province is subdivided into adrninistrative districts (Amphors). The District Offices are purely the extensions of the central government. They consist of the administrator (Nai Amphor), the Local Administration Section, and several officers from various central government agencies. The adm.in- istrator and the staff of the Local Administration Section are the officials of DOLA. 2.15 While the province is a unit for central government local admin- istration, there also exists in each province a local government body, the provincial government. It is however an unusual sort of local government. Its chief executive is the provincial governor, who is, as mentioned above, a ANNEX A Page 5 central government official. In this aspect the provincial governments are not genuine local governments. The legislative section of the provincial government is the provincial council (Sapa Changwat). Its members are normally elected by the residents of the province. 1/ The provincial council controls the activities of the governmor (i.e., the governor as the chief executive of the provincial government) but does not control the activities of the Pro- vincial Administration Office. Another peculiarity of the provincial govern- ment is that its jurisdiction is restricted to those areas of the province which lie outside the jurisdictions of municipal government and sanitary dis- trict government; thus the provincial government is a local government in charge of residual areas, which are too rural to form municipalities or sanitary districts. The Bangkok Metropolis does not have a provincial government, as there are no residual areas to be served by a provincial government. 2.16 The municipal government consists of the municipal council and the board of municipal councillors. The members of the municipal council are normally elected by the residents of the municipality. 2/ The board of municipal councillors consists of the mayor and of councillors, who are appointed by the provincial governor from the members of the municipal council with the approval of the latter. In the case of the Bangkok Metropolis, the mayor is the same person as the governor. 2.17 M-lunicipal govermments are endowed with greater autonomy than local governments of other forms. Nevertheless, thiey play a small role in local administration. Their major responsibilities are elementary education in municipal areas, local road construction, drainage maintenance, and healthi care services; some municipalities provide medical services through municipal hospitals and health centers. 1/ The normal election practice has been suspended since December 1i, 1971. The present members of the provincial councils are appointees of the Minister of Interior. However, the return to the election procedure is expected in the near future. 2/ As in the case of the provincial council, the norr!ul election practice has been suspended since December 16, 1971. However, a return to the normal procedure is expected in tine near future. ANNEX A Page 6 Z.Is Sanitary districts are communities less urban than municipalities. Sanitary district government - the board of the sanitary district committee - comprises the district administrator (Nai Ariphor, mentioned above), an assistant to the district acministrator (Palat Amphor), a district public health officer, a district accountant, and six residents of the sanitary district. 1/ The board chairman is the district administrator, who is a DOLA official. The partici- pation of the central government officers in sanitary district government is more direct than in municipal government. The major responsibilities of sanitary district government are local road construction, drainage maintenance, minor health care services, and sanitary works. State Enterprises 2.19 The "state enterprises" of Thailand are autonomous or semi-autonomous organizations which perform entrepreneurial or quasi-entrepreneurial activities in accordance with the policies of the central government. There are about 80 state enterprises. Some are corporations in wlhich the central government - usually a department or a ministry - is the major shareholder; but some are de facto the special accounts of central government agencies. Some are establ- ished by specific acts, some by Royal Decrees, and some by the Civil Code, and Som.e others are established by the Cabinet Resolutions. 2/ The state enter- prises of the first two types are companies wholly owned by the central govern- ment. Those of the fourth type do not have the company status. 2.20 The activities of state enterprises cover a wide range. Some are revenue instruments of the central government; examples are the Thai Tobacco ATonopoly, the State Lottery Office, and the Playing Card Factory. Others are tCie agencies for providing promotional services to the agriculture sector; examples are the Forest Industry Organization, the Rubber Plantation Organi- 2 ation, the Fish Marketing Organization, and the Bank of Agriculture and Agricultural Co-operatives. Yet others are straight-forward public utilities; examples are the Electricity Generating Autliority of Tlhailand, the State Rail- ways of Tlhailand, and the Metropolitan Water Works Authority. The Government 1/ The term "district" here refers to the administrative district (Amphor), which is distinct from "sanitary district" (Sukhapiban). 2/ Annex D. ANNEX A Page 7 Savings Bank is an instrument of the central government for selling bonds to the general public. Several manufacturing state enterprises were established for the historical purpose of introducing modern industries into the country. Some of these still remain in the public sector although they no longer serve the original purpose. Decentralized Agencies 2.21 In addition to state enterprises, there are organizations established for delivering specific public services according to the policies of the central government. Most of these are concerned with social services such as health care and education. The majority of thiem belong to one of the departments of the central government, forming spezial accounts of such departments, but some belong to local governments. And, as such, they are not genuinely autonomous. However, these agencies are allowedl to raise independent revenues as service charges or fees, and to use such funds at their discretion. III. PUBLIC FINANCE 3.01 The public finance system in Thailand is highly centralized, re- flecting the structure of the public sector. The central government accounts for a large proportion of the consolidated revenue and expenditure of the public sector, as can be seen in the following tables. Furthermore, the central government supervises and controls the financial transactions of local govern- ments and state enterprises to a large extent. ANNEX A Page 8 Percentage Share of Public Sector Revenue FY1967-FY1973 Average Central Government Current Revenue 81.5 Extrabudgetary Treasury Receipts 3.5 Foreign Grant Receipts 4.9 Central Government Revenue 89.9 Local Government Revenue J1 4.8 State Enterprise Operating Surpluses /2 5.4 Consolidated Total 100.0 /1 Net of transfers from central government. /2 Net of contributions to central government budget. Percentage Share of Public Sector Expenditure FY1966 - FY1973 Average Central Government Total Expenditure 90.0 Less: Transfers to the Rest of Public Sector -5.6 Central Government Direct Expenditure 84.4 Local Government Expenditure 5.5 State Enterprise Gross Fixed Capital Expenditure 10.1 Consolidated Total 100.0 3.02 Both in revenue and expenditure the share of the central government remained fairlv stable in the period from FY1966 to FY1973. On the revenue side, the share of the central government was about 90 percent and is likely to remain the same or increase unless a major restructuring of revenue is undertaken. 3.03 On the expenditure side, direct central government expenditure was about 85 percent, but public sector expenditure undertaken at the discretion of the central government was larger. Substantial portions of the transfers to local governments and state enterprises are made for purposes specified ANNEX A Page 9 by the central government - though not always through decisions taken uni- laterally. Furthermore, the central government controls and scrutinizes the budgets of local governments and state enterprises and can therefore influence almost entire public expenditure. 3.04 This concentration and centralization of public sector finances is not necessarily undesirable, and could even be thought to improve the efficiency of financial administration . However, at present the Thai public sector is not exploiting the potential advantages that the centralized public finance could confer. Responsibility for fiscal administration, which almost exclusively rests with the central government, is dispersed among different agencies within the central government, as in the case of many public services the central government provides. The major agencies concerned are: the Ministry of Finance, the Budget Bureau (Prime Minister's Office), the NESDB (Prime Minister's Office), the Department of Technical and Economic Cooperation (DTEC, Prime Minister's Office), the Bank of Thailand, the Office of National Audit Cormission. 3.05 Revenue administration is the principal responsibility of the Ministry of Finance. The three departments of the Ministry of Finance (Revenue Depart- ment, Excise Department and Customs Department) collect major central government taxes and also a part of local government taxes. However, some departments outside the Ministry of Finance also collect central and local government taxes. All the agencies in charge of tax collection act independently, except that they receive some technical advice and policy guidelines from the Tax Policy Office of the Ministry of Finance. 1/ The following is the list of central government agencies in charge of tax collection: 1/ The officials of the Royal Thlai Government often use the term "the Ministry of Finance" to refer only to the Office of Under-Secretary and the Tax Policy Office, indicating the independent status of other departments. In particular, the three tax administration depart- ments, with their offices physically separated from the main building of the Ministry of Finance,seem to possess substantial autonomy. ANNEX A Page 1 0 Revenue Department (Ministry of Finance) Personal income tax Company income tax Business taxes (Gross receipt tax levied on consumption or sales of goods and services and collected from producers, importers or exporters in the case of most goods and from retailers in the case of services and certain goods.) Surcharges on business taxes (for local governments) Stamp duties (levied on certain financial transactions) Entertainment tax Surcharges on entertainment tax (for local governments) Swallows' nest collection royalty Excise Department (Ministry of Finance) Excise tax on petroleum products (levied on domestic refinery products) Excise tax on alcoholic drinks Surcharges on excise tax on alcoholic drinks (for local governments) Excise tax on non-alcoholic drinks Surcharges on excise tax on non-alcoholic drinks (for local governments) Excise tax on tobacco products Excise tax on snuff Excise tax on cement Excise tax on matches Excise tax on domestically produced mechanical lighters Excise tax on playing cards Liquor and other licensing fees Customs Department (Ministry of Finance) Import duties Export duties (on rice, rubber, raw silk, metal scraps, woods, raw hides, and other minor raw materials) ANNB A Page 11 Municipal rice export tax (for municipal and sanitary district governments) Office of the Under-Secretary of the Ministry of Finance Gold import premium Forestry Department (Ministry of Agriculture and Co-operatives) Royalties (on teak, woods, and charcoal) Forestry fees Agriculture Research Department (Ministry of Agriculture and Co-operative) Rubber license fees Fisheries Department (Ministry of Agriculture and Co-operatives) Royalty (on fishing) Department of Foreign Trade (Ministry of Commerce) Rice export premium Police Department (Ministry of Interior) Alien registration fees Lottery fees Gambling tax Surcharges on gambling tax (for local governments) Gambling license fees in the Bangkok Metropolis Firearm license fees in the Bangkok Metropolis Other license fees Automobile registration fees (for local governments)1/ Department of Local Administration (Ministry of Interior) Gambling license fees outside Bangkok Firearms license fees outside Bangkok Other license fees 1/ Prior to FY1973/74 the revenue from this source was a part of the central government budget, but ear-marked for local governments. ANNEX A Pate 12 Land Department (Ministry of Interior) Tax on the transfer of land Department of Local Administration Land Development Tax (for local governments) Department of Health Promotion (Ministry of Public Health) Food import license fees Food production license fees Department of Mineral Resources (Ministry of Industry) Mining royalties 3.06 The allocation of resources is the joint responsibility of the Budget Bureau, the DTEC, and the Foreign Loan Contracting Sub-Committee of the NE,DB. Although these three agencies are in the Prime ,linister's Office, there seems to be little coordination among their work, rendering the overall resource allocation less efficient than it could be. 3.07 The Budget Bureau is only responsible for the allocation of budgetary resources and plays little role in allocating various Other funds available to the central government, in particular, foreign grants and foreign loans. The administration of foreign grants is the responsibility of the DTEC. The administration and control of foreign borrowings of all public sector agencies, including local governments and state enternrises, are the responsibilities of the Foreign Loan Contracting Sub-Conmittee of the NESDB. liowever, domestic borrowing by the central government is administered jointly by the Ministry of Finance and the Bank of Thailand. The accounts of all public agencies are audited by the Office of the iNational Audit Commission, which is an independent bureau of the central government. Central Government Finance 3.08 The central government financial transactions are comprised of budgetary transactions and non-btudgetary transactions. The administration of budgetary transactions is the responsibility of the Budget Bureau, while ANNE A Page 1 3 the administration of non-budgetary transactions is dispersed among other agencies -- DTEC, Foreign Loan Contracting Sub-Committee, and the Bank of Thailand 3.09 The "budget" of the Royal Thai Government is divided into the receipt budget and the payment budget. The first constitutes the estimate of budgetary resources available from the following sources: (i) tax revenue; (ii) contributions from the Bank of Thailand; (iii) contributions from state enterprises; (iv) fines, fees, and proceeds from the sales of goods; (v) domestic borrowing; (vi) issues of new coins; and (vii) treasury cash balances. 3.10 The Bank of Thailand contribution to the central government budget is based on the Bank of Thailand Act. The Bank of Thailand is required by law to remit its entire net profit to the central government treasury, but in fact the amount of the contribution is determined each year through dis- cussions between the Bank of Thailand and the Ministry of Finance. The actual contribution has been about 75 percent to 80 percent of net profit. 3.11 The contribution by state enterprises are in the nature of dividends on shares held by the central government. The state enterprises established under the Civil Code remit to the Treasury the dividends calculated in the normal manner. Other state enterprises are expected to remit, in principle, at least 30 percent of their net profit. 1/ However, if such state enterprises have investment projects approved by the Cabinet and the NESDB ready for ex- ecution, they may be exempted from making dividend payments to the central government. On the other hand, a state enterprise with substantial profits 1/ The legal requirement is that these state enterprises remit 100 percent of their net profits. However, this regulation is not enforced. ANNEX A Page lb or retained earnings in cash may be requested to make a larger contribution. The Thai Tobacco Monopoly, the State Lottery Office, and the Playing Card Factory usually remit 80 percent of their net profits. 1/ Other budgetary non-tax current revenues include fines, rents, proceeds from the sales of government properties and other goods and fees for certain public services (e.g., passport fees and airport taxes). 3.12 The Budget Bureau estimates budgetary receipts available from all sources other than domestic borrowing on the basis of its own estimates and consultations with other government agencies. The ceiling on domestic borrow- ing is then established through discussions between the Bank of Thailand., the linistry of Finance and the Budget Bureau. 2/ The Budget Bureau submits these estimates of available budgetary resources to the Cabinet; and upon Cabinet approval these estimates become the "receipt budget," which sets the ceiling on the global size of the payment budget. 3.13 'Budgetary payments" are payments to be financed from budgetary resources. 3/ They include,in addition to the usual expenditures, the repay- ments of domestic and foreign debts and certain types of ta:x refunds. Budgetary :~ayments may differ substantially from total central government payments 1/ The public sector accounts throughout this report treat the contri- butions of these three state enterprises as tax revenues of the central government. 2/ The maximum annual ceiling is limited to 20 percent of budgetary payments by the Budget Procedure Act, and this regulation is enforced. 3/ However, in every fiscal year a part of budgetary payments are financed by extrabudgetary treasury receipts, which are the financial inflows to the central government treasury in the form of deposits from public sector agencies. ANNEX A Page 15 since they exclude expenditures financed by foreign grants and foreign loans. 1/ The figures in the recent years compare as in the table below. Central Government Budgetary Expenditure and Total Expenditure /1 (Billions of Baht) (1) (2) (3) (4) (5) (6) Actual Expenditure Including That Financed through Total Budgetary Foreign/2 Budgetary Debt Expenditure (4) as % Sources - Payments Repayments (2) - (3) (1) - (4) of (1) FY1965/66 14.6 13.5 0.1 13.3 1.2 92 FY1966/67 17.7 17.5 1.0 16.5 1.1 93 FY1967/68 20.8 19.5 0.1 19.4 1.5 93 FY1968/69 23.2 22.1 0.6 21.5 1.7 93 FY1969/70 24.9 23.8 0.2 23.6 1.3 95 FY1970/71 28.4 27.7 0.6 27.0 1.4 95 FY1971/72 30.4 30.4 1.0 29.4 1.0 97 /1 All figures in this table are on a cash basis. The "budgetary payments figures in column (2) therefore differ from those published by the Budget Bureau, which are on a closed account basis. /2 Net of debt repayments and tax refunds. Source: Bank of Thailand 3.14 Budgetary requests start with the smiiallest spending units of the central govenment and the agencies outside the Royal Thai Government. De- centralized agencies such as government schools and hospitals submit their budget requests to the central government agencies which supervise thLem 1/ Foreign grants and loans and expenditure they finance are not included in the central government budget. However, a part of the expenditure to be financed from these sources is occasionally included in the budget in order to allow the start of a project before the expected foreign grant/ loan disbursement commences. The treasury receives reimbursement of this amount as soon as the spending agency receives funds from external sources, and this treasury receipt is treated as a budgetary receiDt. ANNEX A Page 16 (departments or divisions of the central government). Local governments in need of financial assistance from the central government submit their requests either to the DOLA or other agencies related to the projects/programs in question. State enterprises asking for central government assistance may submit their budget requests to the Budget Bureau directly or to other central government agencies which supervise the respective state enterprises. Within the central government, budget requests are prepared by divisions or even smaller units. 3.15 All requests are consolidated into departmental requests by the finance Divisions in individual departments, and are submitted to the Office of the Under-Secretary. Departmental requests are then consolidated into ministerial requests for submission to the Budget Bureau. 3.16 The Budget Bureau determines the allocation of budgetary resources on the basis of: (i) the global ceiling on payments, determined by the size of the "receipt budget"; and (ii) the relative priorities of the projects or programs in the ministerial budget requests. 3.17 The allocation of resources for development projects or programs is supposed to be based on the relative priorities spelled out in the Annual Plan, which the NESDB prepares in line with the Five-Year Development Plan. The budget appropriation ought to be a joint responsibility of the Budget Bureau and the NESDB if the two agencies follow7ed this principle. However, in prac- tice the relative priorities of projects or programs are determined by the Budget Bureau alone, due to the lack of coordination between the two agencies. 1/ 3.13 The payment budget is recorded under three heads; the spending agency, the object of the paymbnt, and type of activity. The activity classification is similar to the functional classification adopted in the TN System of National 1/ The Btudget Bureau complains that the Annual Plan is not ready before the time the budget has to be drawn. ANNEX A Page 1 7 Accounts (SNA). 1/ However, there are minor deviations from the SNA classifi- cation. For example, pensions fro former govermment employees are treated as social security benefit payments. 2/ An additional expenditure classification which would be useful is a classification by geographical area for which pay- ment is made. The geographical distribution of public services is becoming an important issue in Thailand, but the existing budget records provide no information on this point. 3.19 In addition to budgetary resources, the central government obtains financial inflows of the following forms: (i) foreign grants; (ii) foreign loans; (iii) deposits of public agencies with the treasury; and (iv) independent revenues of departments, ministries and decentralized agencies. 3.20 Of these the central government treasury only receives public agency deposits. They are referred to as "extrabudgetary treasury receipts" in this report. Major components of this item are the civil service provident fund and the deposits of state enterprises. 31 The funds thus received are used to supplement budgetary revenue. I/ United Nations, A System of National Accounts, 1963 2/ The SNA defines the social security scheme as follows: "Schemes imposed, controlled or financed by the public authorities for purposes of pro- viding social security benefits for the community or large sections of the community ... rand whichj involve compulsory contributions by employees and/or employers and cover the whole community or particular sections of the community ..." In Thailand, there are no schemes that conform to the SNA definition of the social security schemes. 3/ Legally, state enterprises and central government agencies are required to keep their cash balances in the form of deposits with the Treasury. Like other legal requirements, this regulati6t-is not strictly observed, though. ANNEX A Page 18 3.21 Independent revenues (fourth item above) are not centralized in any way. The magnitudes and the types of these revenues are not known either to the Ministry of Finance or to the Budget Bureau, and the use of the funds thus obtained are at the discretion of each agency. In the case of decentral- ized agencies the major source of independent revenue is probably their service charges, but they may derive income from porperty as well. 3.22 No government agencies give consideration to the global allocation of resources available to the central government. Owing to the structure of the budget, the Budget Bureau is not bound to pay attention to expenditures financed from foreign resources. This segmentation of work is causing an unduly inefficient allocation of financial resources. This problem could be mitigated if closer coordination were established among the Budget Bureau, the Foreign Loan Contracting Sub-Conmittee, and the Department of Technical and Economic Cooperation. 3.23 However, consolidation of resource allocation work would not of itself solve all the problems that exist now. Efficient resource allocation is also made difficult by the mode of operation of the central government. 3ifferent central government agencies are engaged in similar or closely re- Lated activities, but they seldom attempt to coordinate their works. In this situation, the introduction of effective program budgeting is practically i:mpossible. Local Government Finance 3.24 The term local government finance a-plies to the finances of Bangkok !czropolitan Government, provincial governmTents, municipal governments and sanitary district governrents. Local governments have little weight in the nhal public finance. Their revenues account for about 5 percent of the revenue of the public sector; their total expen.diture also accounts for about 5 percent of consolidated public expenditure. 1/ Furthermore, the allocation of financial resources available to the local governnients are largely determined by the <'inlsistrv of Interior or the Department of Local Administration. 1/ Cf. tables on page 8. ANNEX A Page 1 9 3.25 The sources of their current revenues are: (i) Local taxes Land development tax (levy on land holding) House rent tax (tax on the gross rent receipts from residential buildings) Signboard tax Slaughtering tax Municipal tax on rice export (imposed on paddy, cargo rice, hiite rice, broken rice, and bran which are liable to export duty) Automobile registration fees (transferred from the central government at the beginning of FY1973/74) (ii) Surcharges on central government taxes Business tax 10 percent surcharge Liquor and beverage excise taxes 10 percent surcliarge Liquor sales license fee 10 percent surcharge Gambling tax 10 percent surcharg7e (iii) Non-tax sources Fees, permits, and fines Property income Operating revenue from public utilities and enterprises Miscellaneous revenues 3.26 The revenues from these sources have been sufficient to finance roughly 75 percent of local govern-ment expenditure. The ratio of current revenue to expenditure is about the same as the corresponding ratio for the central government. However, this shotild not be taken as an indication that the fiscal position of local governments is as comfortable as that of thie central government. rhe regulation o01 local government budgeting stipuilates that thie 'ordinary" expenditure of eachi local government should not exceed ANNEX A Page 20 95 percent of its revenue. It is not clear whether this regulation is strictly observed, but it seems certain that local governments are forced to limit their non-developmental expenditures. 3.27 The second source of local government.finance is transfers from the central government in the form of loans and grants. The magnitude of the transfers has been about one-fifth to one-third of local government expendi- tures. Some of these transfers are general purpose budget subsidies, but the rest are earmarked for developmental purposes. 3.28 Local governments are required to deposit a certain portion of the excess of receipts over expenditures in the reserve fund accounts admin- istered by the Ministry of Interior (or by the cormmittee set up by the Ministry of Interior). 1/ Local governments can withdraw the deposits or overdraft on their accounts with prior approval of the Ministry of Interior (or the re- levant committee). 3.29 Another source of finance for local government are domestic and foreign loans. Domestic loans must be approve6 by the 'Ministry of Interior. In the case of foreign loans to be guaranteed by the Ministry of Finance, the project must be approved by the Foreign Loan Sub-Committee and by the Cabinet. So far, the Bangkok Municipality has been the only local government which has borrowed from external source. State Enterprise Finance 3.30 For many of the better-miianaged state enterprises operating surpluses constitute a major revenue sou-rce. In additioTI, some enterprises have a small .7mount of property income accruin; from their real estate holding and some '/ "egulations require tnat municipal governments deposit 30 percent of the surpluses with the Municipal Authority Promotion Fund, sanitary dis- trict governments deposit 50 percent with the Sanitary District Authority Promotion Fund, and provincial governments deposit 100 percent with the Ministry of Interior. ANNEX A Page 21 interest earnings on deposits in comTiercial banks. 1/ Capital expenditure is financed from internal resources (accumulatec! operating surDluses and depre- ciation allowances), loans, grants and capital contributions from the central government, borrowings from commercial banks and foreign loans. There are no clear criteria for determining tne form that financial assistance from the central government must take. however, in practice funds are provided in loan form for projects wihich are expectecl to generate operatinv surpluses. 3.31 A state enterprise can obtain loans or suppliers' credits without the guarantee of the Miinistry of Finance. However, when such a guarantee is required the form of the loan (foreign loans, foreign suppliers' credits, domestic bond issues, loans from the Government Savings Banlk or from the Krung Thai Bank 2/) must be approved either by the 'Iinistry of Finance (in the case of domestic loans) or by tihe Foreign Loain Contracting Sub-Committee anl1 the Cabinet (in the case of foreign loans and suppliers' credits). 3.32 State enterprises are required to submit their current butdgets and capital budgets to their boards of directors for approval. The capital budgets presented mrst be detailed and include proposals for financing the investments. These capital budgets require the approval, of the State Enterprise Committee of the NESM, and also the approval of the Cabinet in the case of those enter- prises established by specific acts. Suggestions for Reform 3.33 While the central government determines the allocation of tL,e hulkk of public resources, the segmentation of authlority within the central govern- ment deprives the financial administration system of much scope for unified planning or programming. At present only the auditing function is truely 1/ Legally, state enterprises must keep all their cash balances in the form of non-interest-bearing deposits with the Treasury. Hlowever, this regulation is not enforced in the case of thiose enterprises under the Civil Code. 21 Government Savings Bank and Krung Thai Bank are also state enterprises. ANNEX A Page 22 centralized under the Office of the National Audit Commission. This office examines the accounts of central government agencies, local governments, state enterprises and decentralized agencies. 1/ 3.34 Givenr the structure of thle public sector, where the central govern- ment is the decision-maker for the entire public sector and all other organi- zations are de facto its instruments, there seems no reason that the allocation of public resources cannot be centralized more systematically. The budgets of local aovernments and state enterprises could be combined with the budget of the central government explicitly to facilitate more efficient resource al- location. The practice of dividing resoonsibility for resource allocation by the source of finance should be abolishLed. Foreign loans, foreign grants and the independent revenues of departments and decentralized agencies should all be armalgamated into tne budget. HIowever, tile advantages of centralized and unified fiscal administration would be fully realized only if closer coordination of work can be simultaneously effected among spending agencies. 'Jowever, the accounts of t'nese public agencies are not assembled at any one place. Local government accounts are submitted to provincial governors (in their capacitv as the c'ief renresentatives of thle central government), but are not scnit even to tiie .linistry of Interior office '. Bangkok. Auditors visit, ProvinciLl )ffices to e:aamine tile records filed thiere. ANNEX B: Public Sector Accounts ANN}E B: Public Sector Accounts List of Tables *. i I. State of the Public accounts in Thailand .... 1 II. Public Sector Account Tables .*.. 5 ANNaX B Page i List of Tables Working Table la: Consolidation of Public Sector Accounts - FY1967 6... 6 Working Table lb: Consolidation of Public Sector Accounts - FY1970 ... 7 Working Table ic: Consolidation of Public Sector Accounts - FYI 973 .... 8 Working Table 2: Public Sector Accounts - Expenditure 9* - Working Table 3: Consolidation of Public Sector Accounts - Revenue .. Table B-1 Public Sector Accounts .... 1 Table B-1a: Public Expenditure 16.. t6 Table B-1b: Public Rev-enue .. 20 Table B-2: Central Government Accounts .... 21 Table B-2a: Central Government Expenditure .... 2L Table B-2b: Central Government Current Revenue Table B-3: Local Government,Accounts .. 35 Table B-h: State Enterprise Account .... 3 Table B-ba: State Enterprise Gross Fixed Captial Expenditure & Finoncing ' ANNEX B Page 1 ANNEX B: PUBLIC SECTOR ACCOUNTS I. State of the Public Sector Accounts in Thailand 1.01 Information on the transactions of the public sector can be used to provide the basis for fiscal administration and resource allo- cation. This potential has not been well exploited in Thailand. 1.02 The Bank of Thailand is the only public agency which uses the global accounts of the public sector's financial transactions in formulating policies. The Budget Bureau and the departments of the Ministry of Finance pay attention only to that part of public sector transactions which directly relates to their jurisdictions. 1.03 The Bank of Thailand appreciated the importance of using the financial accounts of the public sector for formulating monetary policies in the early 1940's. Since then, the Research Department has been assigned the work of compiling the necessary data. 1.04 At present the public sector accounts prepared by the Research De- partment of the Bank of Thailand are the most comprehensive summaries of public sector transactions. However, there are certain shortcomings, as discussed below. These arise chiefly because the necessary raw data is diffi- cult to obtain. 1.05 Public agencies in Thailand keep records of their financial trans- actions, and submit summary statements to the officers of the National Audit Commission. However, these documents are not assembled in any one place. As noted elsewhere, the administration of public funds is fragmented among a number of agencies in the central government. 1/ The records of these transactions are also retained in segments by tFhese agencies. 1.06 The Comptroller-General's Department in the Ministry of Finance keeps the records of the transactions of the central government treasury. Individual local governments submit summary accounts to Provincial Admin- istration Offices, 2/ but the documents are retained in the provinces; the Provincial Administration Offices do not forward them to the office of the Ministry of Interior in Bangkok. The accounts of state enterprises are retained by individual state enterprises; they are not filed with any central government agency. 3/ 1/ Cf. Annex A. 2/ The offices of the provincial governors as the central governmeiit representatives in provinces. 3/ The State Enterprise Committee of the NESDB collects some summary information on the financial transactions of state enterprises by sending out questionnaires to individual state enterprises. ANNEX B Page 2 1.07 The Bank of Thailand obtains raw data from several sources and consolidates this data to show on a cash basis the accounts of transactions of the central government, local governments, state enterprises, and the public sector as a whole. Central Government Accounts 1.08 In the central government accounts, the transactions of the treasury are consolidated with the transactions concerning foreign grants and loans, which remain outside the treasury. 1/ However, these accounts do not incorporate the transactions of numerous special accounts, which also remain outside the treasury. 1.09 For example, the transactions of the revolving funds of central government agencies are not included. These revolving funds are set up in various agencies (often in departments) to allow them to make minor disbursements without going through budgetary procedures. Their major financial sources are the budgetary funds appropriated to individual revolving fundse 1.10 Tne Bank of Thailand accounts treat treasury disbursements to the revolving funds (based on budget appropriations) as "central government expenditure", while ignoring actual expenditure incurred and the revenue from non-budgetary sources. This practice may cause some distortions (likely to be understatements) in the central government expenditure and revenue figures. However, the degree of distortion is probably small, as the non- budgetary revenues of the revolving funds seem to be negligible. 2/ 1.11 The exclusion of the transactions of decentralized agencies is probably a more serious cause of distortion in the Bank of Thailand central government accounts. Public schools, hospitals, and other organ- izations established for the purpose of delivering certain public services have independent revenues - often in the form of fees or service charges. 3/ As in the case of the revolving funds, the Bank of Thailand accounts treat the treasury disbursements (based on budget appropriations) to the decentralized agencies as "central government expenditure" and ignore their own revenues and actual expenditures. 1/ The consolidation of treasury transactions and foreign grant/loan transactions is in itself very valuab'le. The Bank of Thailand is the only public agency that regards foreign grants and loans as a part of the financial resources for the central government, and for this reason the Bank of Thailand central govern- ment accounts are the only accurate source of information on the global transactions of the central gover.ment. 2/ There were about 120 revolving funds at the end of FY1972/73. The aggregate expenditure was $ 1,037 million in FY1972/73, and the aggregate revenue (including the budgetary funds appropriated to these revolving funds) was $ 1,090 million. The magnitude of the budgetary funds allocated to them is not recorded. 3/ The size of the independent revenue is not known. The Rubber Planting Aid Fund (a semi-autonomous agency of the Ministry of Agriculture and Co-operatives) collects a quasi-tax called a rubber cess from rubber exporters. The revenue from this source in FY1972/73 was $ 183 million (equivalent to about 0.8 percent of central government tax revenue), ANNEX B Page 3 1.12 This restricted coverage of the transactions of revolving funds and decentralized agencies mainly reflects difficulties in collecting the raw data. Since these transactions do not go through the central government treasury, 1/ they are not recorded by the Comptroller-General's Department. The Bank of Thailand would have to obtain the raw data from nunerous central government departments and decentralized agencies if it were to include these transactions properly in the central government accounts. 1.13 There is another factor that causes the tax revenues of the public sector to be understated. The tax administration departments of the Ministry of Finance collect certain taxes for local governments and retain small por- tions of the revenue as their commission. 2/ This part of revenue is not included in the tax revenue figures either7in the central government accounts or the local government accounts. 3/ Local Government Accounts 1.14 The Bank of Thailand local government accounts are based on qunestion- naires that the Provincial Administration Offices fill out at the request of the Bank of Thailand, However, the Provincial Administration Offices are not in a position to supply the detailed breakdowns of expenditure, revenue, or deficit financing. Their data sources are the summary accounts that individual local government submit to the Provincial Administration Offices. In these local government summary accounts, the expenditure is classified by the object of payments in accordance with budgetary regulations; 4/ no breakdowns are given by the purposes (the types of public services) of the payments. 1/ Except for the treasury disbursements of the funds to the special accounts in accordance with budget appropriations. 2/ The Revenue Departraent collects the surcharges on the business taxes and on entertainment tax and retains 5 percent of the revenue. The Excise Department collects the surcharges on the excise tax on liquor and on the excise tax on soft drinks and also retains 5 percent of the revenue. The Customs Department collects the municipal tax on rice exports and retains a fraction of the revenue. 3/ The revenue accrues to the Ministry of Finance; it is not remitted to the treasury. It would be proper to record the amount in local govern- ment accounts both as a part of local government tax revenue and as a part of local government expenditure, and in the central government accounts as a part of non-tax current revenue. However, the amount has been small - about 0.1 percent of the total "tax revenue" recorded in the Bank of Thailand public sector accounts. 4/ Cf. Annex E ANNEX B Page 4 1.15 The sources of funds are not well classified either. The summary accounts of local governments do not provide breakdowns of tax revenues. Borrowing from sources other than the Ministry of Finawce and the Reserve Funds are not separately identified and cannot be isolated from financing through the use of cash balances. 1/ State Enterprise Accounts 1.16 The Bank of Thailand state enterprises accounts are limited to gross investment in fixed capital. They record expenditure on gross investment - classified by industrial sectors - and show the sources of funds used for fi- nancing the investment. However, the details provided on the sources of fin- ance is not adequate to show the financial position of the state enterprise sector. The operating surpluses and deficits of enterprises are not recorded. State enterprise borrowings are identified only if they are guaranteed by the Ministry of Finance. Other borrowings are lumped with the operating surplus- es and the drawings on cash balances as "Own Resources". 1.17 The Bank of Thailand sends out questionnaires to individual state enterprises to obtain the data for the state enterprise accounts. It would not be difficult to revise the format of the questionnaires to collect additional information. 2/ Consolidated Public Sector Accounts 1.18 The Bank of Thailand sector account figures are derived as the consolidated totals of the three sectoral account figures, and as such suffer from the shortcomings of the individual sectoral accounts. The figure for public expenditure is basically the consolidated total of central government expenditure, local government expenditure, and state enterprise expenditure for gross investment in fixed assets. However, operating subsidies from the central government to state enterprises are added to the consolidated total to derive the figure for "public expenditure". 1.19 The reason that operating subsidies are included is that they constitute subsidies to those who purchase the output of state enterprises, assumed to be outside the public sector. However, for these subsidies to be reckoned accurately, it is the total operating deficits of state enterprises that are relevant rather than central government subsidies to state enter- prises, which may cover only a part of operating deficits. As mentioned above, the Bank of Thailand state enterprise accounts do not permit such operating deficits to be identified. 1.20 On the revenue side, the "consolidated revenue" figure shows the consolidated total of central government revenue, local government revenue, and "state enterprise self-financing" (the funds used by state enterprises 1/ Local governments are permitted to borrow from sources outside the public sector; cf. Annexes A and E. 2/ The State Enterprise Committee of the NESDB collects data on the opera- ting surpluses and deficits through questionnaires. At present there seems to be no coordination of work between the two organizations with respect to the accounts of state enterprises. ANNEX B Page 5 for gross fixed investment less capital grants and loans from the central government and the borrowings guaranteed by the Ministry of Finance). The last item could differ considerably from the operating surpluses of state enterprises. Therefore, the "consolidated revenue" figure does not necessar- ily show the true magnitude of the aggregate revenue of the public sector. 1.21 The "cash deficit" of the public sector is derived as the excess of consolidated public expenditure over consolidated public revenue. However, since the public revenue figure includes some borrowings of state enterprises, the deficit figure does not show the actual deficit. For the same reason, the borrowing figure does not show the true borrowing of the public sector. 1.22 Accurate information on public sector borrowing would be needed for formulating monetary policy. Correct information on the consolidated deficit of the public sector is necessary for evaluting the financial position of the public sector. Therefore, the Mission strongly suggests that the Bank of Thailand obtain data from state enterprises that show their operating surpluses, deficits and borrowings not guaranteed by the Ministry of Finance. 1.23 In addition, some thought should be given to utilizing the massive raw data that exist on the transactions of revolving funds and decentralized agencies. Those who are in charge of fiscal administration and planning should be informed accurately of the size of financial resources available to the public sector as well as the actual uses of the resources. 1.24 The Bank of Thailand has expertise in processing and consolidating the public sector accounts data, but: it does not have the power to demand the data retained by various public sector agencies. Furthermore, the present staffing of the Research Department is not large enought to process massive amounts of raw data. For channelling necessary inputs to the Bank of Thailand, it would be useful to establish an agency in the central government equipped with legal power to obtain all accounts of public agencies 1/ to collect and process the raw data on the transactions of decentralized agencies and revolving funds. II. Public Sector Account Tables 2.01 The public sector account figures used in thfis report are taken from the tables at the end of this annex. The Mission derived these figures by modifying the Bank of Thailand public sector account statistics. 2/ As with the Bank of Thailand figures, the transactions of the public sector are shown on a cash basis. Except for state enterprise accounts, sectoral account figures are basically the same as those prepared by the Bank of Thailand. (Continued on page 12) 1/ The National Audit Commission has the legal power to obtain the accounts of public sector agencies. However, its concern is the accountability of these agencies, and it does not "collect'" the accounts. 2/ The principal data sources are "Work Sheet - Conoli Ation of Sectorai. Financial Accounts" and "Economic and Functional Classification of Government Actual Expenditure", both prepared by the Research Departmen of the Bank of Thailand. le-t-'1-'or. T- 2'~d' ye ,oto rt. .Ztot' o:.trp. 11>7.0 :1o 'orreot 171~~~~Lo'i(' (lir?16) '71 - ) - O7r (1,' Ud-ified Tr-rorer 20 '001 - - , (o 49 51)(1, ,0 Total lft,657 1 (), 649 14?15 0 1T79r0 T(17'1.l -T035 -I6~ 7 035 (1, Tovoofe- to lIs for: peroti.rgtuboldleo ~~~~ ~~22(6 026) - ) 022(1 -22 ) 761 )-)-A ArO 'r. loll Ilepayrnoro 171 ) ~~~~~17") 7 (17 7 -177 ' - ( Toooo to I t7o for: C-rreot Fop-dit-r 361 ( 1l) - r1 )r) - ( ) -- (--- Oopitl EllP-d'itoo ) 7) -(- . I- Adjust-~et- -) - - )) ) - -' - -)-- T ot.] 9'- t33- 3 ~iT ) )Z 7(7 D-opoo Pal-root ->04 -I40 - i469 -146) 1 -- .) 5 T.tel -199 - ______ )17-'9 -11 ''olE.p-r:'it-e 17,21'313) 7 5 2i 13 3 ~ )900 T iIT A37 )"'t 3TT 1:1 T0 (C:i 001 VI) 13,31' (13,302)) 816 - ) - 37-r (15 .1 1,.. ''7 1 -7o(Cil ood L(;,) 1,00 ,I _5) -) ' 1 ') - QOorotiog Ctt-pl-t (110) T7o 1,55 -7 7 3 7 1,A 1,1' Tiii 1 trolgt Orooto 1,01 (~~~~~~ ~ ~~ ~~1,016) --(-) 1,1 1016: - - lt 110 Net iOt-b,Au l:t 'TorCo-y R-eiepto ' 973) - 15) 971r ( 9~)2) ) *) t1 990' Tt no-le- fro- CG for: C-reot~Operatlo- - 6)361 613 -61)')- ) 221)- ) -726 ( 1 'o-ignrD0eht Repayoent - ) ) - - ) ) - ( -) 137)-) -1 ( -) C.Pital Expendit-r -73 -73 ) 7) 1 <) ) 309) -1 3 ol ( A Ijustocot 1 T lt tol -n -17-7 AT, ; "39()t, "-T4T'1 - - 3_I ~~)) ( 1.' 3 ) -!:io T loper '-ore 100 Reveue 1,100 1,110) -109 0-11 ) 11 1,071) - "' 1, -, >3 '710 1 ,1'oS Atdo'or"~,rot for Tioe :1' - ) -. -13 - -03 - 1 L ) ' )--7 leficito ,0 1,110) -101) 5 )"11 0 0) o~) - ) roof 1~~~~~~~~~ ~ ~ ~~33) 453) - 4,3) 1 ) 011 'r 1) j) i 1L.0 Rep,o'ow,,t -31 371) - -7 7 ' , ~ . - (Non-o-porrboy Autho-i ty) No--look Pbl110 -152)-i5?) - 1 -15'' -152) - 1-I-52 1 Ooverron:eot lavlo-o 9or~~~~~k 1,109 ) 1,113) - - ( - ) ~~110' 1,1071 - )- 1,1Io I.1r Coorteclol Po-k.' 711 ) 'i) - - 1 ) 781) - ) -' (1'1 Aol 1,03' ) 1, 'I'll - - 7T' ]-T, -7 03190' - 1T1 - I' 1,-.' B.ok: of Th.il-:d -4o1 7 - o - '4 1'' 0 -- CroJ,T-- tor1- ) -(1 - - ' )J.--- 'K.0 ores -37' - 01 ' p,'' r' to rOom, en,n". Or I otlot 'ttFr-r,tt-d by-th,:mrnClog". ' f 0 '0 H30'3 cOro 30 H cm 0 0' '3 31 - 30 0 -o o"'-0- 0 00-1 030 0 0-' 0 0 "to. 0'3000030003'303Z0- 030000 0000 OHoonoflo 0-3030-3310 0H000H3003OOHC'0300030000000. 00000'30000300003100 0"0 00, oo0o$"00o'0000 3000000aooO0000'000000300 o '0-  400o0000 100 00.o0,'t313o3300oo000 '3 o0Oooooooo'oo0oooo''0,oo oooo''ooo. ooo' 0'3 0-00. 03100003130 r0oOOOOOo.o,000.300300ao,1 '1 0 33 oa,031'¶ ,-0H"0- 30 -0 00-0000 0-0000 '-'000 03 00 0-000' 310000 030'. 0 4 oooOoOO oC0 '0 000 0000 000030 000 00300-0040030 30000 '30- 0300 30"i 0000 0 0 0 00-0 ,-00. 10000 000 0 '00'-" o - '0 0 o o,oO -30 -1 0 0 -. 00 03'0 00 00 30 000 0 00-000'0 000-00 0- 300 0s3300 0-0300 0700'00 0-0-300 oo 0 00 'oooo00 . 0ooo 0,00 Oo -. "00 0000 0 0 31 '00'00030 '00' 0 3-00 '0" 300n03 0 2 0.0  o00 o000 '0 0000 03-" 000 0 0' 00 -< nO o.a 0.010 030 0.00-00 300'00 33 0' aoa oo 01 00 0300,0 00-tO ot0-O 0 0- 00 00' 0 00000 00" 00's 0 300 300 O O .to' ,,o" 0 030 0 00 00 a '3 30 0 -1 0 0 0' o- 0 '4 0 '4 00 303000 - I I 0000 00 3030303 0J0030030 3030 0H 2K0-> - .o? go 0-0 90030 o'300 0330 0333333 0-00 I I 000-0- 00 3000 0030.0'.'3 03 0-0 0- 30300"'0 0300303- 30300 30330 3033303 00-030.0 '40000 0-000- 000000 303300 I , 0' 'o 3-0' 30 K 3- v-I-'-'-' r -'-'-'0-0-0-0-2-'CŽ 00 - 3 . 0 4 30 0 30 300-30 00 0 300 I 003003-03-30030 H 0-00o'0 0033030 0.3300 3001103 0-0 3-3 - 3030000000 303300 0- 0-3 3 3 "30 .03 '4 0000- 0000 303300 30 Z7777700 -330-0003030  LK V I '3 '4v-'o.'.'333o' 3-3 30 3000003 0- 10 ' ii 30+131.0  0 0' 30, > I 33333 H'' - I i I I I I 30' I 'I I II 0- §117 v a-'-' K -'v- L  0 00 3 ooo'o +0 -'V V Vt' 7, 'iF -'H-' L 31 733 003-0 30i 333 303000 S 0 ' ' 13 3+30 '-4-"-' -4-- 0 030 0 0'3 300 0 0 I I 3000j 3-0  - 1 300- '0 30 30' 0 3 3 *'0 -. '3333 - ' -' 0 030 0-0-30 3010-0- I 3010 000j 030 3010-30"' 3-00-30 301 300 F 3-40-3-0 30 K 3- 30300 '00000 07.000 ' flu: 030030 3033 0000-030 300 30j ' '4 0 0- 442 -'000000 3-30-0 '0- 0- 0- 30 300-30 [ "300 '000 0 I 3-03-3030000 0 V -"-'00 Lb -'0 [I 30 0 003 3 30 31033 33 j33 0K 0LLK1 330 0 -1 II .333 3-03-30 I 33 0-0-3--'-' V 0- +0-0-' 00-0-0-'0-0- 0 I '40 ' [0- 30300 0 0 30303 303-0 3 0 ' 0003 3 3 '0, OF30 I O 00 0 1±2± 0' 30003 j ii * 0' 41 0 kL-' 00 0000-0-0030000-00 303000 00 0 0 3 3 0-030303030 000030- 03333003 30000 30 300- 0- 30 300-30 330 03+0- '4 300300-00 00-303 0- 00 0' 03000030 030030 0-300 0-3030 '433303 0-0300300 000.0 33330333 Oo 030 0' 30300000 000 0K1333 0 0KV 30 030-00-s 00 0 03333 0-0030030 03-330 3 3 0 3 003 30- 3-300 H -1 '30- 0-30300-30 30000 V 0-030000 '00 3 -0-300-00- 0 0 £ oOoj 32 32323232'- W-okinup Tl,lc1 In CONSOLIDATIONI OF PUJBLIC SECTIOR ACCOUNJTS - FY1973 (Millio-s of Baht) Control Coo't Loc-I Adjustment C-nctl Govt SteEr,. Adjustment PblcSto- (BOT) (BUT) (BOT) (BOT) (BOT) (BOT) Expenditure Direct tu.rrent 23,317 (23,317) 1,352 - 6-) 24,669 (24,669) - ( -) - -) 24,669 (24,669) Capital 6,859 6 6,659) 429 - 6 3 7,289 67,289) 5,319 (5,319) - ( 3 12,608 (12,608) Uinidenti fied Transfer - -,-.-- - ) Total 30,176 (30,176) 1,781 - (-3 31,958 (31,958) 5,319 (1,319) - ( ) 37,277 (37,277) Transfers to DES for: Operating Subaidies, -124 C-124) - - 3 -124 (-124) - ( -) +124 ( 3- (-124) Foreign Debt Repayment - ( - ) -. - ( ) - ( - ) - ( ) . ( )( - ) Capital Expenditure 1_027 102~7) 1.027 61.0273 . ..-2 -102 (1.27 Total 903 6 903) ) 903( 903) - 9(-) -03 (-1,027) - ( -124) Transfers to Los for: Current Expen,dlture N.A. ( N.A.) - - -3 - ( -3 - ( -) - ( -3 - ( - Capiral Expenditure N.A. ( N.A.3 - - (-3 - ( -3 - ( 3 - ( -3 - ( -3 Adjustment N.A. ( (NA.) - - ( 3 - ( - - -j Total 661 ( 661) - T1T - - - ( -- ( -)- ( ) Double Counting -16 6 -16) - (-) -16 ( -16) - ( -) - ( -) -16 ( -16) Unspent Balan- -15 - ---- I-154 ( - Total -170 6 - 16) - j J 17 -16) c . 1 J -170) ( -163 Total Expenditroe' 31,570 (31,724) 1,781 -661 (-661) 32,690 (37,844) 1,319 (1,319) -903 (-1,027) 37,106 (37.136) Revenue Current Tan (CG and LG) 22,720 (22 720)~ 1,083 - (-) 26,286 (26,430)o ) - - ( -3 26,286 (26.430) Non-Tax (tG and LG) 2,483 (2,627)-I - 6( - )) - -) - ( - 3 Operating Surplus (DEs) - - -. .IJ 1.759 (2.794- - 2 +250) 1,759 6 3.044)/3 Total 25,203 (25,347) 1,083 - (-) 26,286 (26,430) 1,719 (2,794) - (+250) 28,045 (29,474) Foreign Scents 857 6 857) - - 6-) 857 ( 857) -- 6 -) - ( -) 857 ( 857) Net Entrabudget Treasury Ree. 758 6 758) - - (+132) 758 ( 890) - ( -) - ( -) 758 6 890) Transfers froi CC for: Current Operation - ) N.A. N.A. N.A. - ( ) -124 ( ) +124 ( -)- ( ) Foreign Debt Rep.y.ent - ) - - ( - ) - ( ) - 6 ) - ( -)- ( ) Capital Expenditure - 6 -) N.A. N.A. N,A. - 6 -) 1,027 (1,027) -1,027 (-1,027) - ( - Adjustment N.,A, N .A. N ,A. I -_I Total ,- 794 -794 (-7945 - 4..) 90 10 2 7 -903 (-1.027) . .z 2 Total Revenue 26,818 (26,962) 1,877 -794 (-661) 27,901 (28,176) 2,662 (3,821) -903 ( 777) 29,660 (31,221) Expenditure less Revenue 4,752 (4,762) -96 132 (-) 4,789 (4,667) 2,657 (1,498) - ( 250) 7,446 ( 5,915) Adjustment for Ti.e-Lag Ij - -132 _ ) -132 6- ( )- -, ) -137-- ( Deficit 4,752 (4,762) -96 - (-) 4,657 (4,667) 2,657 (1,498) - (-256) 7,314 65,915) Financed by; Foreign Borrowing Drawing 375 6 375) - - (-) 375 ( 375) 1,264 (1,264) - ( -3 1,639 C1,639) Less: Repayment -1830 6-1803 18 10 -25 -, - 20 40 ( 40 Net 195 ( 191)5- (-) 195 6 195) 1.014 (1,264 - (-250) 1,209 (1.209-) Net Domestic Borrowing (Nos Monetary Authority) Non-Bank Publi. 3656 365) - - ( 5 3615 365) 4 ( 4) - ( ) 369 ( 369) GoenetSavings Bkt 2,073 62,073) - - 6-) 2,073 62,073) 138 ( 139) - 2 ,212 62.212) Cosmmercial Banks 2.472 62.472) - 2,472 62.472) 81 ( L_91)l2.6 2.563) Total 4,910 64,910) - - 6-) 4,910 64,910) 234 6234) - 6 -3 5,144 65,144) Other Sources Sank of Thailand 1,536 61,538)-66-) 1.536 61,536) - ( -5 - ( -) 1,536 (1,536) Exchange Eq. Fund -370 6-370) - - 6-3 -370 6-370) - 6 -) - C -1 -370 (-370) Counterpart Fund -12 -32) - - -) -326 -32) -3( - 6 - 22 -32) CoIn Tssue 121 6 121) - - 6-3 121 6 121) -46 -) - 6 -3 121 /46 121) Other .L.~i5§) -96 -1,03 -1,93 _1 4 9-4 29-(.93 Total -353 (-343) -96 - 3 -448 ( -438) 1,409 6 -- 6 -3 961 6 -437) L.Including bop al..ce of the funds appropriated for the previous fiscal year. ~3 "Own resocr~es." 7--State enterprise self-financing. 74 Including net borrowing of state enterprises not guaanteed by the Ministry of Finance. am WORKIMO TASLE 2 PUBLI' SECTOR ACCOI1NTS - FEXP TUTME (Mi ll o,s of Baht) Line Code FY1966 yiY1967 vY'1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Central Government Expenditure Direct Current (1) 9824 12162 13830 15705 16620 13641 20979 23317 29339 Capital (2) 3735 4475 5300 6159 646,4 7906, 7871 6859 7934 Unidentified Transfere (3) - 20 - - - - - - - Total (4) 13559 16657 19630 21864 23084 26547 28850 37273 Transfers to State Enterprises Operating Subsidies (5) 159 226 58 -46 433 313 429 -124 -253 Grants for Foreign Debt Repayments (6) 85 177 264 274 155 20 3 - 8 Capital Grants (including loans) (7) 421 309 496 588 539 74'7 506 1027 606 Total (8) 712 81f 5517 1127 1079 T 7 90 361 Transfers to Local Governments Current (9) 301 361 319 294 351 578 486 n.a. ri.a, Capital (10) 104 73 134 176 607/ 262 195 n.a. s.a. Adjustment (11) - - +11 -365 - -137 n.a. . a. Total (12) ThF 453 i 5E55 593 ; 339 5 45 22--5 Adjustments For Double Counting (13) -71 -146 -57 - -13 -16 -8 -16 - For 'Unspent Balance" (14) -43 -53 -87 -173 -179 -155 -144 -124 - Total (15) -114 -199 -1 44 -173 -193 -171 -152 -170 Total Central Government Expenditure Current (16) 10369 12926 14471 16228 17559 19551 21897) Capital (17) 4261 4857 6430 6924 7610 8915 8572) 31i40 3r15 Unidentified Transfers (18) - 20 - - - - - Adjustments (19) -114 -199 -144 -162 -557 -171 -290 -170 Total (20) 14516b 17603 20757 22990 24612 2829) 781)51 315701 Memorandum: Less: Loans to IFCT jn Line (2_7 -6 -8 - - - - - - Less: Line (14) +43 +53 +87t +173 +179 +155 +144 +154 Equal: DOT "Central Government" Expenditure 14553 17k49 20844 2312,2 24791 28449 30325 31724 3315( Local Government Expenditure Currcnt (21) (16 571 735 978 970 988 949 1352 1849 Capital (22) 541 644 458 403 41' 486 560 429 468 Total (23) 1257 1215 1193 1381 1387 1474 1509 1781 231 7 Consolidated General Government Expendi ture Currenit (21;) l0'784 13136 148l7, 12911 18178 19962 92360 24545 30043 Capital (25) 4697 5428 6754 7151 7420 9138 8937 q315 1008 Unidentified Transfers (26) - 20 - - - - - - Adjustments (27) -114 -199 -144 -2(13 -193 -171 -152 -(0 -1 Total (28) 157T7 1 2''1497 23i 49 954o, ?89 29 31145 32"GO 39951 State Enterprise Expexiditeire for Gross Investment in Fiaed Asset (29) 3520 1658 2064 'q05 2644 27R0 30q4 5319 5214 Consolidated Public E tvpe,diture Current (30) 10542 1:1733 14ii55 l693 17540 12629 210.F8 246b1< 311FS Capital (31) 5796 6(77 7322 9550 45' 11122 11515 12606 13612 Unidentified Transfers (32) - 20 - _ _ _ - _ - Adjustments (33) -114 -199 - 144 -173 -193 -171 -152 -1'0 Total (34) 1P,2"2 1)331 7-- 2",'4 26 9?3058 5300 -1706 44"04 Men,nrasndum: Less: Line (14) +46 +53 -S '( ±179 -193 +144 +15- Plus: Line (5) ±155? -.f +58 _4i ±433 +313 ±429 -1'4 -253 tqcr l: 1102 "'Public FEpedt&' -re" 13710 228V 'l'7i1 9 7535 3104 3 73 131- 44551 -~~~~~~~~~~~~~~~~ - q X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~eI ANNEX B Page 10 FOOTNOTES TO WORKING TABLE 2 Line Code (2) Including loans to IFCT of $6 million in FY1966 and $8 million in FY1967. (3) Assumed as transfers to outside of the public sector. (8) Derived as residual: (8) = (10) - (7) + (9) (9) and (10) Obtained from "'Economic and Functional Classification of Government Actual Expenditures" prepared by Bank of Thailand each year. (11) Adjustment for the difference between the sum of current and capital transfers as shown in BFC Table and the updated total. (14) Adjustment to eliminate the unused balance of the funds appropriated in the budget of the corresponding year, which is included in the expenditure figure prepared by the Bank of Thailand. (24) (16) + (21) - (9) 425) (17) + (22) - (10) (26) (3) (27) (15) (28) (20) + (23) - (12) (30) (24) - (s) (6) (31) (25) + (29) - (7) For FY1969 the figure includes $43 million which is not explained in the Bank of Thailand tables. (32) (3) (33) (15) (34) (28) + (29) - (8) WORKING TABLE 3 CONSOLTDATTON OF PUBLIC SECTOR ACCOUNTS - RkVkNUE (Millions of Baht) Line Code FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Central Government Current Revenue Tax (1) 11,437 13,302 14,863 16,625 16,969 17,274 19,059 22,720 32,791 Non-Tax (2) 1,262 1,200 1,369 1,438 1,580 1,645 2,116 2,483 2,376 BOT :Non-Tax Revenue" (3) (1,296) (1,243) (1,422) (1,525) (1,753) (1,824) (2,271) (2,627) (2,530) Less: lnepent Balance (4) (-34) 3 , ) (-87) (-173) (-179) (-155) (-144) Sub-Total (5) 12,699 150 1 6,232 1 8 ,0631, 18,919 21,175 25,203 35,167 Foreign Grants (6) 891 1,016 1,274 1,464 1,022 1,165 892 857 807 Net Extrabudgetary Treasury Receipts (7) 286 978 388 573 817 1 570 508 758 800 Total (8) 20,100 20,388 2,5 22,575 26 Local Government Current Revenue Tax (9) n.a. n.a. n.a. 860 978 1,115 1,015 n.a. n.a. Non-Tax (10) n.a. n.a. n.a. 205 181 224 305 n.a. n.a. Sub-Total (11) 834 876 873 1,065 1,159 1,339 1,320 1,o83 1,958 Transfers from Central Government (12) 408 448 411 498 549 828 827 74 340 Total Local Government Revenue (13) 1, 242 1,324 T1,2 2156 3 21,77 2,167 1,877 2,298 Consolidated General Government Revenue Current Tax (14) n.a. n.a. n.a. 17,485 17,947 18,389 20,074 n.a. n.a. Non-Tax (15) n.a. n.a. n.a. 1 643 1,761 1,869 2 421 n.a. n.a. Sub-Total (16) 13,533 15,378 17,105 19, 1 19,708 2,5 37,125 Foreign Grants (17) 891 1,016 1,274 1,464 1,022 1,165 892 857 807 Net Extrabudgetary Treasury Receipts (18) 286 978 388 573 817 1,570 508 758 800 Total (19) 14,710 17,372 18,77 21,165 21,547 22,993 23,895 27,901 Gross Operating Surpluses of State Enterprises (20) n.a. 1,180 1,146 979 1,180 1,153 1,300 1,759 853 Consolidated Public Sector Current Revenue Tax (21) n.a. n.a. n.a. 17,485 17,947 18,389 20,074 r.a.. n.a. Non-Tax (22) n.a. n.a. n.a. 1,643 1,761 1,869 2,421 n.a. n.a. SE Operating Surpluses (23) n.a. 1 180 1 146 979 1 180 1 153 1,300 1 759 853 Sub_Total (24) n.a. 18,251 20,107 21,411 23,795 37,975 Foreign Grants (25) 891 1,016 1,274 1,464 1,022 1,165 892 857 807 Net Extrabudgetary Treasury Receipts (26) 286 978 388 573 817 1 570 508 758 800 Total (27) n.a. 18,552 19,913 2 22,727 25,195 29,660 Memorandum Less: Line (4) +34 +43 +53 +87 +173 +179 +155 +144 +154 Plus: BOT Adjustment to "Net Extrabudgetary Treasury Receipts' -25 +12 _42 +16 -44 -11 +282 +132 -182 Plus: BOT "SEs' Self-Financing" +980 +998 +1,410 +2,204 +1,994 +1,849 +2,040 +3,044 +2,594 Less: Line (20) n.a. -1,180 - 146 -979 1 18 -1,153 -1 300 -1,759 -853 Equal: BOT "Public Revenue" 15,699 15,4 25 20,1 8 23,472 23,70 25,010 31,221 ANNEX B Page 12 2.02 In the central government accounts (Tables B-2, B-2a and B-2b), expenditure figures and revenue figures are smaller than the corresponding figures in the Bank of Thailand accounts. The difference mainly reflects adjustmenits undertaken to eliminate the unspent balance of the budgetary funds included in the Bank of Thailand figures. In the Bank of Thailand accounts, the central government expenditure figures include the unspent balance of the funds disbursed from the treasury to ministries and departments under the budget appropriations for the corresponding fiscal year. The central government revenue figures include, as non-tax revenue, the unspent balance of the previous fiscal year. 1/ The amount of the unspent balance was subtracted from the expenditure and revenue figures respectively to obtain the adjusted expenditure and revenue figures, using the data supplied by the Bank of Thailand. In order to adjust the deficit financing the "use of cash balances" was made a residual item in Table B-2. 2.03 In Table B-2a, an attempt was made to give more detailed functional breakdowns of central goverment expenditure than shown in the Bank of Thailand tables. For this the Mission made extensive use of the figures in the "Economic and Functional Classification of Government Expenditure" (EFC Tables). Mission also attempted a functional classification of central government transfer pay- ments to the rest of the public sector using the EFC Tables. 2.04 The figures in Table B-4 (State Enterprise Accounts) were obtained by supplementing the Bank of Thailand state enterprise accounts with the operating surplus figures supplied by the State Enterprise Committee of the NESDB. The figure for "gross operating surpluses" shows the excess of the total pre-depreciation profits of surplus enterprises over the total pre-depreciation losses of deficit enterprises. It would be preferable to show the total operating profits of surplus enterprises and the total operating losses of deficit enterprises separately, treating the former as revenue and the latter as expenditure. However, the mission abandoned this refinement owing to the lack of sufficient data. Table B-4a (State Enterprise Gross Fixed Capital Expenditure and Financing) presents the state enterprise accounts of the Bank of Thailand in their original form. 2.05 The mode of consolidating the three sectoral accounts to derive the public sector accounts, given in Table B-1, differs somewhat from that adopted by the Bank of Thailand. Working Tables la, lb and lc above show the mode of consolidation adopted for deriving the figures in Table B-1, taking the accounts for three fiscal years for example. The figures in the parentheses show the Bank of Thailand consolidation. Working Tables 2 and 3 compare some summary figures in Table B-1 with the corresponding figures in the public sector accounts of the Bank of Thailand. 1/ A. Premchand, "Report on Thailand's Government Finance Statistics," July 18, 1972. ANNEX B Page 13 2.06 In Table B-1, all transfers from thie central government to state enterprises are eliminated in the course of consolidating the central government accounts with the state enterprise accounts. In the Bank of Thailand accounts, the operating subsidies are retained to be included in the consolidated public expenditure. 2.07 Consolidated revenue figure in Table B-1 differs considerably from the corresponding figure in the Bank of Thailand accounts, because of the difference in the nature of state enterprise "revenue" figures included. The difference in the treatment of time-lag adjustment also causes minor difference in "consolidated revenue" figures. The central government transfers to local government recorded as central government payments are usually different in magnitude from those recorded as local government receipts. This difference is due to the time lag between the payments and the receipts. In the Bank of Thailand accounts, the difference is made an adjustment item to be added to the net extra-budgetary treasury receipts in the course of consolidating the central government account and the local government account (if local government receipts exceed central government payments, then the difference appears as a positive adjustment to the net extrabudgetary treasury receipts, and vice versa). In Table B-1 the net extrabudgetary treasury receipts are shown as they appear in the central government accounts, and the adjustment for the time lag is made explicitly in a separate row. 2.08 As stated earlier, it is desirable to show the operating deficit and operating surplus of state enterprises separately, including the former as a part of public expenditure and the latter as a part of public revenue. With due adjustments using the necessary data, both public expenditure and public revenue figures would be somewhat greater than shown in Table B-1. 2.09 In Table B-la, the figure showing public expenditure for specified purpose has been derived as: Central government direct expenditure for that purpose; plus: Identifiable central government transfer to local governments for that purpose; plus: State enterprise expenditure for that purpose. The implied assumption is that central government transfer to local govern- ments for specific services are spent by the recipient local governments in the same fiscal year. These figures leave out a part of local government expenditures for the specified purposes, and hence tend to understate the actual public expenditures for those purposes. TAB.LE B-1: PUBLIC SECTOR ACCOUNTS (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimates) Expenditure j 16 222 19,331 22 743 26,059 2,2 30,580 33 290 37 106 44,804 Current 10,540 12,733 1 6,683 17,590 19,629 2,92831,188 Capital 5,796 ./ 6,777 21 8,322 9,550 9,525 11,122 11,515 12,608 13,616 Unidentified Transfers - 20 - - - - - - - Adjustment 4/ -114 -199 -144 -11(3 -193 -171 -152 -170 - Revenue n.a. 19 913 2272746 25,195660 Current n.a: 1,5 18 , 2 20,107 571.oTT 23 725,045 Tax Revenue (Central & Local Govts.) T1 41 ) 5 37 )1 1 17,1485 17,947 18,389 , ) Non-Tax Revenue (Central & Local Govts.) ) ) ' ) 7, 1,643 1,761 1,869 2,121 ) )7,125 State Enterprise Operatirg Surpluses j n.a. 1,180 1,1146 979 1,180 1,153 1,300 1,759 853 Foreign Grants 891 1,016 1,274 1,464 1,022 1,165 892 857 807 Net Extrabudgetary Treasury Receipts / 286 978 388 573 817 1,570 508 758 800 Deficit n.a. 767 2 872 3,899 4,240 6 445 7 813 7 3114 5,401 Expenditure less Revenue n.a. 779 3,915 47 7,446 5,219 Adjustment for Time-Lags j 25 -12 42 -16 44 11 -239 -132 182 Fiinanced by: Net Foreign Borrowing 129 132 43 -165 -11 188 490 1,209 1,969 Net Domestic Borrowing (Non-Monetary Authority) 2 339 1,737 1,480 407 672 2 894 6,843 5,144 2 704 Non-Bank Public -152 1'71 73 81 ' 191 369 244 Government Savings Bank 871 1,108 611 496 435 766 1,455 2,212 2,079 Commercial Banks 1,419 781 698 -162 156 2,120 5,197 2,563 381 Other Sources n.a. -1,102 1,349 3,657 3,579 3 363 480 961 728 Bank of Thailand 161 -320 351 3,773 3,405 '2,T 7 174 1,536 4 Exchange Equalization Fund -40 5 77 -32 15 191 244 -370 - Counterpart Fund 141 -78 -64 -14 -120 51 g94 -32 3 Coin Issue 80 54 101 61 55 138 17 121 151 m Cash Balances n.a. -763 884 -131 224 816 139 -294 534 ' |' Sources: Bank of Thailand and NESDB Pagae 1 ! OnJTNOTES: TABLE B-1 L/ including gross lending of the central government 7)/ Including central government loans to IFCT of $6 mil4ion in FY1966 and g8 million in FY1967. ./ I-Tranisfers from the central government. Assumed as transfers to outside the public sector. AdJustments for double counting and for the "unspent balance't (cf. para. 2.02). Gross of depreciation allowances, but net of contributions to central government budget. Total profits of surplus enterprises less total losses of deficit enterprises. 6/ Net increase in the deposits of state enterprises and other public sector agencies with the central government treasury. Figures include the repayments of central government loans received. 7/' Cf. para. 2.07 and Working Tables la, lb and lc. S Mainly drawing on cash balances, but includes state enterprises' net borrowing not guaranteed by the Ministry of Finance. UA1, B-la: PJBLIC EXPEiiDITURE (.41ilions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 EY1973 Ffl974 (Est i mate) Current Expenditure General Administration j 1,798 2,628 2,972 3,335 2,735 3,112 2,767 3,972 5,953 Defense and Police j 2,782 3,177 3,871 4,631 5,530 6,369 6,931 7,335 9,718 Education 1 902 2 135 2,513 2 790 3062 3222 4,475 n.a. n.a. Primary Schools T T 1,6 9 T,C72 1 0 2,770 n.a. n.a. Secondary Schools 160 183 216 238 261 309 351 n.a. n.a. Colleges and Universities 134 176 236 258 297 352 422 n.a. n.a. Technical and Vocational Schools / 182 206 240 272 317 380 437 n.a. n.a. Other 282 328 331 343 365 377 495 n.a. n.a. Health 523 518 615 653 641 723 738 n.a. rL.a. Medical Services 208 246 381 291 367 n.a. n.a. Special Health Programs 87 160 84 33 93 174 201 n.a. r.a. Other g 257 151 284 239 257 204 170 n.a. n.a. Water Supply 116 44 87 57 60 55 79 n.a. n.a. Power 3 5 6 5 9 17 9 13 17 Communications and Transportation 405 503 624 701 727 781 799 920 1 022 Highways and Roads 339 4T515 5 9Q -7 8 17 Other 66 75 108 111 11 114 114 103 138 Agriculture / 581 666 784 874 1 012 1 o46 1,003 1 101 1 345 Irrigation ~T5 218 285 392 Other 4°0 448 499 578 614 644 611 692 879 Pensions / 458 466 477 546 581 591 758 771 349 TABLE B-la: PUBLIC EXPENDITURE (Continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Interest Payments / 654 847 989 L]41 1,372 1,790 2 420 2 852 3 674 Internal Debt 772 880 979 1,193 1,589 2,1 tt59t3g External Debt 30 75 109 139 179 200 237 256 289 Other Current Expenditure 1,319 1,745 1,627 1,974 1,862 1,924 1,949 n.a. n.a. Total Current Expenditure 10,540 12,733 14,565 16,683 17,590 19,629 21,928 24,669 31,188 Capital Expenditure Education 459 511 917 1 056 971 1,818 1,376 n.a. n.a. Primary Schools 171 -T1T9 322 304 365 909 324 n.a. n.a. Secondary Schools 23 36 104 98 80 206 246 n.a. n.a. Colleges and Universities 156 212 249 278 199 261 293 n.a. n.a. Technical and Vocational Schools E 75 82 206 296 258 311 351 n.a. n.a. Other 34 32 36 80 69 131 162 n.a. n.a. Health 102 1o4 106 132 95 170 224 n.a. n.a. Medical Services 71 77 104 ---T7 13T 193 n.a. n.a. Special Health Programs 4 9 10 15 2 21 18 n.a. n.a. Other g 21 24 19 12 5 14 13 n.a. n.a. Water Supply 112 158 204 317 339 499 548 n.a. n.a. Power 553 693 949 1,539 1,610 1,486 1,955 n.a. n.a. Communication and Transportation 1,958 ?224 3,107 3 718 3,714 3,675 3,710 n.a. n.a. a S Highways and Roads 1,097 1,703 2,185 2,453 2,383 T 2,935 n.a. n.a, Other 861 821 922 1,264 1,332 1,127 775 n.a. n.a. TABTE B-la: PUBLIC EXPENDITURE (Continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Agriculture 5/ 839 1 096 1 506 1 38 1 681 1 945 4 1,266 1,387 Irrigation 67 '7 3 1',228 1,7 1, 3 1,5 1,201 - 1,055 Other 152 253 277 341 313 289 272 277 382 Other 7 1,773 1,533 1,115 1,529 2,229 n.a. n.a. Total Capital Expenditure 5,796 6,777 8,322 9,550 9,525 11,122 11,515 12,608 13,616 Unidentified Transfers - 20 - - - - - - - Adjustments -114 -199 -144 -173 -193 -171 -152 -170 - For Double Counting -71 -146 -57 - -13 -16 -8 -16 - For "Unspent Balance" j -43 -53 -87 -173 -179 -155 -144 -154 - Consolidated Public Expenditure 1 19,331 22,73 059 26,923 30,580 33,290 37,106 44,804 ANNEX B Page 19 FOOTNOTES: TABLE B-la j Central government expenditure only g/ Including teacher training j/ Administration research, adult education, cultural and religious affairs and central government expenditures financed by non-budgetary funds for which detailed breakdowns are not available. Ž/ Administration, research and central government expenditure financed by non-budgetary funds for which detailed breakdowns are not available. j Including fishery, forestry and hunting. Central government plus Bangkok Metropolitan Government (and its predecessors). 7 Mainly central government expenditure financed by non-budgetary funds and local government expenditure for which functional breakdowns are not available. g/ Cf. para. 2.02. TABLE B-lb: PUBLIC RBEXUEl (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Central Government Current Revenue Tax Revenue 11,437 13,302 14,863 16,625 16,969 17,274 19,059 22,720 32,791 Non-Tax Revenue 1 262 1 200 1 369 1 438 1 580 1 645 2,116 2,483 2,376 Sub-Total 12,69 14,50 16,232 1 8,5 49 21,175 25,203 35,167 Local Government Current Revenue Tax Revenue n.a. n.a. n.a. 860 978 1,115 1,015 n.a. n.a. Non-Tax Revenue n.a. n.a. n.a. 205 181 224 305 n.a. n.a. Sub-Total 83 -m6 873 1,065 1,159 1,339 1,320 1,083 1,958 State Enterprise Operating Surpluses n.a. 1,180 1,146 979 1,180 1,153 1,300 1,759 853 Foreign Grants 891 1,016 1,274 1,464 1,022 1,165 892 857 807 Net Extrabudgetary Treasury Receipts 286 978 388 573 817 1,570 508 758 800 Total n.a. 18,552 19,913 22,144 22,727 24,146 25,195 29,660 39,585 Ig TABLE B-2: CENTRAL GOVERNMENT ACCOUNTS (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Expenditure 14516 17603 20757 22990 24612 28294 30181 31570 38156 Direct 13559 16657 193 21 84 257 250 30176 37273 Current 98274 12162 013305 1705 6620 I 20979 23317 29339 Capital 3735Lf 4475L 5800 6159 6464 7906 7871 6859 7934 Unidentified Transfers - 20 - - - - - - - Transfers to State Enterprises 665 712 818 817 1127 1079 938 903 361 Operating Subsidies 159 227 746 T3 313 J -12 0 -253 Foreign Debt Repayment 85 177 264 274 155 20 3 - 8 Capital Formation 421 309 496 588 539 747 506 1027 606 Transfers to Local Government 406 433 453 482 593 839 545 661 522 Current 301 361 319 T 351 5.7 7 r a. n.a. Capital 104 73 134 176 607 262 195 n.a. n.a. Adjustment / - - - 11 -365 - -137 n.a. n.a. Adjustment j -114 -199 -144 -173 -193 -1'71 -152 -170 - Revenue 13876 16496 17894 20100 20388 21654 22575 26818 36774 Current 12699 14502 16232 1063 85 19 21175 25203 35167 Taxes IT437 T3302 -TWOF 3 IEZ 1TYi 1Yt (I5T 1 277 379T Non-Tax Revenue 1262 1200 1369 1438 1580 1645 2116 2483 2376 Foreign Grants 891 1016 1274 1464 1022 1164 892 857 807 I Extrabudgetary Treasury Receipts 286 978 388 573 817 1570 508 758 800 Deficit (Expenditure less Revenue) 640 1108 2863 2889 4224 6640 7606 4752 1382 N Id TABLE B-2: CENTRAL GOVERNMENT ACCOUNTS (continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Financed by: Net Foreign Borrowing 61 56 198 -43 34 91 23 195 497 Net Domestic Borrowing(Non Monetary Authority)2339 1737 1480 406 671 2876 6776 4910 2704 Non-Bank Public -52171 7 3 80 - 10 13 24 Government Savings Bank 871 1108 611 496 435 766 1454 2073 2079 Commercial Banks 1419 781 698 -163 156 2120 5184 2472 381 Other Sources -1760 -685 1185 2526 3519 3673 807 -353 -1819 Bank of Thailand 161302 3730 3405 2167 m T 40 Exchange Equalization Fund -40 5 77 -32 15 191 244 -370 - Counterpart Fund 141 -78 -64 -14 -120 51 -94 -32 3 Coin Issue 80 54 101 61 55 138 17 121 151 Cash Balance -2102 -239 769 -1219 164 1126 466 -1608 -2013 D1M unz ANNEX B Page 23 FOOTNOTES: TABLE B-2 1 Including loans to IFCT of X 6 million in FY 1966 and $ 8 million in FY 1967. g/ Adjustment for the difference between the sum of current and capital transfers as shown in F'C tables and the updated total. j Adjustments for double counting and for "unspent balance". (cf. para. 2.02). TABLE B-2a: CENTRAL GOVERNMENT EXPENDITURE (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Current Expenditure General Administration 1798 2628 2972 3335 2735 3112 2767 3972 5953 Defense and Police 2782 3177 3871 4631 5530 6369 6931 7335 9718 Education 1902 2135 2513 2790 3062 3222 4475 n.a. n.a. Direct Expenditure (1852) (2054) (2452) (2734) (2968) (3102) (4359) (4378) (4570) Transfers to Local Governments (51) (81) (61) (56) (94) (120) (116) (n. a.) (n.a.) Administration 152 179 166 219 23 8 7W n.a. n.a. Primary Schools 1144 1242 1490 1679 1822 1804 2770 n.a. n.a. Of which: Transfers to Local Governments (51) (81) (61) (56) (94) (120) (116) (n.a.) (n.a.) Secondary Schools 160 183 216 238 261 309 351 n.a. n.a. Colleges and Universities 134 176 236 258 297 352 422 n.a. n.a. Vocational and Technical Schools/i 182 206 240 272 317 380 437 n.a. n.a. Adult Education, Culture and Religion 41 47 55 51 53 67 74 n.a. n.a. Unallocable /2 Health 523 518 615 653 641 723 738 n.a. n.a. Direct Expenditure (521) (510) (612) (651) (638) (720) (736) (763) (839) Transfers to Local Governments (2) (8) (2) (2) (3) (3) (2) (n.a.) (n.a.) Administration and Research 137 113 102 -1 114 116 127 n.a. n.a. Medical Services 178 208 246 381 291 344 367 n.a. n.a. Of which: Transfers to Local Governments (2) (9) (2) (2) (3) (3) (2) (n.a.) (n.a.) Special Health Programs 87 160 84 33 93 174 201 n.a. n.a. 2 Unallocable /2 120 38 182 178 143 88 43 n.a. n.a. TABLE B-2a: CENTRAL GOVERNMENT EXPENDITURE (continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Water Supply 129 453 282 277 164 84 101 n.a. n.a. Direct Expenditure (110) (4o) (83) (51) (60) (55) (79) (n.a.) (n.a.) Transfers to State Enterprises (13) (409) (194) (220) (105) (29) (22) (n.a.) (n.a.) Transfers to Local Governments (6) (3) (4) (6) (-) (-) (-) (n.a.) (n.a.) Power 66 61 24 16 20 22 14 n.a. n.a. Direct Expenditure (3) (5) (6) (5) (9) (17) (9) (13) (17) Transfers to State Enterprises (63) (56) (18) (11) (11) (5) (5) (n.a.) (n.a.) Communications and Transportation 407 529 627 702 728 783 800 n.a. n.a. Highways and Roads (339 ) 515 (590) 9 ) n. Direct Expenditure (333'8) (427) (515) (590) (609) (667) (684) (l) (83 Transfers to Local Governments (.) (2) (... ) (...) (-) (-) (-) (n.a.) (n.a.) Other 68 100 112 112 120 116 116 n.a. n.a. Direct Expenditure (66) (75) (108) (111) (118) (114) (114) (103) (138) Transfers to State Enterprises (2) (25) (4) (... ) (2) (2) (1) (n.a.) (n.a.) Agriculture /3 599 684 805 897 1029 1073 1028 n.a. n.a. Irrigation T7S 2F 5 3-9 402 392 409 46 Other 418 466 519 601 631 671 637 n.a. n.a. Direct Expenditure (400) (448) (499) (578) (614) (644) (611) (692) (879) Transfers to State Enterprises (18) (18) (20) (22) (17) (27) (26) (n.a.) (n.a.) Other Economic Services 257 518 360 208 251 252 234 n.a. n.a. Industry and Mining 135 357 117 93 n.a. n.a. Direct Expenditure (77) (214) (72) (76) (74) (76) (85) .(89) (120) n Transfers to State Enterprises (58) (142) (45) (1) (19) (20) (13) (n.a.) (n.a. TABLE B-2a: CENTRAL GOVERNMENT EXPENDITURE (continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Other Economic Services (continued) Other 122 161 243 131 158 156 137 n.a. n.a. Direct Expenditure (106) (153) (235) (122) (146) (144) (135) (148) (161) Transfers to State Enterprises (16) (9) (8) (9) (12) (12) (2) (n.a.) (n.a.) Pensions 448 453 475 537 571 580 747 764 840 Interest Payments 654 847 989 1118 1372 1790 2420 2852 3674 Internal Debt 72T 772 70 978 1193 1590 2182 2596 External Debt 30 75 109 139 179 200 237 256 289 Other 805 924 939 1066 1454 1562 1646 n.a. n.a. Direct Expenditure A4 (488) (915) (656) (871) (779) (870) (913) (n.a.) (n.a.) Transfers to State Enterprises (75) (-256) (33) (-35) (423) (237) (364) (n.a.) (n.a.) Transfers to Local Governments (242) (266) (251) (231) (253) (455) (369) (n.a.) (n.a.) Total Current Expenditure 10369 12926 14471 16228 17559 19551 21897 n.a. n.a. Direct Expenditure 9824 12162 13830 15705 1CiS -1861 20979 23317 29339 Transfers to State Enterprises 244 403 322 229 588 332 432 -124 -245 Transfers to Local Governments 301 361 319 294 351 578 486 n.a. n.a. I\M ON t TABLE B-2a: CENTRAL GOVERNMENT EXPENDITTJRE (continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Capital Expenditure Education 459 511 917 1056 971 1818 1376 n,a. n.a. Direct Expenditure (459) (511) (896) (1036) (950) (1793) (1353) (1557) (2134) Transfers to Local Governments (2) (-) 21) (20) (22) (25) (24) (n.a.) (n.a.) Administration 13 14 8 17 7 46 17 n.a. n.a. Primary Schools 171 149 322 304 365 909 324 n.a. n.a. Transfers to Local Governments (-) (-) (21) (20) (22) (25) (24) (n.a.) (n.a.) Secondary Schools 23 36 104 98 80 206 246 n.a. n.a. Colleges and Universities 156 212 249 278 199 261 293 n.a. n.a. Vocational and Technical Schools A 75 82 206 296 258 311 351 n.a. n.a. Adult Education, Culture and Religion 20 14 27 30 30 56 69 n.a. n.a. Unallocable 2 1 4 1 33 32 29 74 n.a. n.a. Health 102 104 106 132 95 170 224 n.a. n.a. Direct Expenditure (102) (102) (106) (132) (95) (170) (224) (163) (182) Transfers to Local Governments (2) (2) (...) (- j (1) - (n) (n.a.) Administration and Research 21 24 19 12 5 14 13 n.a. n.a. Medical Services 76 71 77 104 88 134 193 n.a. n.a. Of which: Transfers to Local Governments (-) (2) (...) (-) (-) (-) (-) (n.a.) (n.a.) Special Health Programs 4 9 10 15 2 21 18 n.a. n.a. Water Supply 111 160 198 313 538 584 559 n.a. n.a. Direct Expenditure (104) (158) (130) (168) (207) (302) (277) (197) (225) Transfers to State Enterprises (~ ) (1) (63) (104) (275) (212) (239) (n.a.) (n,a.) Transfers to Local Governments (7) ( ) (4) (41) (56) (70) (43) (n.a.) (n.a.) TABLE B-2a: CENTRAL GOVERNIENT EXPENDhIURE (continued) (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Power 201 220 306 349 573 570 352 n.a. n.a. Direct Expenditure (35) (19) (20) (93) (125) (83) (57) (20) (12) Transfers to State Enterprises (167) (201) (279) (246) (121) (477) (295) (n.a.) (n.a.) Transfers to Local Governments (-) (-) (6) (10) (326) (10) (I..) (n.a.) (n.a.) Communication & Transportation 1432 1984 2481 2794 2661 2788 3110 n.a. n.a. Highways and Roads 1097 1703 3 2935 n.a n.a. Direct Expenditure (1000) (1645) (2105) (2370) (2273) (2439( (2845) (2235) (2606) Transfers to Local Governments (97) (58) (80) (84) (109) (109) (90) (n.a.) (n.a.) Others 335 281 297 341 278 240 174 n.a. n.a. Direct Expenditure (161) (142) (197) (184) (170) (167) (142) (128) (161) Transfers to State Enterprises (174) (139) (99) (156) (63) (73) (32) (n.a.) (n.a.) Transfers to Local Governments (-) (-) (-) (-) (45) (...) (... ) (n.a.) (n.a.) Agriculture 3 816 1045 1454 1308 1648 1920 1467 n.a. n.a. Irrigation '7 8 1228 104 7 16 1 1 201 989 1055 Others 129 202 226 261 280 264 257 n.a. n.a. Direct Expenditure (128) (201) (225) (261) (280) (253) (244) (237) (300) Transfers to State Enterprises (1) (1) (1) (W) (-) (11) (13) (n.a.) (n.a.) Industry and Mining 25 75 62 88 50 18 16 n.a. n.a. Direct Expenditure (18) (24) (53) (72) (24) (15) (16) (19) (20) Transfers to State Enterprises (7) (52) (9) (16) (10) (3) (1) (n.a.) (n.a.) Transfers to Local Governments (-) (-) (-) (-) (15) (.) (-) (n.a.) (n.a.) Other Capital Expenditure 1256 758 906 887 1075 1046 1477 n.a. n.a. Direct Expenditure (1042) (829) (840) (798) (972) (1028) (1513) (1215) (1140) Transfers to State Enterprises (110) (-84) (44) (67) (70) (-29) (-73) (n.a.) (n.a.) Transfers to Local Governments (104) (13) (22) (22) (34) (47) (37) (n.a.) (n.a.) TABLE B-2a: CENTRAL GOVEPRMENT EXPENDITURE (continued) (Millions of Baht) FY1966 FY1967 FY1978 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 (Estimate) Total Capital Expenditure 4261 4857 6430 6924 7610 8915 8572 n.a. n.a. Direct Expenditure /4 (3735) (4475) (5800) (6159) (6464) (7906) (7871) (6859( (7934) Transfers to State Enterprises (421) (309) (496) (588) (539) (747) (506) (1027) (606) Transfers to Local Governments (104) (73) (134) (176) (607) (262) (195) (n.a.) (n.a.) Unidentified Transfers - 20 - - - - _ _ Adjustments -114 -199 -144 -172 -557 -171 -290 -170 n.a. For Double Counting -71 -1T -57 - -13 _16 -8 -16 - For Unspent Balance / -43 -53 -87 -173 -179 -155 -144 -154 - For Discrepancy in "Transfers to Local Governments" /6 - - - 11 -365 - -137 n.a. n.a. Total Expenditure 14516 17603 20757 22990 24612 28294 30181 31570 38156 Direct Expenditure 13559 16657 19630 21864 23084 26547 28850 30176 37273 Transfers to State Enterprises 665 712 818 817 1127 2079 938 903 361 Transfers to Local Governments 406 433 453 482 593 839 545 661 522 Adjustments L7 -114 -199 -144 -173 -193 -171 -152 -170 - "O1 'd0 W ANNEX B Page 30 FOOTNOTES: TABIE B-2a j Including teacher training. S/ Expenditure financed by non-budgetary funds for which detailed breakdowns are not available. 3 Including fishing, forestry and hunting. j/ Mainly expenditures financed by non-budgetary funds for which breakdowns are not available. j Cf. para. 2.02. 6/ Adjustment for the difference between the sum of current and capital transfers as shown in EFC Tables and the updated total. 7/ Adjustments for double counting and for "unspent balance". Table B-2b: CENTRAL GOVERNMENT CURRENT REVENUE5L (Millions of Baht) FY1962/63 FY1963/64 FY1964/65 FY1965/66 FY1966/67 FY1967/68 FY1968/69 FY1969/'70 FY1970/71 FY1971/72 FY1972/73 FY1973/74 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Prel. Act'l. Rev. Est./2 Total Revenue 8,565 9,555 11,453 12,699 14,502 16,232 18,063 18,549 12,919 21,175 25.203 35,167 Tax Revenue 7,812 8,855 10,460 11,437 13,302 14,863 16,625 16,969 1'74 19,059 22,719 32,791 Taxes on Income 780 854 1,114 1,244 1 504 1,726 L1973 2,169 2,363 2 550 3,168 4,300 Personal Income Tax 46 503 632 f3 689 973 1,122 1,272 107 1 5 1,700 2,300 Company Income Tax 312 351 482 555 (79 '753 851 897 956 994 1,468 2,000 Taxes on Consumption and/or Production 2,276 2,593 3,355 4,054 IJ 732 5,211 5,867 6.357 7,217 7,839 9,569 13,440 Business Taxq 1,491 1,7 2j38 3,06 3,385 3,5 77 4,307 7,000 Purchase TaxT 1 - - - - - - - - - - Excise Taxes 735 801 1,355 1,595 1,794 2,064 2,436 2,686 3,192 3,413 4,341 6,295 Beverages (278) (304) (323) (408) (506) (544) (617) (647) (716) (874) (1,449) (1,850) Petroleum Products (_) (31) (528) (624) (632) (727) (1,000) (1,066) (1,399) (1,382) (1,626) (2,637) Tobaccg4and Snuff (419) (429) (462) (516) (600) (670) (749) (896) (1,003) (1,082) (1,181) (1,716) Other (38) (37) (42) (47) (56) (63) (70) (77) (74) (75) (85) (92) Entertainment Tax 48 53 57 63 69 79 86 94 98 119 132 i45 Profits of Fiscal Monopolies 393 403 476 483 520 547 601 672 748 864 993 1,026 Thai Tobacco Monopoly 350 320 325 335 735 5 50 0 579 0 771 795 State Lottery Office 41 81 150 147 159 146 150 170 1(68 211 220 2 Playing Card Factory 2 2 1 1 L 1 1 2 1 3 2 9 Taxes on Imports 2,607 2 862 3,029 3,201 4,230 4,211 5,305 5,393 5,185 5,804 6,366 8,600 Petroleum Products ool 1 330 310 395 550 514 54 275 286 n.a. n.a. Foodstuffs 205 209 245 288 330 344 369 380 399 352 n . a. n. a. Machinery, Equipment and Vehicles 597 718 753 926 1,321 1,548 1,676 1,614 1,618 1,830 n.a. n.a. Of Which: Passenger Cars (n.a.) (n.a.) (n.a.) (172) (242)) (370) (32'') (326) (204) (n.a.) (n.a.) (o.a.) Textil95, Yarns and Threads 397 383 431 462 553 592 625 634 454 394 n.a. n.a. OthersL 747 919 1,020 1,215 1,631 1.777 2,121 2.221 2.439 2,782 n.a. n.a. Accumulated Depqi ts of Prepaid Customs Dutie=s - - 250 - - - - - - 16o ro.a. n.a. (,1 a J C ro Table B-2b: CENTRAL GOVERNMENT CURRENT REVENUEZI, corn inued (Millions of Baht) F'Y1962/63 F'Y1963/64 FY1964/65 1Y1965/66 FY1966/6'/ F'Y1967/68 FY1-368/69 vl1969/70 FY1970/71 PY1971/72 EY1972/73 FY1973/74 L Actual Actual Actual Actual Actual Actuial Actual Actual Actual Actual Prel. Act'l. Rev. Est. Taxes on Exports 1,135 447 63 464 1 256 1372 1,675 i,o4y 431 409 821 2,700 Rice Export Taxes miumT 953 1N 7 1 5 1,312 1,393 789 379 355 n.a. n.a. Rice Export PremniumL 2(800) (1,090) (1,250) (1,067) (929) (1,116) (1,236) (654) (262) (163) (276) (1,470) Export Duty (153) (197) (197) (218) (195) (151) (157) (135) (117) (1932) (n.a.) (n.a.) Rubber Export Duty 160 141 164 142 102 37 228 195 22 15 n.a n.a. Other Export Duties 22 19 20 37 30 68 54 63 30 39 n.u. n.a. Other Taxes 621 696 856 991 1 060 1,196 1,204 1,330 1 330 1,593 1 802 1,567 Automobile Registration Fees 1103 802 T5 1 192 215 239 2 2,5 67 Tax on Tran 7fers of Immovable Properti esL 59 67 75 93 120 151 175 201 172 188 271 350 Tax on Transfers of Motor Vehicles Other Than Automobiles - 8 - - 1 - _ _ 1 - Stamp Dut'o 52 59 63 76 90 110 123 124 122 140 151 160 Royaltien 173 218 308 367( 360 373 354 398 411 433 445 589 License Fees/l 248 241 286 311 321 370 337 368 362 416 468 468 Non-Tax Revenue/12 753 700 993 1_262 1,200 1,369 _____ _____ 1,645 2,116 2,483 _ Contribution of Bank of Thailand 121 120 130 150 245 282 297 300 450 435 450 435 Contribution of State Enterprises 106 86 104 113 221 275 336 313 338 387 442 513 Metropolitan Electricity ___ Authority - - - - 38 30 47 4[ 52 97 ,.a. n.a. Fuel Oil Organization - - - 5 15 21 65 65 66 63 t. ' a. n.a. State Railways - - - - 15 42 35 12 24 21 n.a. n.a. Port Authority 26 10 14 18 28 36 34 29 21 25 n.a. n,a. Telephone Organization - 6 6 6 23 26 27 21 29 56 n.a. n. a. Express Transport Organization - - - - - - 6 12 10 11 n.a. n.a. Forest Industry Organization 52 54 50 55 73 60 71 75 60 45 n.a. n.a. Glass Organization - - 1 1 1 6 6 5 14 - n.a. n.a. Thai Plywood - - - - - 10 - - n.e. an,a. Krung Thai Bank - - - 3 3 9 11 11 _ n.a n.e. Housing Project Office - - - -- - - 11 13 n.e. n.a. Bank of Agriculture and Agricultural Co-operatives - - - - - 5 n.e. rOa. o Others 28 16 33 25 28 30 34 36 51 55 n.a. na. : Table B-2b: CENTRAL GOVERNMENT CURRENT REVENUEL, continued (Millions of Baht) FY1962/63 FY1963/64 FY1964/65 FY1965/66 FY1966/67 FY1967/68 FY1968/69 FY1969/70 FY1970/71 FY1971/72 FY1972/73 FY1973/74 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Prel. Act'l. Rev. Est.-I Other Non-Tax Revenue 526 494 759 999 734 812 805 967 856 1295 1,590 1,428 Rental Revenue n.a. n.a. n.a. 7 i04 TT7 n.a. n.a. Sales of Goods /13M I n.a. n.a. n.a. Sales of Services 4 n.a. n.a. n.a. 214 217 237 262 2,4 291 475 n.a. n.a. Other Ordinary Revenue/15 n.a. n.a. n.a. 405 306 418 346 4'37 383 641 995 n.a. Extra-Ordinary Revenu- _ _ 168 226 66 21 6 12 9 5 3 _ ANNEX B Page 34 Footnotes to Table B-2b /1 This table shows the accounts of the central government current reve- nues on a cash basis. The figures reflect the treasury receipts net of actual refunds. /2 Revised estimate as of September 1974. /3 Abolished in 1961 as the result of consolidation with the Business Tax. /4 Cement, matches, locally produced mechanical lighters, and playing cards. /5 Including Gold Import Premium. /6 Deposits are accumulated in the Customs Department and remitted to the treasury at irregular intervals. Legally the remittance is an extra- budgetary item. /7 Including the profits of the government from government-to-government rice trading. /8 mne revenue has been transferred to tesaban governments at the beginning of FYl974. /9 Main revenue source is land transfers. /10 Mainly mineral royalties. /11 Major items are alien fees, lottery license fees, and gambling license fees. /12 Excluding the unspent balance of the previous year's appropriations, treated as revenue in the Bank of Thailand central government accounts. /13 Real estate, publications, etc. /14 The service charges of semi-autonomous agencies (e.g., government schools and hospitals) do not enter this account, because these revenues do not accrue to the treasury. /15 Proceeds from the sales of the confiscated properties of an ex-prime minister. An extra-budgetary item. Table B-3: LOCAT, OVERNMENI' A(CCI)JNTL2LX (Millions -,f Rahit) FY1965/1o6 rY1966/67 pylOtb LA 6)9 Vs'Y1969/70 F'1970/71 PY1971/72 FY1972/73 FY1973/74 Actual Actual Actual A.: fal Actual Actual Actual Actual Estimate Expenditure 1 257 1,215 1,193 1,381 1,387 1,4'74 1,509 1,781 2 317 Current 571 735 978 970 . 1,352 9 Capital 541 644 458 403 417 4'o6 560 429 IS8 Revenue 1,242 1,324 1, 1,563 1,708 2,167 2,147 1,9877 2,298 Current Revenue/2 834 876 873 1 065 1,159 1,339 1,320 1,083 1,958 'Tax Eevenuel- n.a. n.a. n.a. sO978 1,115 1,015 n.a. n.a. Other Current Revenue n.a. n.a. n.a. 205 181 224 305 r.a. n.a. Transfers from Central Government 408 448 411 498 549 928 827 794 340 Automobile Registration Fees3 n,a. n.a. n,oa. n.a. 44 870 _ Other n.a. n.a. n.a. n.a. 407 554 381 324 340 Cash Deficit 15 -109 -91 -182 -321 -693 -638 -_6 19 Financed by: Use of Reserve Funds 123 74 8') 105 122 91 236 7O 113 Use of Cash Balances -108 -183 -180 -287 -443 -784 -874 -166 -94 Source: Bank of Thailand / This table shows the consolidated accounts of the semi-autonomous local governments, as distinct from the Royal Thai Government Provincial Administration. The figures are on a cash basis. /2 See Tables E-6 and E-7 in Annex E for details. rr 3 The part of central government revenue in Table B-2b that was remitted to local governments as grants. TABLE B-14: STA'I'I. ENTERPRISE ACCOUNT (Millions of Ruht) FY1966 FY1967 IY1963 l;'Y1969 FY1970 FY1971 lY19'72 FY1973 FY19714 (Prel, Est.) (Estimate) Gross Investment in Fixed Asset 1520 1658 2064 2945 2644 2730 3084 5319 5214 Revenue n.a. 1892 1964 1796 2307 2232 2238 2662 1214 Gross Operating Surplus / n.a. 1180 1146 979 1180 1153 1300 1759 /2 853 2 Before Contribution to Central Govt. a n.a. 1401 1 421 1315 1493 1491 1"7 2201 12 . 7 2 Less: Contributions -113 -221 -275 -336 -313 -338 -38'7 -442 -513 Transfers from Central Govt. 3 665 712 818 817 1127 1079 938 903 361 Operating Subsidies 159 L 226 -46 433 313 429 -124 -253 For Foreign Debt Repnyslent 85 177 264 274 155 20 3 - 8 For Capital Formation 421 309 496 588 539 747 506 1027 606 Financing Requirement (Investment less Revenue) n.a. -234 100 1149 337 498 846 2657 4000 Financed by: Net Foreign Borrowing 68 76 -155 -122 -44 97 466 1014 1472 Net Domestic Borrowing - - - - 18 67 2314 534 Non-Bank Public - - - - _1 53 n.a. Government Savings Bank - - - - - - 1 139 n.a. Commercial Banks - - - - - - 13 91 n.a. Bank of Thailand Foreign Exchange Loan - 107 49 43 - _- - Other Sources 4 n.a. _417 206 1228 381 383 313 1409 1994 Sources: Bank of Thailand and NESDB 1 Total operating profits of surplus enterprises less total losses of def'icit enterprises. 2 Estimate. 75 Including loans. Net borrowing not guaranteed by the Ministry of Finance and drawing on cash balances. TABLE B-4a: STASE ENTEYPRIPSE GR91SS FIXED CAPITAI EXPENDIITUS 8 FIIIANCING Plillions of BaWt) FY1965/66 FY1966/67 FY1967/68 FYV968/69 7'Y1969/70 FY1970/71 FY1971/72 PY1972/73 1973/'74 Actual Actual Actual Actual Actual Actual Actual Prel. Est. Estimate 1. Expenditure 1,520 1,658 2,o64 2,945 2,644 2,730 3,084 5,319 5,214 Water Supply and Sewerage _ 70 108 77 128A 227 608 645 Metropolit7n Water Works Authority - - 70 18 77 12 7 7 77 Power 544 674 990 1,429 1,159 1,393 1,939 2,662 2231 Yanhee ElectricityLA-uthorit 229 193926621(5) _ _ _ _ _ _ Lignite Authority 2 32 78 (60) _ - _ _ Northeast Electricity AuthorityLl 81 40 (7)R) Electricity Generati,ng Authority of Thailand (EGAT- 1: - 589 970 r5? 959 1,417 1,766 1,504 Metropolitan Electricity Authority 63 118 230 255 270 260 323 479 397 Provincial Electricity Authority 114 154 103 126 159 113 15 9 310 276> Fuel Oil Organization 26 - 68 / 89 61 41 107 54 Communication and Transportation 700 679 726 1,080 1.116 960 633 1 543 1,856 State Railways of Thailand 3 3 7 392 276 251 L94 691 Port Authority of Thailand. 35 66 96 151 1-5 53 79 218 137 Telephone Organization of Thailand 47 '78 119 275 306 479 200 8,25 864 Thai Airways 19 25 31 59 '3 35 )3 4 Post and Telegraph Office 110 98 124 102 214 390 2 46 G7 Express Transport Organization 2-7 1]8 45 55 (-: 1'' 26 42 1lr Others 66 32 4, 1 21 45 44 114 /5 Agriculture 24 52 5 9 23 37 28q 40 n.m. F'orest Industry Organization 12 7 77 20 1'7 9 10 25 Rubber Plantation Organization 6 1? 12 15 9 10 15 - n.a. Cold Storage and Ice Factory Organization 2 .. 4 1 ? _ )3) Fish Marketing Organization 4 5 7 2 4 47 W to Table B-4a: STATE ENTERPRISE GROSS T'IXED CAPITAL EXPENDTTURE & 1IENACING (ConLd.) (Millions of Baht) FY1965/66 FY1966/6'7 FY1967/68 l;'Y1968/69 l'Y1969/70 FY1970/71 FY1971/72 FY1972/73 FY1973/74 Actual Actual Actual Actual Actual Actual Rev. Est. Rev. Est. Estimate Manufacturing 162 165 142 131 103 71 97 300 356 Oil Refineries 7 2 5 3 3 - - Tobacco Monopoly 38 56 4'7 55 49 28 30 205 233 Thai Plywood 19 - 50 40 8 7 9 21 9 Northeast Gunny Bag Co. 1 1 9 8 3 3 - 23 Glass Organization - - - 5 16 13 12 30 48 Others 100 106 29 25 19 20 43 44 L, Others 90 89 85 111 150" 142 160 166 n.a. Lottery Office 1 20 71 5 3 5 15 3 Government Savings Bank 16 34 21 32 33 26 1V 43 56 Krung Thai Bank - - - 42 (lo 47 33 40 31 Housing Project Office 51 32 43 - 28 45 6t, - n.a. Bank of Agriculture and Agricultural Co-operatives - - - 19 18 14 29 61 n.a. Others 4 3 4 13 15 4 8 7 4 Financing 1,520 1,658 2,o64 2,945 2,644 '30 3,084 5 319 5,214 Own Resources 2 781 844 1,251 1,980 1,'782 1,581 1,015 ,',794 2,346 Government Grants and Loans 421 309 496 538 530) 747 506 1,027 606 Domestic Borrowing (Net) 3 - 107 49 43 - 18t 7 234 534 Government Savings Bank - - - - - - 1 139 n.a. Non-Bank Public - - - - 1' 93 4 n.a. Commercial Banks - - - - - 9 "1 n,a. Bank of Thailand Foreign Exchange Loans - 107 49 43 _ - - - (-) External Loans (Gross) M 318 398 268 333 323 335 - 1,364 1,'728 Source: Bank of Thailand C Da ANNEX B Page 39 Footnotes to Table B-ha /1 EGAT was formed on May 1, 1969 as the result of merging Yanhee Electricity Authority, Lignite Authority, and Northeast Electricity Authority. /2 Gross operating surpluses, accumulated savings, and loans not guaranteed by the Ministry of Finance used for capital expenditure. /3 The loans guaranteed by the Ministry of Finance only. Other loans are included in "Own Resources." ANNEX C: Quantitative Examnination of Public Finance ANNEX C: Quantitative Examination of Public Finances List of Tables .... i I. Summary .... 1 II. Financial Position of the Public Sector in the Recent l ast .... 2 III. Public Expenditure and the Supply of Public Services .... 5 General Background .... 5 Education .... 14 Health Care .... 15 Water Works .... 18 Power .... 19 Communication and Transportation .... 19 Services to Agriculture Sector .... 19 General Administration and Security ...,. 21 Civil Service Employment and Remuneration .... 21 IV. Future Financial Requirements .... 28 V. Revenue of the Public Sector in the Recent Past .... 41 VI. Estimation of Tax Revenue Functions - Tecbnical Discussion .... 51 VII. Revenue and Resource Shortfalls in the Future .... 56 Revenue Projections .... 56 Meeting the Resource Shortfall .... 67 ANNIEX C Page i List of Tables Table C-1: Expenditure and Revenue of Public Sector As 3 Percent of GDP 3 Table C-2: Details of Public F,xpenditure As Percent 6 of CDE' Table C-2a: Details of Public: R,xpen6fit-'ire in F.1972 .... 10 Table C-2b: Details of Public Expenditure As Percent 12 of Total 12 Table C-3: cmur,:eration for Personal Services .... 22 Table C-4: Public Expenditure and Resource RequireIaent 32 As Percent of GDT P Table C-4a: Publ-c Fxpen6itrre and Resource ReJu"rement 5 in FY1972 prices Table C-5: Revenue of the Public Sector (Mi4lios 42 Of Baht) Table C-5a: Coniposition c the Revenue of Public 43 Sector (Percent) Table C-6: Public Sector Revenue Projecticrn As Percent of GDP Table C-6a: Public Sector Revenue Projection in 60 Current Prices Table C-7: Projected Resource Shortfall As Percent .... 67 of GDP Table C-8: Required Net Borrowi:Jg As Percent of GDP .... 68 Table C-9: Net Borrwing of the Public Sector 68 Table C-10: Required Net Borrowing: (Modified) As 69 Percent of GDP I. SUMMARY 1.01 Consolidated public expenditure increased from less than 17 percent of GDP in the mid-1960's to more than 21 percent of GDP in the early 1970's. Despite this increase, the supply of public services is still deficient in many sectors. Social services in rural areas in particular remain seriously in- adequate. Improvement in these services will require large public investment in social infrastructure in rural areas. In view of this, the mission estimates that the financial resource requirement of the public sector in the period from FY1975 to FY1980 will be about 24 percent of GDP. 1.02 In the latter half of the 1960's the revenue from central government taxes - the principal revenue source for the entire public sector - tended to increase faster than GDP. However, in the early 1970's the rate of increase lagged behind the rate of increase in GDP. 1.03 This stagnation in central government tax revenue was partly due to discretionary tax measures. However, examination of tax revenue behavior in- dicates that the low revenue elasticities of certain taxes with respect to GDP and the price level are also responsible for the relatively slow increase in revenue. 1.04 The public sector tended to incur an increasingly large cash deficit, reaching 5 percent of GDP in FY1972. Since then, the public sector attempted to constrain the expansion of deficit by curtailing public expenditure. How- ever, this strategy should not be adopted in such a way that it would adversely affect the supply of public services. 1.05 The efforts to curb the deficit, should instead be tackled primarily through revenue increasing measures. At the same time, efforts should be made to eliminate the factors causing wasteful use of financial resources that exist in the public sector. ANNEX C Page 2 II. FINANCIAL POSITION OF THE PUBLIC SECTOR IN THE RECENT PAST 2.01 Table C-1 shows the magnitudes of the expenditure and the revenue of the public sector in relation to GDP since the mid-1960's. 1/ In the latter half of the 1960's both expenditure and revenue tended to increase faster than GDP. The ratio of expenditure to GDP rose from less than 17 per- cent in FY1966 to about 21 percent in FY1969, and the ratio of revenue to GDP rose from about 17 percent in FY1967 to 17.6 percent in FY1969. The revenue from central governnentv taxes was buoyant with respect to GDP in this period. 2.02 However, in more recent years, the revenue of the public sector tended to increase more slowly than GDP. The ratio to GDP, having marked a peak in FY1969, declined to reach 16 percent in FY1972. Slow increase in central government tax revenue was the principal factor in this decline, but reduction in foreign grant receipts accentuated the decline in the ratio. 2.03 For a while the public sector sustained further expansions in its expenditure by drawing cn cash balances and borrowing from the banking sector. The deficit increased rapidly from 3.1 percent of GDP in FY1969 to 5 percent of GDP in FY1972. 2/ The reaction of the central government to this growing deficit was to strengthen its efforts to curb increases in public expenditure. This resulted in a decline in tl-.e ratio of expenditure to GDP from 21 .3 per- cent in FY1972 to 19,6 percent in FY1973. Although the ratio of revenue to GDP declined a little in FY1973, the deficit cf the public sector fell in absolute magnitude from 7.8 billion (5 percent cf GDP) in FY1972 to 7.3 billion (3.9 percent of GDP). In FY197L public expenditure is expected to be less than 19 percent of GDP. 1/ "Expenditure of the public sector"l or "public expenditure" in this annex refers to the consolidated total of the expenditure of central and local governments and the expenditure of state enterprises of in- vestment in gross fixed assets. "Revenue of the public sector" or "public revenue" refers to the consolidated total of the current revenue of central and local governments, operating surpluses of state enter- prises (total operating profits of surplus enterprises less total operating losses of deficit enterprises), foreign grant receipts, and net extrabudgetary treasury receipts. These definitions differ to some extent from those used in the IERD Econcoiic Reports, which adopted the definitions of the BBak of Thailand. These differences are explained in Section II of Annex B. 2/ "Deficitt, refers to the excess of expenditure over revenue, while these two terms are defined as above (footnote 1/). Hence it differs a little from "deficit" used in IE-D Economic Reports. TABLE C-1: EXPENDITURE AND REVENUE OF PUBLIC SECTOR AS PERCENT OF GDP iJ FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Expenditure Current Expenditure 10.9 11.9 12.7 13.3 13.1 13.7 14.0 13.0 13.0 Capital Expenditure 6.o 6.4 7.3 7.6 7.1 7.8 7.4 6.7 5.7 Adjustments -0.1 -0.2 / -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 - Total 18.1 19. 20.7 20.1 2 721.3 Revenue Current Central Govt. Tax Revenue 11.8 12.5 13.0 13.2 12.7 12.1 12.2 12.0 13.7 Central Govt. Non-Tax Revenue 1.3 1.1 1.2 1.1 1.2 1.2 1.4 1.3 1.0 Local Govt. Revenue 0.9 0.8 0.8 0.8 0.9 0.9 0.8 o.6 0.8 State Enterprise Operating Surpluses n.a. 1.1 1.0 0.8 0.9 0.8 0.0 0.9 0.4 Sub-Total n.a. 15.5 15.9 16,0 i 15.0 15.2 T7;7 15.9 Foreign Grants 0.9 1.0 1.1 1.2 0.8 0.8 o.6 0.5 0.3 Net Extrabudgetary Treasury Receipts 0.3 0.9 0.3 0.5 o.6 1.1 0.3 0.4 0.3 Total n.a. 17.4 17.4 17.6 16.9 16.9 1 15.7 15 Deficit V n.a. 0.7 2.5 3.1 3.2 4.5 5.0 3.9 2.3 Source: Tables B-1 and B-2, Annex B Revised GDP estimates of August 1974 were used. E Including unidentified transfer payment from the central government, which was 0.2 percent of GDP. j Expenditure less revenue adjusted for time-lags in the payments and receipts of intra-pu'lic sector transfers. A!NNE C Page 4 2.-o However, this reduction of public expenditure relative to GDP ought not to be expected to continue. As discussed in Section III, the supply of public services in Thailand cannot yet be regarded as adequate. The public sector needs to expand its activities to maintain the momentuml of economic growth, to improve income distribution, and to reduce urban-rural disparities in living conditions. 2.O5 In FY1973, the expenditures on social and economic services declined -ir. real terms (See Table C-2a). In mission's view, expansion in these public services is of high priority, and expenditure cutbacks which would constrain the provision of such services is not warranted. ANNEX C Page 5 III. PUBLIC EXPEDITURE AND THE SUPPII OF PUBLIC SERVICES 3.01 This section attempts to evaluate public expenditures in the recent past, taking into consideration the state of public service supply. Direct expenditure of the central government accounts for 80 to 85 percent of the total public expenditure. The influence of the central government over the size and the cormposition of public expenditure is even greater than this figure suggests, for the central government controls resource allocation in local governments and state enterprises in large measure. Hence the level and the pattern of public expenditure express primarily the decisions of the central government. 3.02 Table C-2 shows details of public expenditure as percentages of GDP in the recent past. The ratio increased during the latter half of the 1960's to reach over 21 percent in FY1970/71 and FY1971/72, The ratios of expenditure to GDP increased during this period for education, water supply, power generation/supply, security (defense and police) and interest payments. In FY1973 and FY1974, the ratio of total expenditure to GDP declined, with corre- sponding declines in the ratios for most social services and economic services. 3.03 Table C-2a shows details of expenditure in constant prices. While total public expenditure in constant prices increased at annual rates in excess of 10 percent in most years before 1972, the rate of increase fell to 3.2 per- cent in FY1972, while in FY1973, the expenditure in constant prices actually declined slightly. While current expenditure increased at a slow pace in the period from FYn972 to FY1974, capital expenditure in constant prices declined during this three-year period. The recent declines in expenditures in real terms are observed in education, health service, highways and roads, and agriculture services. Figures in Table C-2b show that the shares of ex- penditure in the total also declined in FY1973 and FY1974 for education, health service, highways and roads and agriculture services. 3.04 These figures alone do not provide a sufficient basis for evaluating the allocation of public resources. It is necessary to examine the socio- econoric background of the country, which is the major determinant of the demand for public services. General Background 3.05 Uatil about the beginning of the 1960's, the activities of the public sector were geared to the well-being of the population in the metro- politan area, 1/ where there was the concentration of wealth, power and prestige. Very little public services extended to outside the metropolitan area, and practically none to rural peripheries, although this was not the outcome of conscious discriminatory poli.cies; it was rather the result of the lack of government interest in the rest of the country. 1/ "lMetropolitan area" refers to the Bangkok Metropolis and its suburbs. TABLE C-2: DETAILS OF PUBLIC EXPENDITURE AS PERCENT OF GDP / FY1966 FY1967 FYl968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Education 2.4 2.5 3,0 3.L 3.0 3.5 3.7 3.2 2.9 Current 2.0 2.0 2.2 2.2 2.3 2.3 2.9 2.4 2.0 Capital 0.5 0.5 0.8 0.8 0.7 1.3 0.9 0, 8 o,9 Primary Schools 1.4 1.3 1.6 1.6 1.6 1.9 2.0 n.a. n.a. Current 1.2 1.2 1.3 1.3 17 1,3 Capital 0.2 0.1 0.3 0.2 0.3 o.6 0.2 Secondary Schools 0.2 0.2 0.3 0.3 0.3 o.4 0.4 n.a. n.a. Current 0.17 0.17 0.19 0.19 0.20 0.22 0.22 Capital 0.02 0.03 0.09 o.o8 o.o6 0,14 0.16 Technical & Vocational Schools, Colleges & Universities o.6 o.6 0.8 0.9 0.8 0.9 1.0 n.a. n.a. Current 0.3 07 .7 07 T,5 0.5 0.5 Capital 0.2 0.3 0.4 0.5 0.3 0.4 0.4 Other 0.3 0.3 0.3 0.3 0.3 0.4 o.4 n.a. n.a. Current 0.29 0.31 0.29 0.27 0.27 0.26 0.32 Capital 0.04 0.03 0.03 o.o6 0.05 0.09 0.10 Health o.6 o.6 o.6 o.6 0.5 o.6 o.6 0.5 0.4 Current 0.5 0.5 0.5 0.5 0.5 0.5 0.5 7 5 Capital 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Medical Services 0.3 0.3 0.3 0.4 0.3 0.3 0.4 n.a. n.a. Current 0.2 0.2 0.2 0.3 0.2 0.2 0.2 Capital 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Special Health Programs 0.1 0.2 0.1 0.04 0.1 0.1 0.1 n.a. n.a. V Current 0.09 0.15 '0.07 0.03 0.07 0.12 0,13 . - Capital ,,, 0.01 0.01 0.01 ... 0.02 O.01 °c( TABLE C-2: DETAILS OF PUBLIC EXPENDITURE AS PERCENT OF GDP (Contd) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Other 0.3 0.2 0.3 0.2 0.2 0.2 0.1 n.a. n.a. Current 0.27 0.14 0.25 0.19 0.19 0.14 0.11 Capital 0.02 0.02 0.02 0.01 ... 0.01 0.01 Water Supply 0.2 0.2 0.3 0.3 0.3 o.4 o.4 n.a. n.a. Current 0.12 0.04 0.08 0.05 o.04 0.05 n.a. n.a. Capital 0.12 0.15 0.18 0.25 0.25 0 .35 0.3545 o 3 Power (Capital) o.6 0.7 0.8 1.2 1.2 1.0 1.2 1.4 0.9 Communication and Transportation 2.4 2.8 3.3 3.5 3.3 3.1 2.9 2.7 2.4 Current o.4 0.5 0-5 7 575 0-5 0-5 0 5 074 Capital 2.0 2.4 2.7 3.0 2.8 2.6 2.4 2.2 2.0 Highways and Roads 1.5 2.0 2.4 2.4 2.2 2.2 2.3 1.7 1.5 Current 0 .3 T 07 0.5 0 .5 0.5 0 ; 0 Capital 1.1 1.6 1.9 2.0 1.8 1.8 1.9 1.3 1.1 Other 1.0 o.8 0.9 1.1 1.1 0.9 o.6 0.9 0.9 Current 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Capital 0.9 o.8 0.8 1.0 1.0 0.8 0.5 0.9 0.8 Agriculture 1.5 1.7 2.0 1.8 2.0 2.1 1.6 1.3 1.1 Current 0.6 0 0.7 0.7 0;7 0.7 o. 70.6 0.6 Capital 0.9 1.0 1.3 1.1 1.3 1.4 0.9 0.7 o.6 Irrigation 0.9 1.0 1.3 1.1 1.3 i.4 1.0 0.7 o.6 Current 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 Capital 0.7 o.8 1.1 o.8 1.0 1.2 0.8 0.5 o.4 Other 0.6 0.7 0.7 0.7 0.7 0.7 o.6 0.5 0.5 Current 07 . -07 O.5 05.5 0 .5 - T , 0hT 0T Capital 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.1 0.1 7 General Administration (Current) 1.9 2.5 2.6 2.7 2.0 2.2 1.8 2.1 2.5 TABLE C-2: DETAILS OF PTBLIC EXPENDITURE AS PERCENT OF GDP FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Defense and Police (Current) 1.9 2.5 2.6 2.7 2.0 2.2 1.8 2.1 2.5 Pensions 2.9 3.0 3.4 3.7 4.1 4.5 4.4 3.9 4.1 Interest Payments 0.7 0.8 0.9 0.9 1.0 1.3 1.5 1.5 1,5 Other 3.1 3.1 2.6 2.6 2.1 2.3 2.6 2.3 2.1 Current 1.4 5 1 7 1.3 1.3 1.3 Capital 1.8 1.6 1.3 1.1 o.8 1.1 1.4 1.1 0.9 Other -0.1 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 Grand Total 16.7 18.9 19.8 20.7 20.1 21.4 21.3 19.6 18.7 Current 10.9 12,'7 13.3 13.1 13.7 14.0 13.0 13.0 Capital 6.D 6.4 7.3 7.6 7.1 7.8 7.4 6.7 5.7 Other -0.1 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 Source: Table B-la a See the notes at the end of Table. Ic~ ANNEX C Page 9 NOTES TO TABLE C-2 Figures in this table are derived from Table B-la, Annex B, where current expenditure figures for specified purposes consist of central govern- ment direct expenditure plus identifiable central government transfers to local governments for that purpose, and capital expenditure figures for specified purposes consist of central government direct expenditure, identifi- able central government transfers to local governments plus state enterprise gross investment expenditure for the corresponding purpose. Revised GDP estimates of August 1974 were used. For FY1973 and FY1974, the data on central government transfers are not available. The figures shown here are estimated on the basis of the data on central government direct expenditure and state enterprise expenditure, using the following assumptions: Education, Current: Transfer to local government is 3% of central government direct expenditure (FY1966 - FY1972 average). Education, Capital: Transfer to local government is 1.9% of central government direct expenditure (Fri 968 - FY1972 average). Health, Current: Transfer to local governments is 0.5% of central government direct expenditure (FY1966 - FY1972 average). Health, Capital: No transfer to local governments. Identifiable transfer was very small in the past. Water Supply, Capital: Transfer to local government is about 23% of central government direct expenditure (FY1969 - FY1972 average). Power, Capital: No transfer to local government. There were no identifiable transfers in most years in the past. Highways and roads, Capital Transfer to local governments is 3.9% of central government direct expenditure (FY1967 - FY1972 average). "Other current expenditure" for FY1973 and FY1974 includes current expenditure for water supply, which cannot be estimated from the available data. TABLE C-2a: DETAILS 0F PUBLIC EXPENDITTURE TN FY1972 PRICES /1 (Millions of Baht) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Education Primary Schools 1,407 1,476 1,935 2,089 2,318 2,862 3,O94 n.a. n.a. Secondary Schools 196 232 342 354 361 543 597 n.a. n.a. Technical & Vocational Schools and Colleges & Universities 585 717 994 1,163 1,135 1,376 .1,02 n, 9, Other 338 382 392 446 460 536 657 n.a. n.a. Total 2,526 2 807 3 663 4,051 4 275 55,851 5,437 5,180 Current 2,035 2 2,939 63, 3,399 5 4,021 3,542 Capital 491 542 979 1,112 1,029 1,918 1,376 1,415 1,637 Health Medical Services 272 296 345 511 402 504 560 n.a. n.a. Special Health Programs 97 179 100 51 101 206 219 n.a. n.a. Other 298 186 324 264 278 230 183 n.a. n.a. Total 668 770 780 942 962 2 772 Current 560 550 657 688 679 '763 738 684 635 Capital 108 110 113 139 101 179 224 145 137 Water Supply 244 214 311 394 423 585 627 n.a. n.a. Current 124 4 7 93 - ' 5 879 T n.a. Capital 120 168 218 334 359 526 548 758 694 Power (Capital) 592 735 1,014 1,621 1,706 1,568 1,955 2,296 1,648 Cormfunication and Transportation Highways & Roads 1,536 2,261 2,884 3,205 3,171 3,392 3,619 2,892 2,703 Other 992 951 1,100 1,448 1,537 1,309 889 1,582 1,621 Total 2 528 3,211 3,98 4,655 4,07;7 01 4,509 4_474 4,372 Current 534 6 73 771 799 820 Capital 2,095 2,678 3,318 3,916 3,936 3,877 3,710 3,654 3,556 - TABLE C-2a (Contd.) FY1966 FY1967 FY1968 FfY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Agriculture Irrigation 929 1,126 1,616 1,415 1,872 2,171 1,593 1,247 1,145 Other 591 743 829 968 983 984 883 864 912 Total 1,519 1, 869 2,3446 32, 156 2,47 2,111 2 057 Current 622 707 3 921 1.073 1.003 982 1,012 Capital 892 1,163 1,608 1,462 1,782 2,052 1,473 1,129 1,044 General Administration (Current) 1,924 2,788 3,174 3,513 2,899 3,283 2,767 3,542 4,481 Defense and Police (Current) 2,977 3,370 4,134 4,878 5,861 6,720 6,931 6,542 7,315 Pensions 490 494 509 575 616 624 758 688 639 Interest Payments 700 899 1,056 1,178 1,454 1,889 2,420 2,543 2,766 Other 3,190 3,461 3,228 3,375 2,960 3,480 4,034 3,871 3,851 Current 1,415 1,74 4 2,084 1,98 3 2,017 8 2317 Capital 1,897 1,794 1,637 1,475 1,182 1,613 2,070 1,846 1,533 Other -122 -190 -154 -182 -205 -180 -170 -152 - Grand Total 17,357 20,508 24,290 27,448 28 535 32,264 33 ,290 33,092 33 725 Current 11,278 13,506 15,556 17,572 18,643 20,710 21,928 22,000 23,476 Capital 6,202 7,190 8,888 10,059 10,095 11,735 11,515 11,244 10,249 Other -122 -190 -154 -182 -205 -180 -152 -152 - /1 Figures in this table are derived from Table B-la, applying revised GDP deflator (Estimates of August 1974). Figures for FY1974 involve some assumptions, which are described in the note to Table C-2. e '1 (D :, TABIE C-2b: DETAILS OF PUBLIC EXPENDITURE AS PERCENT OF TOTAL /1 FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Estimate Education Primary Schools 8.1 7.2 8.o 7.6 8.1 8.9 9.3 n.a. n.a. Secondary Schools 1.1 1.1 1.4 1.3 1.3 1.7 1.8 n.a. n.a. Technical & Vocational Schools and Colleges and Universities 3.4 3.5 4.1 4.2 4.0 4.3 4.5 n.a. n.a. Other 1.9 1.9 1.6 1.6 1.6 1.7 2.0 n.a. n.a. Total 1_____ 13.7 15.1 14.8 15.0 16. _7_ 15.4 Current 11.7 11.0 11.1 10.'7 10.5 13.4 12.1 10.5 Capital 2.8 2.6 4.0 4.1 3.6 6.o 4.1 4.3 4.9 He31th Medical Services 1.6 1.4 1.4 1.9 1.4 1.6 1.7 n.a. n.a. Special Health Programs o.6 0.9 0.4 0.2 0.4 o.6 o.6 n.a. n.a. Other 1.7 0.9 1.3 1.0 1.0 0.7 o.6 n.a. n.a. Total 3.9 3.2 3.2 3.0 2.7 2.9 2.9 2.5 2.3 Current 3.2 2.7 2.7 2.54 2 2.2 2.1 1.9 Capital o.6 0.5 0.5 0.5 0.3 o.6 0.7 0.4 0.4 Water Supply 1.4 1.0 1.3 1.4 1.5 1.8 1.9 n.a. n.a. Current 0.7 0.2 0 0.2 0.2 0.2 0.2 n.a. n.a. Capital 0.7 o.8 0.9 1.2 1.3 1.6 1.7 2.3 2.1 Power (Capital) 3.4 3.6 4.2 5.9 6.0 4.9 5.9 6.9 4.9 Communication and Transportation Highways and Roads 8.9 11.0 11.9 11.7 11.1 10.5 10.9 8.7 8.0 Other 5.7 4.6 4.5 5.3 5.4 4.1 2.7 4.8 4.8 Total 14. 6 15.7 16.4 17.0 14. 6 T7 13.6 13.5 127- Current 2.5 2.7 2.7 7 2.5 2.3 Capital 12.1 13.1 13.7 14.3 13.8 14.0 11.2 11.0 10.5 TABLE C-2b (Contd.) FY1966 FY1967 FY1968 FY1969 FY1970 FY1971 FY1972 FY1973 FY1974 Estimate Agriculture Irrigation 5.4 5.5 6.7 5.2 6.6 6.7 4.8 3.8 3.4 Other 3.4 3.6 3.4 3.5 3.4 3.1 2.7 2.6 2.7 Total 9.1 10.1 7 10.0 v 77 6.4: ___ Current 7 73.5 3.0 3.0 3.0 Capital 5.2 5.7 6.6 3.3 6.2 6.4 4.4 3.4 3.1 General Administration (Current) 11.1 13.6 13.1 12.8 10.2 10.2 8.3 10.7 13.3 Defense and Police (Current) 17.2 16.4 17.0 17.8 20.5 20.8 20.8 19.8 21.7 Pensions 2.8 2.4 2.1 2.1 2.2 1.9 2.3 2.1 1.9 Interest Payments 4.0 4.4 4.4 4.3 5.1 5.9 7.3 7.7 8.2 Other 18.4 16.9 13.3 12.3 10.4 10.8 12.1 11.7 11.4 Current 8.2 9.0 7.2 7.6 7.0 6. 5.9 6. 6.9 Capital 10.9 8.8 6.7 5.4 4.1 5.0 6.7 5.6 4.5 Other -0.7 -0.9 -0.6 -0.7 -0.7 -o.6 -0.5 -0.5 - Grand Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Current 65.O 65.9 64.o T - 65.3 77-2 65.9 Capital 35.7 35.1 36.6 36.7 35.4 36.4 34.6 34.0 30.4 Other -0.7 -0.9 -o.6 -0.7 -0.7 -o.6 -0.5 -0.5 - L Figures in this table are derived from Table B-la. Figures for FY1973 and FY1974 involve assumptions, which are described in the note to Table C-2. ANNEX C Page 11 3.06 At the beginning of the 1960's, poor farmers in remote areas ex- pressed their dissatisfaction with the status quo in the form of insurgency. Cnly then did the government become aware of the need for extending its services to the rural population. However, the government moved slowly. The remains of the past are still abundant today. Most public facilities for higher education, medical and health services, cormnnication and transportation are located in the metropolitan area and its vicinity. Consequently, the supply of public services tends to cluster around the metropolitan area. Effective changes in the regional distribution of social and economic services would require massive public investment in rural areas. Education 3.07 Education has been one of the high priority items in the development budget. Identifiable public expenditure for education (public schools and supporting services) increased from 2.4 percent of GDP in FY1965/66 to 3.7 percent of GDP in FY1971/72, 1/ and the share of education in the total public expenditure exceeded 15 percent in FY1970/71 and FY1971/72. Nevertheless, the provision of public education services has been far from adequate. 3.08 This is particularly so at lower levels of education and in rural areas. Primary education is compulsory, but there are rural communities with no schools within reasonable distances. Most of existing rural elementary schools suffer from shortages of qualified teachers, teaching materials, text- books and equipment. 3.09 Similar problems are noted also at the secondary level. Of about 550 Administrative Districts (Amphor), about 250 did not have academic secondary schools at the beginning of the Third Five-Year Plan period. The government is in pursuit of the Amphor Secondary School Project under the Third Plan to provide each Amphor with at least one academic secondary school. 3.10 This situation indicates that in future public expenditure for education will have to increase further. Establishing primary schools in rural cormunitieB to provide all children with easily-accessible schools should be given high priority. Expansion of rural enrollment will raise the average current expenditure per student even without improvements in the quality of education. Improvements in the quality of teachers and the avail- ability of teaching material, textbooks and equipment will all necessitate additional expenditure. 3,11 At the same time one should recognize certain waste areas of re- source currently prevalent. Most primary schools are under the direct control of DOLA or municipal governments (the latter only in the case of schools in municipal areas) instead of the Ministry of Education. 1/ Actual expenditure was probably a little higher than these figures in- dicate. The cited figures exclude expenditures of local governments financed by their own resources and expenditures financed by school fees which public schools are allowed to charge. ANNEX C Page 15 While the Ministry of Education has an overall supervisory role in primary education, its control over DOLA schools is weak. It has recognized the shortcomings of traditional teaching methods and created a small number of demonstration schools for experimenting with improved teaching methods. Despite the apparent success of these schools, the Ministry of Education has made no significant efforts to extend the new methods to DOLA schools and municipal schools. Hence the expenses incurred for the "experiment" have been wasted so far. 1/ 3.12 The problem of poorly qualified teachers is said to stem from the nationwide shortage of well-trained teachers. And yet, available teachers are not necessarily assigned teaching positions. The Third Plan document noted, "... some 4,000 teachers have been assigned administrative instead of teaching work, ...". 2/ Health Care 3.13 Public expenditure for health care has been very small, amounting to only about 0.6 percent of GDP in each year. The share in total public expenditure has been less than 3 percent since FY1969/70. Health service ex- penditure is small in developing countries, but its ratio to GDP exceeds 1 percent in most countries. 3/ 1/ Of the 30,000 elementary schools in the country, only 400 are demonstration schools. These demonstration schools are operated by the Department of Elementary Education (Ministry of Education), and are located in relatively urban areas. Average public expenditure per student is known to be con- siderably higher in the demonstration schools than in other public elementary schools. However, the mission was not able to obtain comparative cost figures. 2/ The Third National Economic and Social Development Plan, p. 252. 3/ The following figures show the ratio of central government expenditure for health services as percent of GDP. The asterisk (*) indicates that there are other public agencies (local governments, social security system, etc.) which also provide health services in addition to the central government. (see figures on next page). ANNEX C Page 16 3/ (contd. Ethiopia (F11971/72) 0.8* Ghana (FI1969/70) 1.3 Kenya (FY1971/72) 1.7* Malawi (1969) 1.3* Mauritius (FY1970/71) 2.6 Rwanda (1970) 0.8 Sudan (FY1 969/70) 1.5 Burma (FY1970/71 ) 1.1 India (FY1970/71 ) 0.1* Principal supplier of health service in India is state govern- ments. Korea (1970) 0.3* Malaysia (1971) 1.9* Philippines (FY1971/72) 0.5 Sri Lanka (FY1969/70) 2.2 Algeria (1970 ) 1.4* Israel (FY1970/71) 1.2 Morocco (1970) 1.3* ;rria (1971 ) 0.7 Barbados (1971) 5.0 British Honduras (1969) 1.4 Dominican Republic (1971) 2.2 Guyana (1971) 2.2* Honduras (1970) 1.3* Jamaica (FY1971/72) 2.8* Paraguay (1972) 0.5* Trinidad & Tobago (1970) 1.8* Venezuela (1970) 2.1* Source: IBRD and ITF. ANNEX C Page 17 3.14 The supply of health services in Thailand is heavily concentrated in the metropolitan area, with very little available in rural areas. The estimated population to doctor ratio in 1970 was 1,000 in Bangkok, 30,000 outside Bangkok, and 110,000 outside provincial capitals. 1/ Qualified medical personnel are reluctant to serve in rural areas, mainly because of adverse living conditions and poor income perspectives, but also partly because of the lack of medical facilities and equipment they could use. 3.15 This reluctance is apparent among medical-health staff in both the public sector and the private sector. According to the health statistics of 1971, over half the health service personnel employed by the central government or municipalities were Serving in the metropolitan area, where only about 11 percent of the population resided. 2/ 3.16 The organization of the public health system further reinforces the strong preference among qualified personnel for staying in the metropolitan area. There are five types of public facilities for medical-health care: 'hospitals, first-class health centers, second-class health centers, midwifery centers and mobile service units. Cf these, hospitals are locatecd in urban areas. In 1971, there were 141 state hospitals and 4 municipal hospitals, and 33 of these were in the metrcpolitan area, while the rest were in the pr6vincial capitals. First- class health centers, staffed wirth a few medical personnel with formal training, are located in sanitary district capitals. Other public health institutions do not necessarily have doctors, even though these are the only sources of health services that are available to the rural population. Even these are not accessible to the entire rural population. The Ministry of Public Health estimates that only about one-third of the entire population can benefit from public health services. 3.17 At present, the central government is devoting considerable finan- cial resources to the training of health service personnel. While increasing the number of trained persons may help improve the supply of health services in rural areas, this is by no means a certain outcome. The Ministry of Public Health observes that a large number of qualified persons leave the country in preference to working in rural areas. Unless this phenomenon is controlled, resources devoted to training would be largely wasted. 1/ Population Growth in Thailand, second edition, 1972. 2/ The percentages of health service personnel in the public sector serving the metropolitan area are as follows: Doctors 64 Dentists 70 Nurses and practical nurses 55 ANNEX C Page 18 3.18 Improving the geographical distribution of medical-health personnel will involve making services in rural areas more attractive. Although the government gives post allowances for medical personnel in rural areas, the funds allocated for this purpose seem too small to have a major impact. In any case, any attempt at reallocation of health service personnel solely through increases in the post allowances is liable to be prohibitively expensive. 3.19 It may be therefore necessary for the government to adopt somewhat coercive measures in addition. Service in remote areas could be made a pre- requisite for the pursuit of the medical profession. However, even such coercion would not bring about large improvements in the supply of services in rural areas in the absence of improvement of facilities for medical personnel to use. 3.20 Another shortcoming of the public health service in Thailand is the relative neglect of preventive services. The small financial resources of the central government allocated for health services are spent mainly on curative services. Environmental sanitation is left to local government, which does not have sufficient resources to perform its expected role. Wdater Wtorks 3.21 Responsibility over water works is fragmented in Thailand. Services in the Bangkok Metropolis and two adjacent provinces are the responsibility of the Metropolitan Water Works Authority (MWWA), a state enterprise. In the rest of the country, a number of departments and divisions of various ministries share the responsibility. 3.22 Public expenditure for water works and sewerage treatmnents was between 0.2 to 0.4 percent of GDP, excluding the operating expenses of MWWA. The regional distribution of this expenditure has been biased in favor of the metropolitan area. In the period from FY1967/68 to FY1971/72, the capital expenditure of MWWA (partly financed by transfers from the central government) accounted for about one-quarter of public expenditure for water works. Since NWWA serves less than 15 percent of total population, the per capita expenditure incidence in the MWWA area is about twice that in the rest of the country. In addition, the central government has been providing operating subsidies to NWdA. which in some years, have exceeded direct current expenditure by the central government on water supply and related works. 3.23 Provincial water works are not yet developed enough to supply piped water to the entire population. An IBRD report noted: "... only about 40% of the urban population in cities with water supply are connected to the system. ...about 10% of the people in villages and towns of 500 - 5,000 inhabitants and about 20% in the communities of less than 500 inhabitants have benefitted from an improved water supply."1 (IBRD Report No. EAP-28, January 11, 1972, Annex 7, page 3) ANNEX C Page 19 Power 3.24 The responsibility for electricity generation and distribution rests largely with state enterprises, but the central government provides supporting services such as fuel surveys. Public expenditure on power supply and related services increased in the recent past from about 0.6 percent of GDP in FY1965/66 to about 1.2 percent of GDP in the early 1970's. More than 90 per- cent of this expenditure was for gross fixed investment by state enterprises. 3.25 Electricity consumption will continue to grow, and expansion of generating capacity will be required in the near future. At present little electricity is available in rural areas. Transmission lines do not extend to most villages. However, the government is beginning to consider rural electrification. Communication and Transportation 3.26 Available figures show that puolic expenditure for communication and transportation has amounted to about 3 percent of GDP since FY1966/67. 1/ The construction and improvement of major roads have been given high prlorities in the successive development plans, and the government has devoted financial resources equivalent in excess of 2 percent of GDP for these purposes alone. The basic highiway network is now complete. However, rural roads are generally in a primitive state and the metropolitan area suffers from traffic congestion. 3.27 Communication network is still underdeveloped and concentrated in the metropolitan area. Provision of services is shared by the Post and Telegraph Office (a department in the Ministry of Communications) and the Telephone Organization of Thailand (TOT, a state enterprise). The service of TOT is particularly concentrated in the metropolitan area, 2/ and communication ser- vices in rural areas are poor. Services to the Agriculture Sector 3.28 Identifiable public expenditure on services to the agriculture sector was about 2 percent of GDP in the period from FY1968 to FY1971, account- ing for about 10 percent of consolidated public expenditure. Two-thirds of this amount were used for construction and maintenance of irrigation facilities. 1/ The actual expenditure was probably larger. The available statistics ex- clude the self-financed expenditure of local governments, which are responsible for the construction and maintenance of local roads. 2/ TOT was established in 1954 "1... for the purpose of organizing and improving telecommunication services in the Bangkok-Thonburi area." (IBRD Report No. PU-99a, October 27, 1972, page 2). ANNEX C Page 20 3.29 So far the country maintained self-sufficiency in basic food despite the fast-growing population. Furthermore, it has been able to earn consider- able foreign exchange from exports of rice and other agriculture products. The main source of output growth has been expansion in planted area, for which no substantial public assistance was required. However, as this source has almost reached the limit, 1/ the future output growth will have to come from improvements in land productivity. The government is taking steps to help raise land productivity, but these efforts are rendered inefficient due to inconsistent and poorly designed policies. 3.30 The government has viewed traditionally the agriculture sector as, firstily, the source of food supply to the urban population and secondly, as the source of foreign exchange earnings. The importance of agriculture as the principal source of income for the majority of population outside the metropolitan area was ignored. For this reason, the government failed to give adequate incentives to farmers to raise land productivity. Furthermore, some of the policies were characterized by perverse incentives. 3.31 The rice export premium is an example of such policies. This levy has been used as a measure for ensuring the domestic supply of rice and thus controlling the retail price of rice. Although controversy exists as to the incidence of the rice premium, there is no doubt that at least a part of the levy is borne by rice farmers, and that therefore results in an income trans- fer from rice farmers to rice consumers. 3.32 This measure has been successful to some extent, but in the long run. it is likely to be self-defeating in that the income transfers give a dis- incentive to rice farming. The effects of policies to increase land pro- ductivity are probably offset by the negative effects of the rice premium to a large extent. 3.33 Irrigation has been the most important public activity aimed at increasing land productivity. However, the large public expenditires for dam construction have brought about only a limited effect. It was noted that t... very little area under the command of major dams has good water control. This is mainly due to incomplete and poorly designed systems. ... Part of the difficulty also lies in the multiple purposes for which the dams were built. Electric power generation, navigation and salt water extrusion seem to have higher priorities than irrigation.i' 2/ Only in the Third Five-Year Plan did the government shift the emphasi s fzom dam construction to the improvement of existing irrigation facilities. 1/ Recent land capability studies indicated that only about 250,000 to 300,000 ha. of remaining land could be opened up for farming. Between 1963 and 1971, about 4.5 million ha. had been brought into cultivation. 2/ Delane Welsch and Sopin Tongpan, "Rice in Thailand.," in the International Rice Research Institute, Viewpoints on Rice Policy in Asia, August 1971. ANNEX C Page 21 3.34 The effective use of irrigation facilities would require changes in farming method. So far, public expenditures on extension services have been very small and the services provided inadequate. Criticisms were raised on the poor organization and the lack of qualified extension workers. The successful adoption of new farming methods and improved seeds cannot be achieved by extension services alone. For this purpose, the penetration of basic education into the farming population is also necessary. General Administration and Security 3.35 Current expenditure for gene-ral administration increased toward the end of the 1960's, when it reached 2.7 percent of GDP, but then it began to decline, and in FY1972, the amount was less than 2 percent of GDP. One ob- serves that there is scope for reducing the expenditure for general administration still further. This point will be discussed later. 3.36 Current expenditure on defense and police increased from 2.9 percent of GDP in FY1966 to 4.5 percent of GDP in FY1971. Dn the early 1970's, it accounted for more than 20 percent of the total public expenditure. With related investments, total expenditure on security may have exceeded one- quarter of public expenditure. Security has been given the top priority in the budget of the central government, while uses of the funds allocated for defense were not completely explained to the agencies in charge of fiscal administration. This prestigious treatment has probably led to considerable overspending on defense. Civil Service Em~plyMent and Remuneration 3.37 Remuneration for personal services is an important component of public expenditure. In the period from FY1968 to FY1972 the remuneration for central goverrment employees alone accounted for about 27 percent of con- solidated public expenditure. Remuneration for local government employees accounted for another 1.5 percent. 3.38 The precise number of central and local government employees is not known, 1/ but it probably exceeds half a million. The result of the labor force survey of 3969 showed that the number of persons working in all public agencies (including state enterprises) was about 601,000. 2/ This accounted for about 3.5 percent of the total working population. 3/ 1/ In the central government, the personnel office of each department keeps the records on the number of workers. No centralized tally is kept on the aggregate number. 2/ National Statistical Office, Final Report of the Labor Force Survey: Whole Kingdom: July - September 19692 3/ A recent study on a cross-country comparison of public sector's share in the labor force with data from ten countries showed sample ratios ranging from 22 percent (UK) to 4.5 percent (Ecuador). Cf. Erhardt 0. Rupprecht, Jr., How Big is Government?'t Finance and Development, March 1974. ANN L3 C Page 22 Table C-3s REMUNMERATION FOR PMRONAL SUIC:S ?Y1967/68 FY1968/69 F1126L70 7Y1970/71 F11971/12 Remuneration for Personal Services in Millions of BoAt Central Government 3Slaries 4,829 5,261 5,742 6,300 6,896 Wages for Regu- lar lmployees 499 555 601 738 805 Wages for Tempo- rary Employeea 362 375 476 470 450 Others /2 561 63 72S 820 -8 Sub-total 6, 251 6,830 7,544 8328 8,964 Local Governments Salaries n.a. 208 227 n.a. n.a. Wages for Regu- lar Employees n.a. 72 82 n.a. n.a. Wages for Tempo- rary Employees n.a- 37 46 n.a. n.a. Others n.a. 6 _ nna.ona Sub-'otal n.a.4 na na Total Remune- ration n.a. 7,216 79977 n.a. n.a. Remuneration as Percent of Conaolidated Public hIeRnditure Central Government 27.0 25.9 27.1 26.9 26.7 Local Governments n.A. 1l. 1.6 a Total n.eOL 27.3 27 n.a. n.a. 1 Figures on a cash basis. /2 Mainly expenditures for fringe benefits and non-regular payments such as overtime work compensation. Sourcee Banlc of Thailand, Budget Bureau, and Ministry of Interior. ANNEX C Page 23 3.39 The government is cuLrrently engaged in a study of its employment policy and the structure of remuneration. It is believed that civil service salaries are low compared to salaries and wages prevailing in the private sector. The central government feels it necessary to improve the rates of remuneration to attract qualified persons. 3.40 Under the present system, the remunerations for government employees take three forms: salaries, wages, and miscellaneous extra payments. "Salaries"t are the basic remuneration for regular employees recognized as "civil servants" in accordance with the Civil Service Act. The ranges for about 90 classes of "civil servants" are fixed by the salary schedules attached to the Civil Service Act. 1/ 3.41 "Wages" are paid to employees without civil servant status. MIost of the non-civil-servant employees are supporting staff engaged in non-office works such as chauffeurs and janitors. These wage rates are not bound by the civil service salary schedules. For this reason some technical staff such as crmiputer programmers are also hired on wage contracts, without incurring civil servant status, so that the government may offer remuneration high enough to compete with the private sector. 3.42 Extra payments consist of the following: (1) Allowances in support of living expenses: (a) Medical care allowances (reimbursement of medical expenses incurred by civil servants or their families. The government contribution varies from 100 percent for low salary workers to 50 percent for the highest salaried workers.) (b) Education allowances (reimbursement of children's school fees. The proportion reimbursed varies inversely with the salary level, but the maximum amount is established on the basis of fees charged in public schools.) (c) Family support allowance (allowance for civil ser- vants with children at 50 a month for each child under 18 years of age, regardless of the income status of the children.) 1/ The range for ordinary civil servants was from 600 a month (for begin- ning clerks) to 0,600 a month under the previous schedule, which defined salaries net of personal income tax. The revision of the schedule in February 1974 chanced the lowest salary to 0750 a month and the highest to 49,885 a month. These new figures refer to salaries in- clusive of personal income taxes. The salaries for political civil servants under the new schedule range from 04,100 a month to 012,000 a month (for the Prime Minister). ANNEX C Page 24 (d) Regional cost of Livin, allowance (for officers stationed in the South Aegion). (e) Foreign cost of living allowance (for officers stationed abroad). (f) House rent allowanac_ (given to the officers appointed outside Bangkok to work in the provinces, but not applicable to the officers appointed in Bangkok to work in the provinces). (2) Expense Allowances: (a) Domestic travel allowance (per diem). (b) Clothing allowance for foreign travel and for military and police uniforms. (c) Entertainment allowance. (d) Transportation allowance for commuting. (3) Hardship allowance or post allowance (compensation for assignments in non-metropolitan areas). (4) Compensation for particular activities: (a) Overtime work compensation (p27 a day, provided that the overtime work lasts at least four hours). (b) Combat allowance (mainly for military and police personnel, but civilian officers are also eli- gible). (c) Parachuting allowance (for military and police personnel only). (d) Secret service allowance. (e) Reward for arresting illicit dealings of goods (mainly for police and customs officers). (f) Meeting allowance (honoraria for the members of committees appointed by the Prime Mlinister or the Cabinet, or the sub-committees of Cabinet- appointed committees). (g) Compensation for advisory or consultative works outside the government but in pursuit of government policies. (h) Compensation for giving lectures or seminars at univer- sities or other public schools. ANNEX C Page 25 (5) Extra remuneration in recognition of special qualifications: (a) For degrees or similar qualifications. (b) For the knowledge of Cambodian or Malay-an language (eligibility is limited to the officers stationed in border areas where this knoledge may be useful.). (6) Bonus (for those serving as the members of the board of directors for state ent4erprises). 3.43 The evaluation of the present salary scale should take into consider- ation the extra payments cited above. These payments amounted to 11 to 13 percent of the basic salaries in each year (see Table C-3). Consideration should be given to consolidating some of these extra payment items with the basic salary. 3.44 Another factor that motivated the government to reconsider the remuneration structure is the absence of any provisions for automatic adjus-bment of civil service salaries to changes in the cost of living. As it was mentioned, salaries are fixed by the schedules attached to the Civil Service Act. Any changes in salaries must, therefore, go through normal legis- lative proceduLres. This means that civil servants have no guarantee that their real salaries will be maintained in an inflationary period. In the past, there was little need for automatic cost of living adjustment procedure in Thailand, where prices remained remarkably stable. The rates of remuneraticor for government employees did not change significantly between 1967 and 1972. How- ever, in the face of recent experience iith rising consumer prices, the central government has taken three legislative actions to increase the salaries for its employees. These measures raised the average nominal rate of remuneration for central government employees by about 26.5 percent in the period from October 1972 to February 1974. 3.45 The first of these was the introduction of the family support scheme at the begi-nming of FY 973. 1/ This measure is eslimated to have in- creased the central gover nmet expenditure on remuneration by about 6 per- cent relative to that under the F71971/72 remuneration struc-ture. Then, in June 1973, civil servants with low salaries received minor salary increases. The impact of this on governaent expenditure was negligible. However, a cross-the-board salary increase in February 1974 (retroactive to January 1974) raised the remuneration expenditure of the central government by about 24 percent on an annual basis relative to the remuneration under the FY1971/72 structure. A part of this was offset by the abolition of the 1/ Extra payment item (1) - (c) is the result of this legislation. ANNV( C Page 26 "income tax subsidyt" which was about 3.5 percent of total remuneration under trhe FY1972 structure, and the net effect was an increase of about 20.5 per- cent on an annual basis. 1/ The slow and lengthy debates before this 1974 adjustmnent made the government conscious of the need for an automatic cost of living adjustment provision. 3u6 'It should be noted that these recent legislations affected only the salaries of central government employees. There have been no similar legis- lations to increase the remunerations for local government employees. The Mission was not able to obtain any figures on the remuneration for local goverunent employees, but it is known that their remunerations are consider- ably lower than those for central government employees. The disparity under the FY1972 remuneration structure was already large enough to give strong incentives to work in the central government rather than in local governments. It is absolutely necessary that the rate of remuneration for local government employees be raised at least to restore the parity that prevailed in FY1972. 3.47 TI addition to remuneration structure, some thought should be given to improvemsent in personnel management in the general government sector. At present, the responsibility for personnel management in the central govern- ment rests with the Office of Civil Service Commission. However, individual departments have de facto considerable discretion on recruitment, promotion, dismissal and related matters. Furthermore, the jurisdiction of the Civil Service Commission is limited to the affairs concerning the "civil servants.,, In this situation, the Civil Service Commission cannot formulate any effective employment policies or manpower plans. 3.48 The government sector is clearly understaffed with workers-trained in the delivery of social and economic services such as teachers, doctors and agriculture extension workers. At the same time, it is overstaffed with non- technical acdninistrative workers. This situation is attributable to the present structure of civil service salaries to a large extent. The maximum salaries the government could offer persons with certain qualifications or trainings are too low at present. In Thai circumstances, where serving the government is considered as a privilege, the government salaries may not have to be as high as those offered in the private sector. However, the observed manpower shortage in the central government indicates that the prevailing difference between government and private sector salaries is too large to be offset by non-pecuniary factors. The problem is probably more serious in local governments, where salaries are lower than in the central government and non-pecuniary benefits are smaller. 3.49 The presence of redun&±nt workers in the central government is partly attributable also to the attitude of the government towards employment. These are mostly unskilled workers left over by the private sector and would be willing to accept very low ealaries. The Civil Service Commission notes that the government has tended to absorb such persons merely to create additional employment. Such an attitude has been permitted because of the low salaries paid. 1/ The actual increase for FY1974 is 15. percent over the FY1971/72 level, as the increased rates do not apply to the first three months of this fiscal year. Including the family support scheme, the average nonminal remuneration in FY197h is 21.4 percent above the FY1971/72 level. ANNEX C Page 27 3.50 In order to improve the efficiency of public service supply, it is necessary to increase the rates of remuneration for the needed, skilled workers on the one hand, but to eliminate unnecessary workers on the other. The re- form in salary structure would require that the Civil Service Commission be well informed of the manpower needs of the entire government. Its jurisdic- tion should be expanded to cover non-civil servant workers as well as civil servants. 3.51 The structure of the civil servant ranking system is also causing considerable waste of human resources. A large number of persons who are trained for the delivery of public services hold administrative positions instead of technical ones. For example, a large number of doctors are in admbinistrative positions in the Ministry of Public Health despite that the central government suffers from the shortage of medical personnel. The main factor causing this type of misallocation is the failure of the civil service ranking system to distinguish between good technicians and good administrators. Under the present arrangement, the ultimate target for all ambitious civil servants would be the administrative positions such as director-generals of departments and the under-secretaries of ministries. There are no possibili- ties for keeping good technicians in technica.l positions while giving them proper rank recognition. ANNEX C Page 28 IV. FUTLTRE FINANCIAL RFQUIEMTS a.O1 This section attempts to estimate the financial requirements of the public sector in the near future (FY1975 to FY1980). "Financial requirements" are roughly defined here as the magnitude of financial resources that the public sector would need and could absorb to improve the supply of public services qualitatively and quantitatively. 4.02 The exercise does not take into consideration the possible financial constraints which might limit public ex-penditure below the "required" level as it did in the past. 1/ Nor does i; aim at proposing a spending program for the public sector. 4.03 In the preceding section it was pointed out that the supply of public services was seriously deficient in many sectors. Social services in rural areas are particularly inadequate. Improvement in these public services will require further increases in public expenditure. The reduction of geo- graphical disparity in the supply of public services will require large expenditure on social and economic infrastructure in poor regions and rural areas. 4.Ct The government is aware of the need for expanding the activities of the public sector and its implication of this for financial requirements. However, public expenditure has been always less than the "required" level due to the constraints set by the availability of financial resources. 2/ The agencies in charge of fiscal administration pay close attention neither to the state of public service supply nor to the financial requirements of the public sector. The Third Plan document spells out various socio-economic problems tihat the public sectcr should attack. Nevertheless, the developmental budget attached to the Plan is not well linked to the issues the Plan document raises. 3/ 4.05 The Kission attempted to derive a rough estimate of public sector financial requirements on the basis of information collected from numerous sources. The principal proposition adopted for this exercise is improvement in the availability of public services in poor regions and rural areas. 1/ Financial constraints will be considered later in Section VII. 2/ Budgetary procedure for the central and local governments dictate that the expected size of revenue, and not the demand for public services, determine the level of expeanditure (see Annex A). In this set up ex- penditure could be increased only if revenue increase are expected. Never- theless, little efforts have been rrade to increase reventes to the levels close to the resource requirements. 3/ Furthermore, The Third Plan itself 'nas become somewhat obsolete due to recent developments which had not been foreseen when the Plan was being prepared. ANNEX C Page 29 In assessing the extent to which the public sector should expand its activities and could utilize additional funds for this purpose, the Mission tried to depend on the judgements of public agencies responsible for the delivery of social and economic services. 4.06 Table C-h shows the estimated financial requirement in proportion to GDP. The projections assume that the real growth rates of GDP and agricul- ture gross value added will be 7 percent a year and 5.1 percent a year during the projection period, respectively. These are the target rates fcr the Third Five-Year Plan (1972 - 1976). The rate of population growth is assumed at 3.1 percent a year. The resource requirements and GDP are projected in current prices, assuming the following annual rates of price inflation expressed in terms of GDP deflator. 1/ FY1974 1/ 15% FY1975 8% FY1976 4% FY1977 4% FY1 978 3% FY1 979 3% FYi 980 3% 1/ The projection exercises in this section used the national account figures of December 1973. Revised national accounts of August 197) in- dicate a higher rate of inflation for FY10974. 4.07 The exercise assumes that the employment behavior of central and local governments will remain the same as in the recent past and that the nominal rates of remuneration will be adjusted each year to maintain the average real rate at the FY1972 level. The recent legislations raised the average nominal rate for central government employees by about 26.5 percent relative to the FY1972 level. Similar salary adjustments for local government employees are necessary in order to keep local government functioning. The estimates assume that the remuneration for local government employees will be adjusted by the end of FY1974. However, even with such adjustments, the average rate of remuneration in real terms would decline to 80 percent of the Ff1972 level by the end of FY1980 as shown below, because of further rises in the price level expected during the projection period. In order to pre- vent this income erosion, the government sector will have to readjust the nominal rate of remuneration repeatedly. 1/ Estimated by the East Asia and Pacific Department, IBRD. ANNEX C Page 30 (i)(i (iii ) Nominal Remuneration GDP (i)/(ii) Rate Index 1/ Deflator (FY1972 = 100) (FY1972 = 100) FY1972 100.0 100.0 1.000 FY1973 106.6 107.6 2/ 0.985 FY1974 121.4 123.8 7/ 0.981 FY1975 126.5 133.7 0.946 FY1976 126.5 139.0 0.910 FY1977 126.5 1244.6 o.875 M978 126.5 1248.9 o.850 FY1979 126.5 153.24 0.825 FY1980 126.5 158.0 0.801 1/ Calculated on the gross-of-income-tax basis. 2/ Revised estimates of August 1974 indicate higher rates of inflation for FY1973 and for FY1974 than these deflators indicate. 4.08 Probably the real remuneration for labor in the private sector will rise during the projection period, as the productivity of labor will rise. 1/ In that case, the competitiveness of the government sector in recruiting market will tend to decline if the real rate of remuneration for all employees of the government sector were to be fixed at the FY1972 level. The assumption that the average real rate be kept at the FY1972 level does not necessarily imply this situation. The government sector could raise the remuneration for persons with relatively scarce skills while reducing that for unskilled workers. If it could change the employment pattern and stop hiring unneces- sary persons, then the average rate of remuneration could be raised to some extent without increasing the financial requirement. However, the mission cannot assess how soon and to what extent the government sector would change its employment pattern. This question should be answered taking into con- sideration the cultural and social factors which also affect the employment pattern of the government sector. 4.09 Resource requirement for interest payments is projected on the basis of the estimated debt outstanding at the end of FY1974. The additional interest payments accruing on the debt to be incurred during the projection period will be examined later in eonjunction with deficit financing. 4.10 In order to indicate the approximate magnitudes of the resources required for different purposes, Table C-4a shows the estimates in constant FY1972 prices. The actual size of the resource requirement in current prices 1/ Rough estimates indicate that labor productivity in the Thai economy has been increasing at about 5 percent a year since the mid-1960's. The share of labor in the gain is not clear, though. ANNEX C Page 31 will depend on the realized rate of inflation and its sectoral biases. The figures shown indicate only very rough magnitudes. They suggest that, in constant prices, the resource requirement in FY1980 will be about three times as large as the actual expenditure in FY1972, which probably was considerably smaller than a "needs based"t resource requirement in that year. 4.11 The figures in Table C-4 show that the resource requirement of the public sector will be about 24 percent of GDP in the near future. This ratio is considerably higher than the ratio of public expenditure to GDP in the early 1970's, which was around 21 percent. Furthermore, the estimated ratio of resource requirement to GDP increases a little over the projection period. 4.12 This upward trend is attributable to increases in required capital expenditure. The projected capital expenditure requirement rises from 9 per- cent of GDP in FY1975 to 11 percent of GDP in FT1980. Capital expenditure in the early 1970's was around 7.5 percent of GDP, the ratio has declined in FY1973 and FY1974. Since capital expenditure for providing social services and public utilities in rural areas was small in the past, large investments are necessary for improving the supply of public services in these areas. 4.13 Current expenditure requirements will be about 14.5 percent of GDP in FY1975. This is also somewhat higher than the ratio of actual current expenditure to GDP in FY1971 and FY1972, which was about 14 percent. The ratio of required current expenditure to GDP declines during the projection period to 13.4 percent in FY1980. However, this decline is illusory as it is partly attributable to the projected decline in interest payments. Current expenditure requirements excluding interest payments remain at about 12.8 percent of GDP for the period from FY1977 to FY1980. As mentioned earlier, interest payments are projected on the basis of estimated debt outstanding at the end of FY1974. Their ratio to GDP declines from 1.4 percent in FY1975 to 0.6 percent in FY1980. 4.14 The functional allocation of resources differs a little from that of public expenditure in the recent past. Projected shares in total resource requirement are higher for primary and secondary education, health care services and water works than the corresponding shares in the past public expenditure. TABLE C-4: PUBLIC EXPENDITURE AND RESOURCE REQUIREMENT AS PERCENT OF GDP Actual Public Expenditure /2: Projected Resource RequirementL.L. FY1970 FY1971 FY1972 FY1973 FY1974 FY1975 FY1976 FY1977 FY1976 FY19'l9 FY1980 Estimate Education 3.0 3.5 3.7 3.2 2.9 4.5 4.5 4.5 4.5 4.6 4.6 Current 2.3 2.3 2.9 2.0 3 ; 7 -33.7 3.7 Capital 0.7 1.3 0.9 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Primary Schools 1.6 1.9 2.0 n.a. n,a. 2.6 2.6 2.6 2.6 2.6 2.6 Current 7 1.3 7 2.3 2.3 2.3 2.2 2.2 2.2 Capital 0.3 o.6 0.2 0.4 0.4 0.4 o.4 0.4 0.4 Secondary Schools 0.3 o.4 0.4 n.m. n. a. 0.5 0.5 0.5 0.5 0.5 5 Current 0.2 0.2 0.2 0.3 0.73 0. 3 0. 0.5 I Capital 0.1 0.1 0.2 0.1 0.1 0.1 0.2 0.2 0.2 Vocational & Technical Schools, Colleges & Universities 0.8 0.9 1.0 n.a. n. a. 0.9 0.9 0.9 0.9 0.9 0.9 Current 0.5 0.5 0.5 5 7 0 7 O .6 Capital 0.3 0.4 o.4 0.3 0.3 0.3 0.3 0.3 0.3 Other 0.3 0.4 0.4 n.a. n.a. 0.5 0.5 0.5 0.5 0.5 0.5 Current 0.3 0.3 0.37 5 Ih 0 Capital 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Health 0.5 o.6 o.6 0.5 0.4 0.7 0. 8 0.9 1,0 1.2 1.3 Current 0.5 0.5 0.5 0.5 o0.6 0o 0.7 0 Capital 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.4 0.4 0.5 ; Medical Services 0.3 0.3 o.4 n.a. n.a. 0.3 o.4 0.4 0.5 o.6 0.7 Current 0.2 0.2 0.2 0.2 0.2 0 0.3 0.3 0,3 U co Capital 0.1 0.1 0.1 0.1 0.1 0.2 . 0.2 0.3 0.3 TABLE C-4: (Contd.) Actual Public Expenditure A Projected Resource Requirement L FY1970 FY1971 FY1972 FY1973 FY1974 FY1975 FY1976 FY1977 FY1978 FY1979 Estimate Special Health Programs 0.1 0.1 0.1 n.a. n.a. 0.1 0.2 0.2 0.2 0.2 0.3 Current 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 Capital ... ... ... 0.03 0.04 0.05 0.1 0.1 0.1 Other 0.2 0.1 0.1 n.a. n.a. 0.2 0.2 0.3 0.3 0.3 0.3 Current 0.2 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 Capital ... ... ... 0.04 0.05 0.1 0.1 0.1 0.1 Water Works 0.3 0. 4 0.4 n.a. n.a. 0.9 0.9 0.9 0.9 0.9 0.9 Current ... ... 0.1 n.a.a . a. 0.1 0.1 0.1 0.1 0.1 0.1 Capital 0.3 0.3 0.3 0.4 0.4 0.8 0.8 0.8 0.8 0.8 0.8 Power (Capital) 1.2 1.0 1.2 1.4 0.9 1.5 1.5 1.6 1.6 1.7 1.7 Communication & Transportation 3.3 3.1 2.9 2.7 2.4 3.4 3.5 3.6 3.7 3.7 3.7 Current 0.5 0.5 0-5 -.5 -0.5 0.5 05 0.5 0.5 0.5 Capital 2.8 2.6 2.4 2.2 2.0 2.9 3.0 3.1 3.2 3.2 3.2 Highways and Roads 2.2 2.2 2.3 1.7 1.5 2.3 2.4 2.5 2.6 2.6 2.6 Current 0.5 - 0.5 700 0 -0. 1 I g 0 Capital 1.8 1.8 1.9 1.3 1.1 1.9 2.0 2.1 2.2 2.2 2.2 Other 1.1 0.9 0.6 0.9 0.9 1.1 1.1 1.1 1.1 1.1 1.1 Current 0.1 0.1 0-1 0-1 0.1 0.1 0.1 0.1 0.1 0-1 0.1 Capital 1.0 0.8 0.5 0.9 0.8 1.0 1.0 1.0 1.0 1.0 1.0 Agriculture 2.0 2.1 1.6 1.3 1.1 2.0 2.1 2.3 2.4 2.6 2.7 Current 0.7 0.7 T 7 T 0 5 7 o;7 0.9 0.9 0.9 Capital 1.3 1.4 0.9 0.7 0.6 1.2 1.3 1.4 1.5 1. 7 1.8 ° Irrigation 1.3 1.4 1.0 0.7 O.6 1.3 1.4 1.5 1.6 1.7 1.8 , 'r Current 0.3 0,3 0.2 0.2 0.2. 0.3 0.3 0.3 03 0.3 0.3 Capital 1.0 102 0.8 0.5 O.4 1.0 1.1 1.2 1.3 1.4 1.5 TABTE C-4: (Contd.) Actual Public Expenditure a Projected Resource Requirement 12 FY1970 FY1971 FY1972 FY1973 FY1974 FY1975 FY1976 FY1977 FY1978 FY1979 FY1980 Estimate Other 0.7 0.7 o.6 0.5 0.5 0.7 0.7 0.8 0.8 0.8 0.9 Current 0.5 5 0 45 . 5 -5 .5 7 Capital 0.2 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.3 0.3 0.3 General Administration (Current) 2.0 2.2 1.8 2.1 2.5 2.0 2.0 2.0 2.0 2.0 2.0 Defense and Police (Current) 4.1 4.5 4.4 3.9 4.1 3.6 3.4 3.2 3.0 2.8 2.6 Pensions o.4 o.4 0.5 0.4 0.4 o.45 o.45 0.45 o.45 o.45 o.45 Interest Payments 1.0 1.3 1.5 1.5 1.5 1.4 1.1 1.0 0.8 0.7 o.6 Other 2.1 2.3 2.6 2.3 2.1 3.0 3.2 3.3 3.5 3.7 3.9 Current 7 ;T 1.3 1.3 1.3 1.5 1.5 1. 1 1.7 1.7 Capital 0.8 1.1 1.4 1.1 0.9 1.5 1.6 1.7 1.9 2.0 2.2 Other -0.1 -0.1 -0.1 -0.1 - - - - - - - Grand Total 20.1 21.4 21.3 19.6 18.7 23.5 23.4 23.6 23.9 24.2 24.5 Current 13.1 13-.7 14.0 13.0 13.0 14,5 14. 18 13.6 1. 1 Capital 7.1 7.8 '7.4 6.7 5.7 900 9.3 9.8 10.3 10.7 11.1 Other -0.1 -0.1 -0.1 -0.1 - - - - - - - /1 Ratios calculated with the revised GDP estimates of August 1974. T2 Ratios calculated with the GDP figures projected on the basis of GDP estimates for 1972 and 1973 which were given to the mission in January 1974. Resource requirement projection exercises in this section are based on this set of GDP estimates. TABLE C-4a: PUBLIC EXPENDITURE AND RESOURCE REQUIREMENT IN FY1972 PRICES (Billions of Baht) Actual Public ExpenditureL: Projected Resource Requirement/2 FYl970 FY1971 FY1972 FY1973 1Y19774 FY1975 FY1976 FY1977 FY1978 FY1979 FY1980 Education Primary Schools 2.3 2.9 3.1 n.a. n.a. 5.1 5.4 5.8 6.2 6.6 7.1 Secondary Schools o.4 0.5 o.6 n.a. n.a. 0.9 1.0 1.1 1.2 1.3 1.5 Vocational & Technical Schools and Colleges & Universities 1.1 1.4 1.5 n.a. n.a. 1.6 1.8 1.9 2.1 2.3 2.5 Other 0.5 0.5 0.7 ri.a. n.a. 0.9 1.0 1.1 1.2 1.3 1.3 Total 7_3 5.3 5-9 7T} 5.2 9.2 9.9 10.7 11.5 172. Current 3.2 3 7TT 3 .5 V.T9 9.2 9.9 Capital 1.0 1.9 1.4 1.4 1.6 1.6 1.8 1.9 2.1 2.3 2.5 Health Medical Services 0.4 0.5 o.6 n.a. n.a. o.6 0.8 1.0 1.3 1.6 2.0 Special Health Programs 0.1 0.2 0.2 n.a. n.a. 0.3 0.3 o.4 0.5 o.6 0.8 Other 0.3 0.2 0.2 n.a. n.a. 0.5 0.5 o.6 o.6 0.7 0.8 Total __7 0,9 1.O o.8 o.8 1.4 _7 2.0 _2_ 2.9 37_ Current 0.7 0.7 0.7 0.6 17.1 1.3 1.5 7 2.2 Capital 0.1 0.2 0.2 0.1 0.1 o.4 0.5 0.7 0.9 1.1 1.4 Water Works o.4 o.6 o.6 n.a. n.a. 1.'7 1.9 2.0 2.1 2.3 2.4 Current 0.1 0.1 0.1 n.a. n.a. 0.2 0.2 0.2 0.2 0.3 0.3 Capital o.4 0.5 0.5 0.8 0.7 1.5 1.6 1.8 1.9 2.0 2.2 Power (Capital) 1.7 1.6 2.0 2.3 1.6 2.9 3.1 3.5 3.8 4.3 4.6 Communication & Transportation Highways & Roads 3.2 3.4 3.6 2.9 2.7 4.4 4.9 5.5 6.1 6.6 7.0 Other 1.5 1.3 0.9 1.6 1.6 2.1 2.3 2.4 2.6 2.8 3.0 Total _. _75 Ti. 7.2 7.9 9. Current 0.7 -7 7 7 1.0 1.0 1.1 1.2 1.3 1.3 ° Capital 3.9 3.9 3.7 3.7 3.6 5.6 6.2 6.8 7.5 8.1 8.6 ' TABLE C-4a: (Contd.) Actual Public Expenditure Li Projected Resource Requirement L2 FY1970 FY1971 FY1972 FY1973 FY1974 FY1975 FY1976 FY1977 FY1978 FY1979 FY1980 Agriculture Trrigation 1.9 2.2 1.6 1.2 1.1 2.5 2.9 3.3 3.8 4.3 5.0 Other 1.0 1.0 0.9 0.9 °-9 1.3 1.5 1.7 1.9 2.1 2.4 Total 2.9 3.2 2,5 2.1 2.,1 v_ 7._ 5.0 5.7 ___ 7.3 Cuarrent 1,1 1.1 1.0 1.0( 1.0 1.5 1.7 1.9 2.0 2.3 2.5 Capital 1.8 2.1 1.5 1.1 1.0 2.3 2.7 3,1 3,6 4,2 4,9 General Administration (Current) 2.9 3.3 2.8 3.5 4.5 3.8 4.1 4.4 4.7 5.0 5.4 Defense & Police (Current) 5.9 6.7 6.9 6.5 7.3 7.0 7.0 7.0 7.0 7.0 7.0 Pension o.6 o.6 0.8 0.7 o.6 0.9 0.9 1.0 1.1 1.1 1.2 Other 3.0 3.5 4.0 3.9 3.9 5.8 6.5 7.3 8.2 9.3 10.4 Current 2.0 2.0 22.2 2.3 2.9 3.2 356 Capital 1.2 1.6 2.1 1.8 1.5 2.9 3.3 3.8 4.4 5.0 5.8 Other -0.2 -0.2 -0.2 -0.2 - - - - - - - Grand Total 27.1 30.4 30.9 30.5 31.0 42.4 45.9 4 54.4 59.2 64.5 Current 17.1 18.8 9.5 19.5 120.7 25.3 28,4 30.2 2.2345 Capital 10,1 11.7 11.5 11.2 10.2 17.2 19.1 21.5 24.3 27.0 29.9 Other -0.2 -0.2 -0.2 -0.2 - - - - - - - / Actual expenditure deflated with GDP deflator derived from the revised national accounts of August 1974. /2 Calculated on the basis of the national account figures projecteJ "rom fhe national accounts cfven to the mission in January 1974. ANNEX C Page 37 EXPLANATORY NOTE FOR TABIES C-4 AND C-4a a. Procedure for Estimating Resource Requirements in Current Prices Resource requirements for different purposes were first estimated in constant FY1972 prices taking into consideration the current state of public service supply and the estimated need for increases in the supply. The assumptions adopted in this process are described below. Then the constant price figures were converted into current price figures by applying the GDP deflator to all categories except for interest payments. Implicit in this procedure is the assumption that the prices of goods and services needed for various activities of the public sector increase by the same proportion as the GDP deflator. The estimates would be distorted to the extent that this implicit assumption deviates from reality. These exercises used the national account figures (GDP, agriculture gross value added and GDP deflator) projected on the basis of the national account estimates for 1972 and 1973 given to the mission in January 1974. The estimates for 1973 were revised later, and the figure indicates a higher rate of inflation and larger GDP in current prices than those used as the basis of projections in this section. In the case of interest payments it is assumed that the increase in price level during the projection period has no influence on the magnitude. The estimated interest payments are those payable on the debt incurred before the projection period. Relatively low (high) domestic price inflation vis-a- vis the rest of the world may result in an upward (downward) revaluation of Thai baht, which might affect the resource requirement for interest payments on foreign debt, but this possibility is ignored here. Furthermore, the foreign debt outstanding at the end of FY1973/74 will be small and the possible effect of currency revaluation is likely to be minimal. b. Estimates in Constant Prices The estimates in FY1971/72 prices, derived as follows, are summarized in Table 4a above. Education The estimates of required expenditure for public school education assume that the enrollment at each level of schooling will increase during the projection period at about the same rate as envisaged in the Third Five- Year Plan. However, they assume that the number of students in primary and secondary schools will be somewhat higher than the Plan targets, for the actual numbers in 1972 were already higher than the targets for that year. Current expenditure requirement for public schools was estimated by applying the average current expenditure per student at each level of schooling, derived from the past expenditure data and education statistics. However, expansion of rural enrollment, improvement in teachers' quality and increased ANNEX C Explanatory Note for Tables C-4 and C-4a (continued) Page 38 supply of teaching material per student will tend to raise current expenditure per student. The average expenditure per student is assumed to increase by 30 percent for primary education, by 15 percent for secondary education, and 10 percent for vocational education. For universities, no increase in average current expenditure is allowed in the projection. Universities may also need improvements, but their increased resource requirement should be met by their own resources, which could be increased by raising student fees. Capital expenditure requirements for primary and secondary education were estimated by applying quasi ICORs calculated from expenditure data as the ratio of capital expenditure - in constant prices - to incremental current expenditure - in constant prices - assuming one year gestation period. The estimated capital expenditure requirement for secondary schools is larger than the expenditure for the Amphor Secondary School Project. For vocational education and universities, required capital expenditure was projected on the basis of Third Plan projects and the foreign loan project list. The resource requirements for supporting services (administration, planning, cultural affairs and financial assistances to the private sector) are estimated on the basis of the past expenditure figures. For administrative services current expenditures was about one-ninth of the current expenditure for public school education and capital expenditure was about 0.05 percent of GDP. For cultural affairs current expenditure was about 0.05 percent of GDP and capital expenditure was about 0.04 percent of GDP. These ratios were applied in estimating the resource requirements for respective purposes. Health Care Available data for the past indicate a wide disparity between per capita current expenditures for curative and preventative services in the Central Region (which includes the Bangkok Metropolis) and the rest of the country. The projected current expenditure requirement is based on the view that this disparity should be eliminated by FY1980. 1/ The figures show the financial resources required for raising the per capita current expenditure in non-Central Regions gradually to the FY1972 Central Region level by FY1980. The capital expenditure requirement for medical services and special health programs are estimated assuming quasi ICORs of 2.6 and 1.3 respectively, with two year gestation period (the quasi ICOR for medical services was derived from the past expenditure data, and the quasi ICOR for special health programs was assumed as half that for medical services). 1/ The regional distribution of public health services will remain biased in favor of the Central Region, even when regional per capita current ex- penditure is equalized, since the per capita cost of services tends to be higher in remote areas. ANNEX C Explanatory Note for Tables C-h and C-4a (continued) Page 39 Resource requirements for supporting services (research, adminis- tration and planning) are estiTmated on the basis of the expenditure data of the past. Current expenditure was about 0.2 percent of GDP and capital expenditure was about 25 percent of capital expenditures for curative and pre- ventive services in the 1960's. These ratios were used for estimating future resource requirements. Water Works Current expenditure was about 0.2 percent of GDP in the latter half of the 1960's, including substantial operating subsidies from the central government to MWWA. The projected resource requirement is also set at 0.2 per- cent of GDP, but the assumption is that this entire amount be used for provincial water works (if MWWA needs continued operating subsidies, the re- quirement may exceed 0.3 percent of GDP). At present the absorptive capacity of the central government is limited with respect to current expenditure for water works. Construction and improvement of rural water supply facilities should be given higher priority. Capital expenditure requirement is estimated on the basis of the MWWA spending program and on the assumption that the central governmenit carn absorb about 1.5 times the financial resources required for MWiA projects over the projection period. Power (Capital Expenditure Requirement) Expansion of generating capacity has been given high priorities in the past, and past expenditure on this amounted to a little over 1 percent of GDP. Continuous expansion of capacity- and extension of transmission lines are necessary in the future. The projection assumes, taking into consideration the investment project lists of state enterprises, that the resource requirement in FY1975 will be 1.5 percent of GDP and increases by 10 percent each year irn real terms. Communication and Transportation Financial requirements for these services are estimated on the basis of the ratios of actual expenditure to GDP in the Second Five-Year Plan period, with due adjustments to allow for the increases suggested by state enterprise investment project lists. Services to the Agriculture Sector Capital expenditure on irrigation needs to increase for improving the existing facilities and constructing additional facilities. The absorptive capacity of the public sector may be constrained in the projection period by the size of available facilities. The capital expenditure requirement is assumed to increase from 1 percent of GDP in FY1975 (the ratio of actual ex- penditure to GDP in the Second Plan period; the ratio declined from FY1972) to 1.5 percent of GDP in FY1979/80. Current expenditure requirement is assumed to increase from 0.3 percent of GDP in FY1974/75 (the maximum ratio of actual expenditure to GD? in the period since Ffl965/66) by about 10 percent each year in real terms. ANNE C Explanatory Note for Tables C-4 and C-ha (continued) Pge 40 For other services, the current expenditure requirement is assumed to increase from 0.5 percent of GDP in FY1974/75 (the maximum ratio of actual expenditure to GDP in the period since FY1965/66) by about 10 percent a year ;i real terms. The capital expenditure requirements are assumed to be about 20 percent of capital expenditure requirements for irrigation on the basis of the proportion between the two which prevailed in the Second Plan period. General Administration (Current Expenditure Requirement) Financial requirement is assumed at 2 percent of GDP on the basis of the average ratio of actual expenditure to GDP in the period from FY1965/66. Security (Current Expenditure Requirements) Financial requirements on security are assumed to' remain at A7 billion in real terms during the projection period. This is sufficient to keep the present level of military and police forces, which are large enough for Thailand if the external and internal security situation remain the same during the projection period. Peisions The resource requirement is assumed to remain at 0.45 percent of GDP as in the past. Resource Requirements for Other Purposes These include financial resources required for Social Welfare, economic services to non-agriculture sectors, capital expenditure for general administration and miscellaneous outlays. Current expenditure requirement on these are assumed to increase from 1.5 percent of GDP in FY1974/75 by about 10 percent each year in real terms during the projection period. The capital expenditure requirements are also assumed as 1.5 percent of GDP in FY1975 but a rate of increase in real terms at 20 percent a year is assumed as the administrative works will have to be mechanized gradually. ANNEX C Page Tl V. REVENUE OF THE PUBLIC SECTOR IN THE RECENT PAST 5.01 Table C-5 shows the magnitude of revenues in the recent past, and Table C-5a shows their composition. Froml these tables it can be seen that about 90 percent of the revenue of the public sector accrue to the central government. The major revenue sources for the public sector are the central government taxes. The revenue from these sources accounted for about three- quarters of the consolidated revenue of the public sector in the period covered. Taxes are the main revenue source for local governments, too,but local government taxes accounted for less than 5 percent of the total public sector revenue. 5.o2 Taxes on income were of relatively little importance. The revenues from the personal income tax and the company income tax taken together accounted for only about 10 percent of the total public sector revenue. However, the importance of the personal income tax tended to increase in the recent years. 5.03 Taxes on consumption, domestic production and imports have been important revenue sources. In particular, the revenue from business taxes (general sales taxes) alone accounted for more than 15 percent of the total revenue of the public sector. Its share also tended to increase in the recent years. Import duties on non-petroleum products provided the public sector with about one-fifth of the revenue. Its share has been fairly stable. 5.04 There has been a tendency for central government taxes to be concentrated on the production and transaction of a few commodities. The taxes on petroleum products accounted for about 7 percent of the public sector revenue. Taxes on tobacco products (the excise tax on tobacco products plus the profits of the Thai Tobacco Monopolies) account for a little over 5 percent of total revenue in the latter half of the 1960's, and the share increased to close to 7 percent in the 1970's. The share of taxes on rice exports was also high, around 6 percent of total revenue in the latter half of the 1960's, but this share tended to decline in the 1970ts. 5. o5 The non-tax current revenues of the central government consist of fines, fees for certain public services (e.g., passport fee and airport tax), proceeds from the sales of goods, rents and 2he budgetary contributions of the Bank of Thailand and state enterprises.. 1/ As noted in Section II, the term "revenue', in this annex is defined to comprise tax revenue and non-tax current revenue of central and local governments, extrabudgetary treasury receipts, foreign grant receipts and operating surpluses of state enterprises. 2/ The figures in Table C-5 exclude the central government revenues which are not remitted to the treasury. The examples of such revenues are the service charges collected by public schools, hospitals and other decentralized agencies. Donations from the private sector are also excluded. TABLE C-5: REVENUE OF TIE PUBLIC SECTOR (Millions of Baht) FY1965/66 FY1966/67 F'Y196'7/68 FY1968/69 frY1969/YO FY1970/71 FY1971/72 lY1972/73 Current Revenue Central Government Tax Revenue 11,437 13,302 14,863 16,625 16,969 17,274 19,059 22,720 Won-Tax Revenue 1262 11200 1,369 1 438 1,580 1,645 2,117 2,1488 Central Government Current Revenue 14,502 16,232 18,541,919 21,175 25,203 Local Governments Tax Revenue n.a. n.a. n.a. 860 978 1,115 1,015 n.a. Won-Tax Revenue n.a. n.a. n.a. 205 181 224 305 n. Local Government Corrent Revenue 7873 1,065 1,159 1,339 1,320 i ,o8 3 State Enterprise Operating Surplus /1 n.a. 1 180 1 146 979 1 180 1 153 1,300 1 709 Total Current Revenue n.a. 1,20,l07 2b,4 23,79528, Other Revenue Foreign Grants 891 1,016 1,274 1,464 1,022 1,165 892 857 Net Extrabudgetary Treasury Receipts 286 978 388 573 817 1,570 508 758 Total Revenue n.a,. 18,552 19,913 22,144 22,727 24,146 25,195 29,660 /1 Net of contributions to central government budget. Sources: Tables B-1, B-2a and B-3. TABLE C-5a: COMPOSITION OF THE REVENUE OF PUBLIC SECTOR (Percent) FY1966/6'7 FY1967/68 EY1968/69 FY1969/70 FY1970/71 FY1971/72 YY1972/73 Current Revenue Central Government Tax Revenue Personal Income Tax 4.4 4.9 5.1 5.6 5.8 6.2 5.7 Company Income Tax 3.7 3.8 3.8 3.9 4.0 3.9 5.0 Business Taxes 15.5 15.4 15.1 15.7 16.3 17.1 17.2 Excise Taxes on Beverages 2.7 2.7 2.8 2.8 3.0 3.5 4.9 Taxes on Petroleum Products /1 5.5 6.7 6.8 7.1 6.9 6.6 n.a. Taxes on Tobacco and Snuff 2 5.2 5.4 5.4 6.1 6.6 6.9 6.6 Import Duties, n.e.i. 20.7 21.4 21.6 21_3 20.3 21.9 n.a. Rice Export Prertium and Rice Export Duty 6.1 6.6 6.3 3.5 1.6 1.4 n.a. Other 7.9 7.7 8.1 8.5 7.1 8.1 n.a. Sub-Total 71.7 7.6 75.1 74.7 71.5 75. Non-Tax Revenue 6.5 6.9 6.6 7.0 6.8 8.4 8.4 Central Government Current Revenue 72 81.5 81.7 7 78.4 84.0 o5.0 Local Governments Tax Revenue n.a. n.a. 3.9 4.3 4.6 4.0 n.a. Non-Tax Revenue n.a. n.a. 0.9 0.8 0.9 1.2 n.a. Local Government Revenue 7.744 7F 5.1 5.5 5.2 3.7 State Enterprise Operating Surplus L3 6.4 5.8 4.4 5.2 4.8 5.2 5.9 Total Current Revenue 91.7 91.9 88 .7 94 Other Revenue Foreign Grants 5.5 6.4 6.4 4.5 4.8 3.5 2.9 Net Extrabudgetary Treasury Receipts 5.3 1.9 2.6 3.6 6.5 2.0 2.6 Total Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Of Which: Central Government Revenue f4 (88.9) (89.9) (90-8) (89.7) (89.7) (89.6) (90.4) /1 Excise tax and import duties on petroleum products. /3 Net of contributions to central government budget. /2 Excise taxes on tobacco and snuff products plus profits of /4 Central government current revenue, extrabudgetary treasury Thai Tobacco Monopoly. receipts and foreign grants. Source: Table B-1, B-9a and B-3. ANNEX C Page hh 5.06 Foreign grant receipts also accrue to the central government. The inflows in this form accounted for about 6 percent of public sector revenue in the 1960's, but the share tended to decline in the 1970's. 5.07 Public sector agencies keep their deposits in the central government treasury and these deposits provide the central government with additional financial resources. The figures indicated as "net extra budgetary treasury receipts" show the net increase in these deposits. Major components of this item are the increases in the civil service provident fund accounts and the compulsory deposits of state enterprises../ The magnitude of extra budgetary 'reasury receipts fluctuated, but in some years they accounted for a consi- derably large portion of public sector revenue. >.o8 State enterprises generated h to 6 percent of the revenue for the public sector in the form of the operating surpluses. The figures shown in Tables C-5 and C-5a are net of the contributions to the central government budget, which are included in the non-tax current revenue of the central government. Responsiveness of Tax Revenue to Income Growth and Price Movements 5.09 It was pointed out in Section II of this annex that the revenue of the public sector increased faster than GDP in the latter half of the 1960's but that in the early 1970's the revenue tended to lag behind increases in MDP. This change was mainly caused by the slowdown in the rate of increase 'n central government tax revenue. 5.10 The ratio of central government tax revenue to GDP increased from 'ess than 12 percent in FY1965 to over 13 percent in FY1969, and then began ,lo decline (See Table C-1). In FY1971 and FY1972 the revenue from central government taxes was again about 12 percent of GDP. ).11 The relatively slow growth in the tax revenue in the 1970's is nartly attributable to changes in the structure of taxes. For example, the gradual reduction of rice export premium in FY1970 to FY1972 was one of the Jactors which caused the stagnation in the tax revenue. 5.12 The buoyancy of central government tax revenie with respect to GDP was extremely low in FY1°70 and FY1971 at about 0.3_3 The revenue from the 1/ Legally, state enterprises and central government agencies are required to keep all of their cash balances in the form of deposits with the central government treasury. However, this regulation is not observed strictly. 2/ A longer time series beginning with Ff1963 shows that the ratio of central government tax revenue to GDP increased from about 12 percent in FY1963 to about 13 percent in FY1965. Thus, FY1966 was the year when the ratio marked a sharp decline. 31' The buoyancy was oalculated with the time series data as log /TX(t)/Tx(t-l) 7 log /TGDP(t)/GDP(t-1)7 where TX(t) and GDP(tT denote the central government tax revenue and GDP at current market prices in fiscal year t, respectively. ANNEX C Page 45 rice export premium declined from $1,236 million in FY1969 to A654 million in FY1970 and further to $262 million in FY1971 in response to the reduction in the rates and the coverage of the levy. If the revenue from this source in FY1970 had been the same as in FY1969, then the buoyancy of the central government tax revenue with respect to GDP would have been 0.83 in FY1970, rather than 0.31 observed. Similarly, the buoyancy in FY1971 would have been 0.63 instead of the actual 0.28 if the revenue from rice export prenium had been %65h million in FY1970 and FY1971. 5.13 In order to evaluate the responsiveness of tax revenue to income growth and price movement, it is necessary to identify the revenue patterns not affected by the discretionary changes in tax structure.l/ The mission conducted a set of time series regressions for the purpose of estimating the tax revenue functions under the tax structure prevailing in FY1973. 5.14 The estimated revenue functions are presented below. For certain taxes the estimated revenue functions reflect the revenue patterns under the structure of FY1972, rather than the FY1973 structure. There were a number of tax legislations in the fall of 1972, which may have changed revenue patterns. However, the revenue time series after the 1972 tax measures are generall ~ too short to permit the identification of any change in the coefficients._ 5.15 The estimated revenue functions are as follows (The standard error of the point estimate of the coefficient is given in the parentheses. NOBS denotes the number of observations and the years included in the revenue time series are shown in the parentheses following the number of observations. The mission used the national account statistics on a fiscal year basis obtained by pro rata adjustment of calendar year base figures): Personal Income Tax (Till) log TXll = -6.08 + 1.20 log GDPFC (-1) (1.02) (0.71) -2.21 VAGFC (-l)/GDPFC (-1) (.624) 2 = 1.00, DW - 2.51, SE - .027 NOBS = l0(FY1963 - FY1972) GDPFC denotes GDP at current factor cost, and VAGFC the gross value added in the agriculture sector, also at current factor cost. 1/ See Section VI of this annex. 2/ Op. cit. ANNEX C Page b6 Company Income Tax (TX12) log TX12 = .075 + .832 log YC (-1) (.194) (.025) R2 = .99, DW = 1.30, SE = .038 NOBS = lO(FY1963 - FY1972) YC denotes corporate income. Business Taxes (TX21) log TX21 -6.33 + 1.23 log GDPR + 1.22 log P (.971) (.087) R2 = 1.00, DW = 1.55, SE = .027 NOBS = Il(FY1963 - FY1973) GDPR stands for GDP at 1962 market prices and P for the GDP deflator with base year 1962, for which P = 1.00. Excise Tax on Alcoholic Drinks (TX221) log TX221 = -1.05 D63 - .491 D72 + .949 log CPVIR (.h60) (.490) (.061) R = .98, DW = 1.18, SE = .o8 NOBS = 11(m963 - FY1973) D63 and D72 are dummy variables included to reflect any changes in the constant term brought about by changes in tax structure.l/ D63 denote the structure prevailing in FY1963, and D72 the structure introduced in FY1972. The sum of D63 and D72 is unity for all observation period. CPVIR denotes the private consumption of alcoholic drinks in 1962 market prices. Excise Tax on Soft Drinks (TX222) log TX222 = -6.81 D63 -6.53 D70 - 6.00 D72 (.790) (A859) +1.51 log CPV2R (.109) R = .99, TW = 2.13, SE = .083 NOBS = ll(FY1963 - FY1973) D63, D70 and D72 are dummy variables to reflect the change in the tax structure, as in the previous equation. CPV2R denotes the private consumption of soft drinks at 1962 market prices. I/ See Section VI. =1 ANNEX C Page 47 Taxes on Tobacco Products (TX223): excise tax on tobacco products and profits of Thai Tobacco Monopoly remitted to the treasury. log TX223 = -2.74 + 1.21 log CPV3R (.514) (.064) R2= .97, DW = .50, SE = .057 NOBS = 11(FY1963 - FY1973) CPV3R denotes the private consumption of tobacco products at 1962 market prices. Taxes on Petroleum Products (TX22h): excise tax and import duty on petroleum products. log TX224 = -12.2 D63 -12.1 D65 -12.2 D71 + 1.67 GDPR (3.16) (3.25) (3.34) (.284) -R = .97, DW = 2.18, SE = .068 NOBS = 10(FY1963 - FY1973) D63, D65 and D71 are dummy variables to reflect the effect of tax structure changes. GDPR denotes GDP at 1962 market prices. Excise Tax on Cement (TX225) log TX225 = -9.18 + 1.35 log CST (.626) (.o66) -2 R = .98, DW 1.60, SE = 0.48 NOBS = ll(FY1963 - FY1973) GDPR denotes GDP at 1962 market prices. Entertainment Tax (TX23) log TX23 = -11.3 D63 - 11.1 D72 + 1.40 log CPVR (.490) (.508) (.044) R = 1.00, DW = 2.50, SE = .025 NOBS = l0(FY1963 - FY1973) CPVR denotes private consumption at 1962 market prices. ANNEX C Page 48 Monopoly Profits not elsewhere included (TX24) log TX24 = -1.08 + .529 log GDP (1.57) (.134) -2 = .65, 1W = 1.29, SE - .093 NOBS = lO(MYl964 - FY1973) Automobile Registration Fees (TX61) log TX61 = -11.2 + 1.41 log GDPR + 2.45 log P (3-103) (.351) (1.17) -2 R = .96, 1W = 1.31, SE = .11 NOBS ll(FY1963 - FnY973) GDPR denotes GDP at 1962 market prices and P denotes GDP deflator with base year, 1962 for which P = 1.00. Tax on Property Transfers (TX62) log TX62 = -12.6 + 1.52 log GDP(-l) (1.16) (.101) -2 = .96, DW - 1.78, SE = .10 NOBS = l1(Fn963 - FY1973) Stamp Duty (TX63) log TX63 = -6.40 D63 - 6.49 D73 (2.13) (2-13) + .9)2 log GDPR(-l) + 2.28 log P(-1) (.1,92) (.788) R2 = .98, DW - 2.04, SE = .057 NOBS = 11(FY1962/63 - FY1972/73) D63 and D73 are dummy variables to reflect the effect of tax structure changes. GDPR denotes GDP at 1962 market prices, and P denotes CDP deflator with base year 1962, for which P = 1.00. ANNEX C Page 49 Royalties (TX7) log TX7 = -10.4 D63 - 10.2 D66 - 10.6 D68 (6.o4) (6.18) (6.32) +1.h2 log GDPR (.54o) R2 = .80, DW = 1.h9, SE = .13 NOBS = ll(FY1963 - FY1973) D63, D66 and D68 are dummy variables to reflect the effect of tax structure changes. GDPR denotes GDP at 1962 market prices. License Fees (TX8) log (TX8/GDP) = -3.28 - .0373 TIME (.320) (.0047) R = .86, D = 2.91, SE = .09 NOBS = l1(FY1963 - FY973) TIME is a time raviables of which the value is 63 for FY1962/63 and increases by 1 for each successive year. 5.16 The results of preliminary regressions indicate that the changes in tax structures in the period from FY1963 to FY1973 did not affect the elasticity of revenue. The impact of these changes was minor changes in the constant terms of the revenue functions. As the equations above show, even this effect was not statistically significant in most cases. 5.17 The estimated revenue functions show that the central government taxes as a whole are not very responsive to economic growth and price increases. 5.18 Revenue from certain taxes depend on GDP but with one year's lag. Examples of these are the pe,sonal income tax, the company income tax and the tax on property transfers._/ The ratios to GDP of the revenues from these taxes would tend to decline when GDP increases fast whether due to real growth or due to price inflation. 5.19 Some other taxes are elastic with respect to GDP at constant prices but insensitive to price movements. Examples are the excise tax on soft drinks, taxes on tobacco produc-ts and taxes on petorleum products. The ratios to GDP of the revenues from these taxes would tend to rise when GDP grows fast in real terms, but they would tend to fall when prices increase fast. 1/ Personal income tax revenue depends also on the sectoral composition of GDP. Company income tax revenue depends on corporate income (with one year's lag). The national accounts statistics in the past indicate that corporate income was a function of non-agriculture value added. Hence the company incane tax depends also on the sectoral composition of GDP. ANNEX C Page 50 5.20 There are also taxes with low revenue elasticities with respect to CDP. Some excise taxes and the profits of fiscal monopolies other than the Thai Tobacco Monopoly fall into this category. 5.21 The revenues from the rice export duty and rubber export duty depend, in the absence of tax structure changes, mainly on the world market prices of these commodities. Aggregate economic growth and domestic price movements have little impact on the revenue from these taxes.i/ 5.22 The tax with high revenue elasticities both with respect to GDP in constant prices and with respect to price level is the business taxes. The ratio of the revenue from these taxes to GDP would tend to rise when GDP increases fast whether through real growth or through price inflation. 1/ For this reason the mission did not attempt to estimate the revenue functions for these taxes and for rice export premium. ANNEX C Page 51 VI. ESTIMATION OF TAX REVENIJ FUNCTIONS - TECHNICAL DISCUSSION 6.01 This section is deovted to a discussion of technical problems one encounters often encountered in the estimation of tax revenue functions using revenue time series. Problem 6.02 In evaluating the tax system's revenue performance, it is necessary to identify the revenue determinants and the quantitative relationship between the revenue and the determinants under the present tax structure. However, such estimation is extremely difficult in the case of countries which experienced frequent tax legislations in the recent past. 6.03 The problem that arises is that the series of revenue observations pertaining to the present structure are too short for the application of any meaningful regression analysis. What could one do, then? There are no simple answers to this question. 6.o4 A number of authors have attempted to cope with this question, but nobody so far has come up with any perfect solutions. This is surprising since there is not sufficient information on the relationship between the revenue and the determinants. Despite these difficulties, the need often arises for estimating revenue functions. 6.o5 This section surveys alternative methods which have been proposed. They suffer from some shortcomings, for they are the products of the attempts to bridge the information gaps that are not bridgeable. Model 6.06 For expositional simplicity, one may assume that revenue, R, depends on only one determinant, X, and that the revenue elasticity with respect to X is constant under each tax structure; the N observations are available on R and X; but that the first T-1 observations belong to a past tax structure and only the last N-(T-1) observations belong to the present tax structure. The relationship between R and X is: log Et = ao + a, log Xt + Ut ) for t = 1, ..., T-1, and) ) (1) log Rt = bo + bl log Xt + Ut ) for t = T, ..., N ) ANNEX C Page 52 ,.07 It is also assumed that the random. term Ut is independent of the otners and belongs to the same normal distribution with the expected value qruan 2. zero. Buo ancy Method 60208 This method is most frequently used, despite its shortcomings. It assumes that the changes in tax structure do not affect the revenue p-attern, i.e., that a. is equal to bo and al is equal to b1. On this assumption, one can take the regression of log R on a constant and log X using all N observations and without making any adjustments either on the left-hand side or the right-hand side of the equation. In this case, the estimates of ao and bo are obviously equal and the estimates of al and b1 are equal; these are unbiased only if ao = bo and al = bl. Dunm r Variable Method 6.09 Squation (1) can be expressed in a single equation by defining a dummyv variable Dt which takes value 1 for t =1, ..., T-1 and value 0 for t = T, .., N, and do = ao - bo and dl = al - bl: log RPt = (bo + doDt) + (bi + dlDt) log Xt + Ut for t = 1, ..., N (2) 6.10 if one can take the regression of log Rt on a constant, Dt, log Xt and D- log Xt, then the resulting estimates of bo and bl are the best 5rnear unbiased estimates. However, this regression requires that there be at least two revenue observations available under each tax structure.1 If this condition is not fulfilled, then the moment matrix is degenerate - a strict multiple collinearity obtains. 6.11 One cannot, therefore, apply the dummy variable method if the tax structure changed in two consecutive periods or if there is only one revenue observation under the present tax structure. These situations are not uncommon in real life. -sl2 Furthermore, in practice the estlimated parameters may not be reliable -..spite the fact that they are unbiased. The estimates of bo and bl are exactly the same as the estimates that could be obtained by taking the -egression of log R on a constant and log X but using only the last N-T+l observations. (one would not consider this regression if N-T+l were very small, e.g., three because one could not be convinced that the weighted average of the random terms would be close to zero). However, estimates resulting from the dummy variable regression are more efficient; additional observations make the variance of the estimated parameters smaller. 1/ In a more general case of k determinants, where the revenue function is k log Rt = (bo + doDt) + 1 (bj + djDt) log Xt + Ut (2) the requirement is that there are at least k+l revenue observations under the ta-c structure. ANNEX C Page 53 6.13 This advantage derives fron the use of the additional information that the random terms for t=l, ..., T-1 belong to the same distribution as the random terms for t=T, ..., N. However, in reality one seldom can say that these error terms actually belong to the same distribution. Constant Rate Method 6.14 The dummy variable method is an attempt to utilize all the available information. By contrast, the constant rate method is an attempt to substitute an assumption for information. Instead of using the actual revenue series, this method involves the construction of a hypothetical revenue series that would have obtained if the present tax structure had been effective from a date prior to its actual adoption and uses this series for regression. 6.15 Let Rjt be the j-th component of Rt under the present structure for which Bjt is the tax base: J Rt = : Rjt for t=T, ..., N. (3) J=l Rjt = rj Bjt + vjt where vjt is a random term with zero expected value. (No assumption is made on the variance. It is not necessary to assume a normal distribution, either.) 6.16 If Bjt can be observed, one can calculate the average tax rate under the present tax structure: N Av(rj) =- Rjt/Bjt. t=T 6.17 The proposed estimate of the hypothetical revenue under the present structure for t=1, ..., N-1 is ,0 J Rto = Av(rj) Bjt. Jz1 6.18 This procedure assumes that Bjt is independent of the tax structure, which is not always acceptable. A more serious shortcoming of this method is that the hypothetical revenue series is constructed without any attempts to utilize the information that the actual revenue series under the past tax structure might offer. Prest Method 6.19 This method is also an attempt to substitute assumption(s) for the missing information to extend the series of revenue observations under the present structure so as to make it possible to run a regression with the hypothetical revenue observations.l/ 1/ A.R. Prest, "The Sensitivity of the Yield of Personal Income Tax in the United Kingdom," Economic Journal, September 1962. ANNEX C Page 54 S.20 However, the procedure for estimating the hypothetical revenue series differs from that followed in the constant rate method: The Prest method assumes a certain relationship between the revenues under the present structure and under the past structure. Hence, the estimate of hypothetical revenue proposed here is a function of the actual revenue: RtV, = f(Rt) for t-l, ..., N. For f(Rt), Prest himself used the following form in his paper: f(Rt) = (RT/RT*) Rt for t-l, ..., T-1,) ) (5) f(Rt) = Rt for t=T, ..., N. where 1RT* is the estimate of the hypothetical revenue in period T that would : 50.'7 57.3 (4.6 72.9 Other Revenue Extrabudgetary Treasury Receipts o.P, 1.6 0.5 O. o.8 1.3 1.4 1.( 1. 1.9 2.1 Foreign Grants 1.0 1.2 0.9 0.9 0.° O. 6 (.5 0. 0 0 6-.6 o.6 State Enterprise Operating Surpluses 1.2 1.2 1.3 1.! 0.9 0.6 0.9 0.' . 0,0 0. n Sub-Total 3,0 3.9 2.7 72.5 2.5 3.0 TT Total Revenue 22.7 2 4.1 2 5.2 29.2 39.( T1 .3 4 7,6 53.,70 77 7 / R Based on the national account figures projected froi the nal orl31 account estimates ('or 1072 and 1073 rdvejj ton thle miss i Tanuarv 19' .ANNEX C Page 61 EXPLANATORY NOTE FOR TABLES c-6 AND C-6a Most of the estimates for central government tax revenue are obtained by simulations using the revenue functions presented in Section V. The future values of the right-hand variables in the revenue functions were obtained from simulations with the following set of equations: 1/ GDP at 1962 market prices (GDPR) GDPR - 1.07 GDPR (-1) Implicit GDP deflator (P, where P - 1.00 for 1962) P = (I + R0P) P (-1) R0P denotes the rate of inflation shown in paragraph 7.02. GDP at current market prices (GDP) GDP = P GDPR GDP at current factor cost (GDPFC) log GDPFC = -.161 + 1.00 log GDP (.054) (.005) Rf = 11.00, DW = 0.7, SE = .005 NOBS = 12(FY1962* - FY1973) 2/ Agriculture gross value added at 1962 market prices (VAGMPR) VAGM'PR = 1.051 VAGMPR(-l) Agriculture gross value added at current market prices (VAGMP) VAGMP = P VAGMPR Agriculture value added at current factor cost (VAGFC) log VAGFC = -.0033 + 1.00 log VAGM? (.0165) (.002) R = 1.00, iw = 1.0, SE = .001 NOBS = 12(FY1962* - FY1973) 1/ These projections used the national account estimates for 1972 and 1973 given to the mission in January 1974. The estimates for 1973 were revised later. 2/ FY1962* indicates the 12 month period from October 1961 to September 1962. The actual fiscal year was the same as the calender year through 1961. Fiscal year 1962 ran from January 1, 1962 to September 30, 1962. ANNEX C Page 62 Explanatory Note for Tables C-6 and C-6a (continued) Non-c.- iculture value added at current factor cost (VNAFC) VNAFC = GDPFC - VAGFC Corporate income (YC) log YC = -6.67 + 1.31 log VNAFC (1.31) (.119) -2 R = .92, ii = .46, SE- .14 NOBS = ll(FY1962* - FY1972) Private consumption at 1962 market prices log CPVR = 1.14 + .869 log GDPR (.099) (.009) R = 1.00, Lw = 1.6, SE = .01 NOBS = 12(FY1962* - FY1973) Private consu-mption of liquor at 1962 market prices (CPVIR) log CPVIR = -7.58 + 1.36 log CPVR (.697) (.063) -2 R = .98, DW = .7, SE = .05 NOBS = 12(F1f962* - FY1°73) Private consumCption of soft drinks at 1962 market prices (CPV2R) log CPV2R = -10.3 + 1.59 log CPVR (1.13) (.102) 2 Rt2= .96, LW = .7, SE = .08 NOBS 12 (FY1962* - FY1973) Private consumption of tobacco at 1962 market prices (CPV3R) log CPV3R = -5.79 + 1.24 log CPVR R = .98, lid = .5, SE = .03 NOBS = 12(FY1962*-- FY1973) ANNEX C Page 63- Explanatory Note for Tables C-6 and C-6a (continued) Construction at current market prices (CST) log CST = -3.55 + 1.12 log GDP (.887) (.077) -2 R .95, DW - .4, SE .09 NOBS = 12(FY1962* - FY1973) The revenue from import duties on non-petroleum products were estimated by the constant rate method. The identities used are as follows: Import duties on consumer goods (TX31) TX31 = .300 MCG NCG stands for consumer goods imports c.i.f. in current prices in millions of baht. Import duties on intermediary goods (TX32) TX32 = .200 MINT MINT stands for intermediary goods imports c.i.f. in current prices in millions of baht. Import duties on capital goods (TX33) TX33 = .155 MIIG MIG stands for capital goods imports c.i.f. in current prices in millions of baht. Other import duties (TX3h) TX34 = .035 MMISC MMISC stands for miscellaneous imports c.i.f. in current prices in millions of baht. The coefficients were obtained as the average ratio of import duty revenue to c.i.f. value imports for corresponding categories over the period from the mid-1960's, for which the ratios were fairly stable. Import projections were supplied by the East Asia and Pacific Department of IBRD. The estimates for revenues from rice export premium, rice export duty and rubber export duty were also obtained by the constant rate method, using the following identities. ANNEX C Page 64 Explanatory Note for Tables C-6 and C-6a (continued) .Rice export premium (.TX41) TX41 = .1333 Rice Export Value Rice export duty (TX42) TX42 = .0483 Rice Ecport Value 'lubber export duty (TX51) TX1 = .0656 Rubber Export Value The assumed export values of rice and rubber are as follows: FYl97h/75 FY1975/76 FY1976/77 FY1977/78 Fnl978/79 FY1979/80 Rice 2xport Value (O million) 6,360 4,044 4,283 4,542 4,725 4,965 £xport Price (Baht/ton) 5,000 3,000 3,000 3,000 3,000 3,000 Export Quantity (1,000 tons) 1,270 1,350 1,430 1,500 1,575 1,655 Rubber ExportValue (Z million) 3,737 3,h47 3,578 3,71)4 3,851 h,003 Export Price (baht/ton) 9,000 8,000 8,000 8,000 8,000 8,000 .xport Quantity (1,000 tons) 415.2 430.9 hh7.2 464.2 481.h 500.4 The revenue from other export duties, which has been small in the s.t, is assumed to remain at 050 million in current prices during the .:rojection period. The non-tax revenue of the central government, local government revenue and extrabudgetary treasury receipts are estimated using the following equations. ,entral Government Non-Tax Current Revenue (NTRC) NTRC = .01215 GDP The coefficient is the average ratio of NTRC to GDP for the -eriod from FY1965/66 to FY1971/72. ANNEX C Page 65 Explanatory Note for Tables C-6 and C-6a (continued) Automobile Registration Fees (TX61) Log TX61 = -11.2 + 1.41 log GDPR = 2.h5 log P (3.93) (.351) (1.27) R .96, W = 1.31, SE = .11 NOBS = ll(FY1963 - FYl973) The equation was estimated with the time series of central government revenue frcm automobile registration. Local Government Revenue from Surcharges on Central Government Taxes (RVLl) RVI1 = .095 (TX21 + TX222 + TX23) Other Local Government Revenue (RVL2) log RVL2 = -11.3 + 1.58 log GDPR(-l) -3.85 log P(-l) (3.35) (.305) (1.86) RX = .85, DW = 2.14, SE = .083 NOBS = 7(FY1966 - FY1972) Extrabudgetary Treasury Receipts (XTR) XTR = .005 GDP The coefficient is the average ratio of XTR to GDP for the period from FY1965/66 to FY1971/72. As it was mentioned earlier, the revenue functions presented in Section V reflect the revenue patterns under the tax structure of FY1962/73 or earlier. The recent tax legislation may have changed the revenue patterns in the case of some taxes. However, the revenue series under the tax structures effective in February 1974 are either non-existent or very short in such case. The mission made the following crude assumptions to adjust the revenue forecast for these taxes: (i) that the difference between the revised budget forecast for 1973/74 of February 1974 and the estimate resulting from the revenue functions for FY1973/74 reflects the impact of recent tax legislations,and (ii) that the effect is a proportional change in the revenue.l/ The following is the list of the adjustment coefficients that were used. 1/ This is the application of the proportionality hypothesis discussed in Section VI. The revenue functions given in Section V show that in the past the effects of tax structure changes were proportional changes in the revenue. ANNEX C Page 66 Explanatory Note for Tables C-6 and C-6a (continued) Adjustment Coefficient Personal Income Tax 0.987 Company Income Tax 1.447/1 Business Taxes 0.934- Excise Tax on Alcoholic Drinks 1.146 Taxes on Tobacco Products 1.233 1/ The geometric average of the ratio of actual revenue to simulation value for FY1972/73 and the ratio of revised budget estimate to simulation value for FY1973/74. The government raised the rates of excise tax on petroleum products in November and December 1973. The Excise Department expects that the refining output will decline by about 20 percent in FY1974 because of the international oil situation. It estimates, however, that the rate adjustments will bring about an additional revenue of 650 million in FY1974. The projection in Tables C-6 and C-6a assumes that the import of petroleum products will be negligible in FY1974 and hence that the revenue from import duty on petroleum products will also be negligible. For other years, the projections are obtained directly fram the revenue functions, on the assumption that the impact of rate increases and the negative effect of higher petroleum price on demand would offset each other. ANNEX C Page 67 Meeting the Resource Shortfall 7eO7 The figures in Table C-6 show that total revenue will be about 17 percent of GDP in the projection period. These ratios are a little higher than the ratio in FY1971-72, which was about 16 percent. The major factor which brings about the increase in the ratio of revenue to GDP is the increase in the central government tax revenue. Its ratio to GDP was 12 to 13 percent in the early 1970's,but this is projected to increase to about 15 percent by 1979/80. On the other hand, the projection of "other revenues" declines from about 2 percent of GDP in the early 1970's to less than 1 percent of GDP in the early 1970's to less than 1 percent of GDP in the projection period due to the reduction in foreign grant receipts and state enterprise surpluses. 7.08 Projected revenue availability is less than 75 percent of the projected resource requirement for each year. The shortfall in revenue relative to the resource requirement amounts to about 7 percent of GDP. This is larger than the ratio of the actual deficit of the public sector in FY1970/71 and 1971/72. TABLE C-7: PROJECTED RESOURCE SHORTFALL (as percent oT-nM) /L FY74/75 FY75/76 FY76/77 FY77/78 Fy78/79 FY79/80 Resource Requirement 23.5 23.h 23.6 23.9 24.2 24.5 Revenue 16.2 16.6 16.9 17.2 17.6 17.9 Resource Shortfall 7.3 6. 7 6.7 6.6 T 6.6 A GDP as used for projection exercises. 7.09 There are three alternative -- though not mutually exclusive -- courses that the public sector can take in closing the resource gap: it could reduce the resource requirement by improving efficiency in public service supply or by postponing a part of required expenditure; it could raise additional revenue; and it could borrow. 7.10 While cost reduction through efficiency improvement in the efficiency of the public sector is desirable in any case, this can be expected to materialize only gradually. On the other hand, postponing the required public expenditure has a direct undesirable implication on the state of public service supply, as is clear from the experiences of the past. 7.11 The public sector has taken recourse also to borrowing to a large extent in the recent past. Following this course creates additional resource requirements for interest payments. Even if the public sector were able to borrow at an average interest rate of 6 percent a year as in the past, financing the projected shortfall entirely through borrowing would impose an additional interest burden of about 2.4 percent of GDP in FY1980. Required net borrowing would have to increase from about 8 percent of GDP in FY1975 to 9 percent of GDP in FY1980 (See Table C-8). ANNEX C Page-68 TABLE C-8: REQUIRED NET BORROWING (As Percent of GDP) /1 FY1975 FY1976 FY1977 FY1978 FY1979 FY1980 Original Resource Shortfall 7.3 6.8 6.7 6.7 6.6 6.6 Plus: Additional Res. Requirement/2 0.5 0.9 1.3 1.7 2.0 2.4 Required Net Borrowing 7.8 7.7 8.0 8.4 8.6 9.0 /1 GDP as used for projection exercises. /P Resource requirement for interest payable on the debt incurred during the projection period. .*12 The available figures show that actual net domestic borrowing by -he public sector in the early 1970's was 3 to 5 percent of GDP (See Table C-9). As the demand for bank credit from the private sector is likely to expand faster than GDP, the scale of domestic public borrowing envisaged in Table C-9 does not seem feasible. Even if the fund of this magnitude could be raised, it would be impossible to maintain the average interest rate at 6 percent. Purthermore, excessive borrowing is likely to have serious consequence on public finances in the future beyond the projection period. For these reasons, it is clearly desirable that the public sector make efforts to raise additional revenue to finance a part of the resource shortfall. TABLE C-9: NET BORROWING OF THE PUBLIC SECTOR / (Millions of Baht) FY1969/70 FY1970/71 FY1971/72 FY1972/73 :oreign Sources -11 188 490 1,209 ) mestic Sources/2 4,092 5,252 7,261 6,310 Total 4,081 5,440 7,751 7,519 ,as Percent of GDP) (3.0) (3.8) (5.0) (4.0) F1 Figures exclude local government borrowing and state enterprise borrowing guaranteed by the Ministry of Finance. However, the excluded items are likely to be small. /Z Including Bank of Thailand and Exchange Equalization Fund. Source: Table B-1 of Annex B. ANNEX C Page 69 7.13 Raising additional revenue would require restructuring of the tax system and state enterprise tariff rates. This annex does not go into the discussion of specific measures, which are given elsewhere.l/ Annex D indicates that revisions of state enterprise tariffs would yield additional operating surpluses of about 0.5 percent of GDP. The discussion in the main report suggests that additional revenue from tax measures would amount to about 1.5 percent of GDP in 1974. The public sector would be then able to obtain additional revenue equal to 1.8 to 2.2 percent of GDP during the projection period depending on the elasticity of the revenue to be generated by these measures. 7.lh This means that the remaining resource gap will be about 5 percent of GDP during the projection period (See Table C-10). Nevertheless, the net borrowing required to fill in this resource gap amounts to about 6 percent of GDP. The actual public borrowing never exceeded 5 percent of GDP in the recent years. In the face of the rising need of the bank credits for private investment,the public sector is not likely to be able to borrow this size of funds at 6 percent interest rate. TABLE C-10: REQUIRED NET BORROWING: MODIFIED (As Percent of GDP)/l FY1975 FY1976 FY1977 FY1978 FY1979 FY1980 Original Resource Requirement 23.5 23.4 23.6 23.9 24.2 24.5 Revenue 18.2 18.6 18.9 19.2 19.6 19.9 Under original structure (16.2) (16.6) (16.9) (17.2) (17.6) (17.9) From new measures/2 ( 2.0) ( 2.0) ( 2.0) ( 2.0) ( 2.0) ( 2.0) Resource Shortfall 73 T7?7 777 T7T T77 Plus: additional Res. requirements /3 0.3 o.6 0.9 1.2 1.4 1.7 Required Net Borrowing 5.6 5.lh 5.6 5.9 6.0 6.3 A GDP as used for projection exercises. 77 Assumed as 2 percent. of GDP, but may deviate a little on either side depending on the elasticity with respect to GDP. /3 Resource requirernent for interest payable on the debt incurred during the projection period. 7.15 Thus, the financial resource requirements of the public will not be completely even with the re-venue and borrowing measures proposed above. There is a pressing need, therefore, for the public sector to improve the efficiency of its activities. 1/ Section III of the main report and Annex D. ANNEX C Page 70 7.16 At the same time, the public sector should consider reducing the financial requirement by letting the beneficiaries of improved public services bear a part of the cost of these services. The resource require- ment exercise stressed the improvement in the supply of public services in rural areas and poor regions. Most farmers in those areas undergo a period of seasonal unemployment and migrate to urban areas to seek temporary jobs, often unsuccessfully. Seasonally, unemployed farmers could be hired in their home villages with little or no remuneration for public works such as construction of maintenance of rural roads, minor irrigation works, school and health centers. This has been the strategy followed in the Accelerated Rural Development program (ARD), which has been successful in various parts of the country. 7.17 It is difficult to estimate the extent to which these measures and improvements in the public sector's efficiency could further reduce the resource requirement in the projection period. If there remains a resource gap to be closed by constraining expenditure in a way that would curtail the supply of public services below the "required" level, a very careful examina- tion of program/project priorities should be undertaken before expenditure cuts are decided upon.