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Curbing Demographic Dilemma: Thailand’s Economic Struggle Amidst Crisis

Paetongtarn Shinawatra, who has recently been appointed as Thailand’s prime minister, affirmed her commitment to restoring the morale of Thai people amidst the ongoing financial crisis, increased private debt, and overall economic despair, during her inaugural address in parliament this week. The Thai economy is in jeopardy with numerous challenges on its plate. However, the underlying issue exacerbating this situation is the demographic dilemma – the labor force is gradually shrinking. Estimates suggest that by 2050, the working-age demographic could be reduced by 11 million, around a quarter less than the present figure.

However, the situation may not be as dire as it seems. As Thailand faces a decrease in its working-age populace, neighboring countries are observing a surge. Hence, in theory, Thailand can absorb millions of these migrant workers, potentially offsetting the decline in its native working population. With the potential aid of automation, the demographic crisis could be less overwhelming than projected. However, this primarily solves one aspect of the problem: ensuring there are sufficient individuals to maintain production of goods and services.

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Where this falls short, however, is addressing the demand-side of the economy. Migrant workers, while they contribute to the economic output, typically are less consuming than their native counterparts; much of their income is sent back home to support their families or saved for their future return. This means that a loss of 11 million workers by 2050 translates to a loss of 11 million consumers as well.

This dilemma of consumption is what the Thai government is striving to solve, by focusing on increasing disposable income amongst Thai citizens. The Pheu Thai party’s solution to this includes promoting its ambitious 10,000-baht digital cash handout program and ventures into debt-relief schemes. Another innovative approach involves the current proposal to legalize casinos and convert them into ‘entertainment complexes’ where local patrons would pay a $148 entrance fee.

However, these are short-term solutions hitting prematurely in the timeline of Thailand’s demographic shift. The policies lack adequate selectivity, resulting in virtually everyone receiving these handouts. The prime minister, Shinawatra, has recently revealed that the cash program will now prioritize vulnerable, low-income groups in the future. But perhaps, the focus should also address the dwindling numbers of young adults (16-30 years old), who typically drive much of the consumption.

Thailand is not alone in facing these demographic issues, although its situation is arguably the most precarious. Rapid aging societies are a common theme across Southeast Asia. Even in countries like Indonesia and the Philippines — despite a projected significant increase in their working-age populations by 2050 — they are observing a decline in their twenties age group.

The median age in countries like the Philippines has now reached 25 and is projected to rise to 32 by 2050. Similarly, Indonesia shows increasing signs of aging, with its median age currently 29 and expected to rise to 36 by the middle of the century. Notably, no Southeast Asian country will have a median age under 30 by 2050. These demographic changes have far-reaching socio-economic implications beyond just consumption rates.

In the near future, there will be only 2-4 working-age individuals per retiree as compared to the historical average of 6 or 7 across the region. This shift will render the longstanding tradition of children caring for their aged parents unsustainable in certain Southeast Asian countries, leading to a profound transformation in societal norms. In fact, this region’s demographic trend over centuries featured a large number of young people, a limited middle-aged population, and a meager group over the age of 65.

This surge in the middle-aged group signifies a higher proportion of experienced workers, which can be beneficial for these countries’ upward movement in supply chains towards higher-end sectors. However, this transition is not without its drawbacks. All Southeast Asian nations, with the exception of Singapore and perhaps Brunei, will continue to require a young, less experienced, and cheaper workforce to fulfill the demands of low-cost, less-skilled manufacturing and agricultural jobs, which are vital for their economy.

When it comes to economic foresight, the prioritization should perhaps pivot towards the younger generations. While it is not expected that government bodies will adopt the forthcoming suggestion, it is worth considering some unique ideas amidst the slew of half-baked consumption-boosting policies. A concept worth deliberating is the reform of the current tax framework into a ‘lifetime income tax’ system, an idea propagated by Canadian business expert Roger Martin.

The scheme implies that tax payment should commence only after a worker’s lifetime income exceeds a certain threshold instead of it being calculated annually. This proposition was floated in Canadian politics in the 2000s with the threshold set at $250,000 — equivalent to an average Canadian worker’s decade-long earnings.

If we transpose this concept to Thailand, considering the average monthly wage is $450, a reasonable threshold might be $50,000, approximately what an average worker would accumulate over a decade. As per this system, if a person starts working at 16 and earns $5,000 annually, they won’t have any income tax liability until the age of 26. If they earn less, the tax obligation might kick in during their thirties, or earlier if they earn more.

The system can be further refined by applying progressive tax rates with different thresholds — the lowest rate across a lifetime earning of $50,000 to $75,000, a slightly higher rate between $75,000 and $100,000, and so on. The foundational argument here is to allow young earners to keep their entire income to help them save for a house down payment, start a family, invest in a business, or even just to promote consumption. The tax deductibles would come into play only when they are more economically stable.

While critics argue that implementing a ‘lifetime income tax’ system could be challenging and potentially unfair to older workers, it is worth keeping in mind the parallel principle in business tax. Many Southeast Asian governments offer tax breaks to new investors for a certain period, allowing them to invest significant capital into the local economy. The reasoning behind the ‘lifetime income tax’ follows the same premise: stimulate newcomers to consume more.

Given that Southeast Asia is set to experience an unprecedented decline in the population of teens and youngsters for the first time in history, it is critical to deliberate on such novel solutions. If current trends continue, these aging societies will soon face the looming reality of a considerable decline in young consumers, necessitating innovative solutions.