On Tuesday, the Thai cabinet approved new minimum wage increases set to take effect in January, along with tax breaks to encourage spending and the second phase of the government’s flagship handout program, as announced by Prime Minister Paetongtarn Shinawatra.
The Pheu Thai government had committed to raising the daily minimum wage to 400 baht nationwide to stimulate economic activity. However, the tripartite wage committee decided on Monday that the wage increase to 400 baht would only apply in the provinces of Phuket, Chachoengsao, Chon Buri, Rayong, and the holiday destination of Samui in Surat Thani.
In other areas of the country, wages will rise by an average of 2%, bringing them to between 337 and 380 baht depending on the province, compared to the current range of 330 to 370 baht. Businesses had strongly opposed a nationwide increase to 400 baht, citing the varied economic conditions across different regions.
Additionally, the government approved tax incentives aimed at boosting consumption. Deputy Finance Minister Julapun Amornvivat stated that individuals would be allowed a deduction of up to 50,000 baht for verified spending, excluding domestic travel. These tax breaks will be effective from January 16 to February 28.
Ms. Paetongtarn also announced that the cabinet approved the second phase of the handout program, amounting to 40 billion baht, which will provide payments to four million elderly citizens by January. The first phase of the program was launched in September, with approximately 14.5 million individuals receiving payments of 10,000 baht each. The government aims to distribute total handouts to around 45 million people.
In related news, the government is projecting a budget deficit of 860 billion baht for fiscal year 2026, a figure similar to the current fiscal year’s deficit, which ends on September 30. Total spending is estimated at 3.78 trillion baht, based on anticipated economic growth of 2.3% to 3.3% and inflation ranging from 0.7% to 1.7% in 2026.
Regarding inflation, ministers have agreed to maintain the official inflation target for 2025, a win for the Bank of Thailand, which has resisted pressures to raise the target that could have facilitated more interest rate cuts. The cabinet endorsed an agreement between the central bank and the Ministry of Finance to keep the inflation target between 1% and 3%.
This marks the fifth consecutive year that Thai authorities have agreed on this target range, despite actual inflation often falling short due to high household debt impacting consumer spending and product prices.
The agreement reflects a calming of tensions between the central bank and the Pheu Thai government following disagreements over interest rates and economic recovery strategies. Last week, the central bank opted to keep the benchmark rate unchanged at 2.25%, stating that the current neutral approach is suitable given the rising uncertainties in the global economy.
Maintaining a moderate inflation target is expected to provide the central bank with the necessary flexibility to respond to future challenges, particularly in light of potential trade tariffs proposed by US President-elect Donald Trump.
Inflation has been below the central bank’s target this year, averaging only 0.3% for the first 11 months, although it is expected to return to the lower end of the target range this month, having recorded 0.95% in November, remaining beneath the lower limit for six consecutive months.
The Monetary Policy Committee forecasted an average inflation of 1.1% for the coming year, as medium-term inflation expectations remain well within the target boundaries.
