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NEWS UPDATES Asean Affairs           6   July  2011

Business opposes 300 baht Thai minimum wage

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The Pheu Thai Party intends to increase the minimum wage to 300 baht a day nationwide - 40-90 percent above current levels - by January, as academics and businesses warn of negative impacts on the national economy.

Suchart Thada-Thamrongvech, head of the Pheu Thai economic team and a former finance minister, said that even though the party had yet to decide whether to lift wages in one move or gradually, it was committed to the plan that it says will benefit 9 million workers.

"Nowadays, the majority of Thai companies are paying wages of more than 300 baht. Consequently, I don't think our planned wage hike will seriously affect them," he said yesterday.

"This is our wealth distribution strategy for factory workers to have a better life. These workers will be able to buy goods manufactured from the company they work for and afford better food."

Dr. Suchart also brushed aside possible impacts of the wage hike on rising inflation, saying inflation had been driven mainly by oil prices to date.

Tanit Sorat, vice-chairman of the Federation of Thai Industries (FTI), called the wage promise a "disaster."

An FTI survey a few months ago found the wage increase would force 6.7 percent of its members out of business, with 42 percent to be affected seriously and 37 percent moderately. At present, Bangkok's average daily minimum wage is 215 baht.

The official minimum wage ranges from 159 baht a day in Phayao to 221 baht in Phuket.

Dr. Tanit said that only large corporations were paying more than 300 baht a day. He believes a large number of small and medium-sized companies would be in big trouble if the minimum wage was raised to the level pledged by Pheu Thai.

"The [new] government should be the one to pay, not businesses," he said. "In the future, I foresee other parties offering higher minimum wages, like 500 baht, to outdo Pheu Thai."

At current wage levels, many Thai products are still competitive internationally, but just barely, against those made by major rivals such as Vietnam, Bangladesh and Indonesia. Vietnamese wages are much cheaper than those in Thailand, he added.

Pheu Thai is also proposing to cut corporate income tax to 23 percent from 30 percent so companies can afford to pay higher wages, but Dr. Tanit feels the tax cut is inadequate compensation.

Charl Kengchon, managing director of Kasikorn Research, said a minimum wage of 300 baht could push inflation to skyrocket and prompt the Bank of Thailand to raise interest rates even more than currently projected.

This means companies will face the double impact of rising costs driven by higher wages and interest rates, said Dr Charl.

"A wage hike by 40 percent at once is too high for Thai companies to adjust to rising costs," he said. "It doesn't mean that we disagree with a rate hike, but the government should carefully look at inflation and make sure labor productivity increases accordingly."

A large wage hike might be enough incentive for workers to move from farming to industrial and service sectors.

Pheu Thai's planned budget of 1.8 trillion baht for five years under its pro-growth strategy is already adding pressure on inflation, even as it plans to spend more off-budget, added Dr. Charl.

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