The Negative Income Tax (NIT) is a mechanism designed to support individuals with incomes below a certain threshold by combining income support and tax incentives into a single system. It is widely regarded as a tool for addressing poverty and reducing income inequality.
National Economic and Social Development Council (NESDC) secretary general Danucha Pichayanan said the government needs to consider in detail first if the administration aims to use NIT as mechanism to restructure country’s welfare.
He said the adoption of NIT has benefited both the public and the government, there are critical issues that need to be addressed.
These include the goals and beneficiaries of the NIT system must be explicitly defined, tailored to Thailand’s socioeconomic context.
Thorough studies are required to set income thresholds and benefit levels that incentivize individuals to work and improve their financial circumstances and also should be reviewed and adjusted to reflect changes in the cost of living.
He said there should be adequate budget allocation to support
NIT operations and the study of the impact on individual quality of life and the government’s financial burden. This includes canceling the overlapping welfare programs and integrating multiple forms of assistance into a unified system, as well as incorporating NIT recipients who meet income criteria into the tax system with setting penalties and strict enforcement to determoral hazard.
Insights from the application of NIT across various countries offer valuable lessons
The agency reported insights from the application of NIT across various countries offer valuable lessons, including:
1)Countries implement NIT systems to achieve different objectives. For instance, Australia uses a version of NIT through the Family Tax Benefit (FTB), which supports low-income households in raising children.
2) The differences of the size and structure of benefits significantly influence their impact on poverty across population groups. For example, the U.S. Earned Income Tax Credit (EITC) provides tax credits based on number of children. This program reduced poverty for unmarried households with three children by 20.2 percent, compared to only 1.5 percent for unmarried childless households.
3) Although NIT encourage employment among low-income individuals, some conditions may inadvertently discourage additional work. For example, Singapore’s Workfare Income
Supplement (WIS)considers total monthly income, including overtime pay, bonuses and commission, when assessing eligibility. This has led to reduced overtime work among some Beneficiaries.
4) Overly complicated systems can limit the accessibility of assistance to in need populations. For instance, Australia’s FTB involves assessing net income, the number and age of
children, caregiving time, and compliance with child vaccination schedules. Such complexities can disproportionately exclude vulnerable households, particularly separated families.
5) Countries with successful NIT implementation typically have a low proportion of informal workers. For example, Sweden has only 3.3 percent of its workforce in the informal sector. Conversely, countries with higher levels of informal labourparticipation have discontinued the NIT program due to budgetary constraints.
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