A new stimulus programme to be reviewed by the cabinet next week will include a new tax deduction for home mortgage payments, said Finance Minister Korn Chatikavanij.

Taxpayers can now deduct up to 100,000 baht in interest payments from their annual income tax liability.

But the new programme would apply to mortgage loan principal payments, Mr Korn said.

He told investors and business leaders at the Post Forum 2009 conference yesterday that the new tax programme aimed at the property and tourism sectors, and would put 10 billion baht into the economy.

Finance Ministry officials said the deduction on principal payments would only apply to homes purchased this year and be structured as a temporary measure.

But Mr Korn played down hopes that more aggressive tax cuts could be implemented, such as cuts in corporate and value-added tax rates.

"We will propose additional tax policies on Tuesday. But these will be to supplement our main fiscal stimulus programme," he said.

"The Democrat Party is still committed to the principle of small government, minimal interference in the economy and lower taxes. But right now, the private sector is weak, and it is up to the state to support the economy."

Cutting corporate taxes now would do little to boost investment.

"Firms are not thinking of new investment. Everyone is only thinking of survival," Mr Korn said. "For individuals, those who pay tax are mostly the wealthy. Cutting tax rates now would just lead to higher savings, not spending."

Stimulus programmes have been focused on the poor due to their higher propensity to spend rather than save, thus maximising the use of state funds for helping the economy.

"The point is to spend money with maximum benefit for the economy," Mr Korn said.

In any case, the 115-billion-baht supplementary budget reviewed by the cabinet last Tuesday was just one component of the government's stimulus programme, and would be complemented by new tax incentives and increased lending by state-owned banks.

Mr Korn said efficient, timely management of existing budget funds would also be critical for the economy.

This included 184 billion baht in funds under the government budget, 308 billion set for new investment by state enterprises and 366 billion held by local administration bodies.

Prime Minister Abhisit Vejjajiva will chair a meeting today on how to accelerate spending by state agencies and push local administrations to spend funds now held in bank deposits to support the economy.

Improving budget disbursal rates by a single percentage point meant an additional 25 billion baht entering into the economy, he said.

"And this is equal to pushing growth up by 0.1 percentage point. Right now, every little bit counts," Mr Korn said.

The supplementary budget is expected to help push up economic growth by a full percentage point, with next week's 10-billion-baht tax programme adding another 0.06% to growth.

Mr Korn said plans to push state banks to extend 300 billion baht in credit to farmers, small businesses, homebuyers and exporters would help boost growth by another 0.2%.

He declined to set a target for the economy, but expressed confidence that 2009 growth would not fall under 2%.

This represents the upper range of many forecasts - the Bank of Thailand currently maintains an economic growth forecast of 0.5% to 2% for 2009, or less than half the estimated 4% growth posted last year.

source : www.bangkokpost.com