The historian Stephen Kotkin observes that autocratic regimes don’t need economic growth to maintain power per se, but that they do need “cash flows.” Money is essential to buy-off elites; bribe bureaucrats, judges and opposition politicians; lavish electorates with “gifts”; and maintain the allegiance of the security apparatus. Some is invested in normal ways, through state budgets and welfare payments. Much is embezzled or siphoned through complex schemes to the benefit of allies and sycophants. A cash-strapped ruling party cannot buy loyalty nor procure talent.
The best sort of cash flow is extractive, namely energy. This stuffs the ruling party and officials with substantial amounts of money, enough that they don’t need to rely at all on the economic output of their citizens (think of the Gulf states and Russia). In Southeast Asia, Brunei doesn’t levy income tax or VAT because energy reserves give it a GDP per capita second only to Singapore in the region. There are other forms of cash flow. One can derive it from patron regimes; the decline in donations from the Soviet Union in the 1980s convinced the Vietnamese and Lao communist parties of the need to embrace the market practices, and to access Western aid and loans. Up until the 2000s, around a third of the Cambodian government’s budget was funded by foreign aid. Aid and unaccounted payments from Beijing made up for the shortfall in Western aid in the 2010s. In Myanmar, military juntas have relied on their own military-controlled businesses and the country’s oil and gas revenue. Wealthy tycoons are also expected to contribute “donations” to the ruling parties in all of these countries, though that’s more important when countries are poorer (and governments need smaller cash flows).
Today, however, those cash flows are drying up. Vietnam and Cambodia lack extractive resources (their petroleum dreams have died a quick death), whilst Laos’ natural resources (its mines and hydropower dams) are running low or freighted with debt. State-owned enterprises in Vietnam and Laos are no longer a source of funds and are hemorrhaging money. Myanmar’s military junta has found itself poorer because of Western sanctions. Foreign aid is drying up as these economies develop. At the same time, the autocratic parties need ever greater revenue. Cambodia’s annual state budget was just $1.9 billion in 2010. It will be more than $9.6 billion next year. Vietnam’s increased by 138 percent between 2010 and 2021.
As such, autocratic regimes in mainland Southeast Asia are now turning, to varying degrees, to their own citizens to maintain this cash flow in the form of taxes. In 2005, the Cambodian authorities collected around 2.03 trillion riel (around $500 million) in taxes. This rose 968 percent by 2019. Next year, the General Department of Taxation (GDT), in charge of just domestic taxes, is tasked with collecting $3.5 billion, almost $750 million more than the 2022 target. From 2007 to 2020, the tax-to-GDP ratio in Vietnam increased by 2.8 percentage points from 19.9 to 22.7 percent, but that was as GDP grew from $77 billion to $361 billion over the same period. Laos has doubled tax collection over the past decade.
Debt – an obligation on future taxpayers – has also surged. At the turn of the century, it stood at around $2 billion in Cambodia, and around $11.6 billion and $2.4 billion in Vietnam and Laos, respectively. By 2020, debt had grown almost fourfold in Cambodia, and fivefold in Vietnam and Laos. Laos’ total public and publicly guaranteed debt probably exceeded 100 percent of GDP for the first time this year. It could be way higher than that. If one wants to predict the future, it’s only going to be greater burdens on taxpayers and more debt. All regional governments are now fast-tracking tax reform, chiefly to expand the tax base and discourage avoidance.
That alters politics. Because taxation is a new form of cash flow for autocratic parties, that makes economic growth is ever more important to these regimes. Ordinary people and small firms, after all, need to become richer to pay the taxes the autocratic parties require. And because of a slew of new trade deals, it’ll be harder for the authorities to collect duties on exports and imports, so income and business taxes will become ever more important. So, does a ruling party risk economic sanctions from the West by rigging an election or dithering on reforms? Cambodia cannot afford to risk alienating the U.S., its largest export partner, over its close friendship with China, one reason why Phnom Penh now is attempting a rapprochement with Washington. At the same time, higher taxation and state expenditure require far more competence in financial affairs, and that means the promotion of technocrats, not loyalists.
More important, greater taxation means ordinary people are increasingly being asked to involve themselves in politics. In this column last week, I cast doubt on the narrative of social “contracts” or “bargains” in autocratic countries. But the increasing demand for taxpayer money adds an extra layer of confusion. The notion of a “social contract” in authoritarian countries rests upon the concept that the autocratic party’s legitimacy stems from guaranteeing ordinary people a consistently improving quality of life. In return for this, ordinary people agree not to involve themselves in politics, leaving autocratic governments to get on with administration and embezzlement. But because of the increasing dependency on taxpayer revenue and future taxpayer obligations (debt), ordinary people are being expected to involve themselves in politics (as the financial backers of government). Because regional governments attached little importance to taxpayers in the past, the oppressors were in a way liberated from the oppressed. Autocrats didn’t need to go rifling through the pockets of their citizens and, in turn, ordinary people. It’s easier for the masses to look the other way and make excuses if a corrupt government official is skimming money from foreign donors or private-sector tycoons.
However, the more these governments depend on their own citizens for revenue, for their cash flow, then the more they will have to treat the people like actual citizens. Speaking with the Phnom Penh Post last month, GDT Director-General Kong Vibol (who himself has been dogged by corruption allegations) made a telling statement. “We’re carrying out… modernization to improve taxpayers’ voluntary compliance, making paying taxes more transparent, and instilling confidence that the money actually makes it into state coffers,” he stated. One assumes his tax department understands that many Cambodians are skeptical about where their hard-earned money is actually going.
Taxpayers must respond in kind. There needs to be a new coterie of taxpayer alliances and NGOs that investigate how tax money is spent. Cambodian ratepayers, for instance, should be able to know how much of their money was spent by Prime Minister Hun Sen on the limited-edition watches he gave to visiting dignitaries at the recent ASEAN summit. Vietnamese taxpayers ought to know how much of their hard-earned money is spent on intelligence agents who kidnap people from Berlin parks or on churning out metro line designs. If I were a Lao national, I’d be asking how much it cost Thongloun Sisoulith, the president, to make his fawning visit to Beijing this month. Transparency in finances could lead to openness elsewhere; an acceptance that bureaucrats must be held to account might rub off on autocratic politicians. The cry of “no taxation without representation” is probably reserved for 1776, but Southeast Asians ought to know if their public money is serving the public good – or whether it’s serving private vice.