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The Error of Populist Policies

Posted June. 21, 2010 12:54,   


The ruling Democratic Party of Japan presented Thursday the pledge of a strong economy and public finance in the election for the House of Councilors. New Japanese Prime Minister Naoto Kan has apparently learned a lesson from his predecessor Yukio Hatoyama, who won election through populist policies but faced criticism for failing to follow up on his promises. Hatoyama’s approval rating then plummeted from the 70 to 10 percent range in eight months, leading to his resignation.

Kan has placed growth before balance and revenues before welfare in his election pledge. He presented a tax reform plan that doubles the consumption tax rate to 10 percent. He also put the brakes on the lifting of oil taxes and the free use of highways, which have been criticized as pork-barrel projects. He also gave up the monthly childcare grant of 26,000 yen, one of his party`s key welfare pledges. This was based on the recognition that the economy will fall into crisis if the government fails to tackle public debts of 1,000 trillion yen as of March. The new Japanese Cabinet’s measures to raise the consumption tax and cut the corporate tax to enhance business competitiveness are in line with such recognition.

U.K. Chief Secretary to the Treasury Danny Alexander under the new coalition government of the Conservative and Liberal Democratic parties said Thursday, “After reviewing the 217 projects worth 34 billion pounds under the former government led by the Labor Party, we decided to rescind 12 projects and suspend another 12.” Free use of swimming pools by the elderly and those under age 16 and the establishment of scholarships for 100 doctoral students in humanities were also suspended. In addition, London cut one billion euros from funds to help unemployed youths. As seen in the fiscal crisis in southern Europe, if long-term fiscal soundness is not secured, growth momentum will slow and cause the people to shoulder the burden.

In Korea, National Tax Service Commissioner Baek Yong-ho said June 9, “The tax burden of the Japanese people is in the 18-percent range, much lower than the OECD average. This is due to frequent elections and power transitions.” Populist policies to win elections despite budget shortfalls lead to revenue shortages, which result in an increase of government bond issuance, Baek said. In the June 2 local elections, the ruling and opposition parties and their candidates also made populist pledges such as free school meals. From local and general elections to the presidential election and by-elections, Korea holds elections every year. If candidates present such populist pledges without considering financial sources, the country will also suffer from a fiscal crisis.