[Editorial] Castle on a cloud

With about a month to go before the Dec. 19 presidential election, placards publicizing political parties’ populist pledges from increasing pensions for all old-aged people to halving college tuition fees are hung over streets of Seoul and other cities across the country.

The competition to win voters’ hearts with promises to shore up their livelihoods hit by the prolonged economic slowdown will be further heated when the official campaign kicks off later this month. The three major presidential candidates have poured out a flood of pledges to increase pensions, reduce medical and education costs, expand child care support and provide more jobs for young and old.

Whoever will be elected is set to slash college tuitions by half and offer free child care for all children aged under 5, if their promises are to be believed.

In addition, Rep. Moon Jae-in, the presidential nominee of the main opposition Democratic United Party, has promised to double the monthly payment of the basic pension for old-aged people to 180,000 won ($165), cap annual medical cost for individuals at 1 million won and pay allowances for young job-seekers and children under the age of 12.

Software entrepreneur and independent candidate Ahn Cheol-soo, who is seeking to unify the candidacy of the liberal opposition camp with Moon, has proposed a similar package of welfare and education programs, though striking a slightly different tone on the pace of implementing them.

Rep. Park Geun-hye, the standard-bearer of the conservative ruling Saenuri Party, recently added a plan to establish an 18 trillion won fund to help those defaulting on their loans to her list of promises to care for people’s livelihoods.

It is understood that such populist pledges come against the background of widening gap between rich and poor with many low-income families plunging below the poverty line amid deteriorating economic conditions.

But what makes their promises hardly persuasive is the lack of specific explanation on how they will raise funds needed to finance them. So far, they have just put forward vague ideas, avoiding addressing the key issue of whether to increase taxes. The candidates should be more honest ― or meticulous ― on the practicality of their pledges. They need to adjust the list of their rosy promises within possible means or work out effective funding schemes including tax hikes.

Outlining his campaign pledges Sunday, Moon said it is time that the state thought about what it should do for the people. Such thinking, however, should be based on a plausible financial framework. Otherwise, all promises by the presidential candidates would be little more than a castle on a cloud.

Experts indicate the measures suggested by the main parties, including restructuring the budget and reducing tax cuts for large companies, would fall far short of meeting the costs for implementing their campaign pledges. Ahn has yet to put forward his estimate of the money needed to implement his welfare package and how to raise it.

What many experts suggest as an effective way of raising funds without causing large budget deficits is to increase the value-added tax rate, which has been pegged at 10 percent for the past 35 years, up to 15 percent. They estimate hiking the rate by 1 percentage point will lead to a revenue increase of up to 7.5 trillion won.

The problem is the measure would prompt strong repercussions particularly on self-employed people, and put upward pressure on prices. None of the presidential candidates have so far committed themselves to increasing VAT, although Moon recently conceded the need for a tax hike. The presidential candidates should make clear their concrete position on tax increases unless they could suggest other methods to finance their welfare schemes.