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Populism in Election Pledges
Andria gvidiani AYFB Analyst

Populism in Election Pledges

Political temperature rises along with coming parliamentary elections. Consequently, political parties compete with each other in terms of economic and other promises.

Generous promises frequently remain on the election program papers and therefore, our population remains disappointed because of unfulfilled promises. Economic promises made by various political parties frequently become the subject of active discussions by politicians, economists and ordinary citizens. Consequently, the Golden Mean between unreal and pragmatic economic pledges is permanently discussed in the society. In this article,  we introduce the list, to our thought, populist pledges made by various political parties. All analysis is presented in substantiated form, as far as possible.

The article does not cover the Georgian Dream’s election program, because official documents have not been published yet.

United National Movement

The economic part of the United National Movement (UNM) election program has become a subject of severe criticism frequently. Naturally, in most cases, this criticism is grounded and substantiated.

According to the UNM program, thanks to their tax initiatives, 45 000 new job places will be created in 2017 to improve living conditions of the same quantity of families, that is about 150 000 persons. In the next years, as a result of accumulation of extra  financial resources in the business sector and population, about 30 000 additional job places will be created every year. Promises are acceptable for all citizens, but another aspect is how real they are and whether the UNM is capable for fulfilling these pledges.

As reported, 241 000 unemployed citizens were recorded in Georgia in 2015. According to the UNM program, 45 000 new job places will be created in 2017 and additional 90 000 job places will appear in the next 3 years. According to rough calculations, all these plans will reduce quantity of unemployed citizens from 241 000 to 106 000. This signifies the unemployment index will decline by 56% in the next 4 years. If the unemployment index in 2015 was 12%, according to the UNM calculations, the indicator will decrease to 5% by 2020 and this is a real dream for even many developed countries.

Moreover, the model for growth in number of employees that calls for creating 45 000 new job places in the first year and additional 30 000 new job places in the next years, is absolutely unclear and unacceptable, because the employment growth paces should increase, not decline amid economic growth and increased number of new job places.

As to reduction of taxes, it is worth noting that lowering revenue tax from 20% to 15% will cut budget revenues by 500 million GEL. Moreover, excise tax rate reduction by 25% on oil products, alcoholic beverages, as well as removing taxes on interest returns and real estate sales, will narrow the state budget revenues  by additional 1 billion GEL.

It should be also noted that VAT’s top margin uplifting to 200 000 GEL from 100 000 GEL cannot leave more financial resources in the economy. On the contrary, more funds will be directed from the economy to the state budget (all auditors know this).

Naturally, everybody welcomes lower taxes. Pledges for cutting state administration expenses are also very attractive, however, making large-scale social assistance promises in parallel regime is unreal. This signifies both promises, reduction in taxes, budget revenues and growth in social expenditures are unreal. Even if only pensions grow by 50 GEL, state budget expenditures will increase by about 450 million GEL. At the same time, higher social allowances for the poor will boost expenditures. Therefore, it is upon the elector to decide whether the UNM is giving real pledges.

The UNM program also promulgates that economic crime should be decriminalized and tax amnesty should be introduced. Naturally, similar pledges looks very attractive and acceptable, but another aspect is whether the UNM has moral rights to make similar promises.

The UNM program also calls for abolishing the Finance Police, but this is a very shameless promise, to put simply, from the party that is associated with the business sector terror by a certain circles of the society.

We also remember very well specific facts how personal and political wishes of state officials were fulfilled by use of the very Finance Police. It should be also noted that  full abolition of the Finance Ministry investigation service may provoke economic crime outbreak, because the syndrome of impunity will increase risks of committing crimes in entrepreneurial circles.

The program also calls for uplifting untaxed minimum on postal parcels from 300 GEL to 1500 GEL. First of all, it should be noted that the previous minimum verge was 1500 GEL and the UNM lowered it to 300 GEL. Moreover, inclusion of this unimportant issue in the list of key messages comprises populism signs.

Girchi

One of the most liberal economic programs was introduced by Girchi political party. How this program will change after merger with other political parties remains unclear. The Girchi program promulgates that the Government will not take loans. Naturally, similar pledges sound as populism, because representatives of the Girchi party, even leaders, have frequently noted that there is no problem for the Government to take external debts. Moreover, it is unclear why the government should restrict loan taking mechanisms if the government will need financial resources for specific and target expenditure policy.

The Girchi program also contains quite populist Reliable Money pledge that calls for introducing the so-called fixed exchange rate. According to the current conditions, today the controlled floating exchange rate runs in Georgia and the exchange rate is determined due to the market forces through interaction of the demand and supply.

It should be noted that the fixed exchange rate hampers opportunity of carrying out efficient and independent monetary policy. It is also important that Georgia has imports and exports relations with many countries, which have different currencies and exchange rate regimes. Consequently, affixing of the GEL exchange rate to the USD will fix it to  one and only currency, while the Georgian national currency will remain changeable to other currencies and it will be impossible to fixate the GEL exchange rate, in practice.

Moreover, experience of other countries which have small open economies have showed that the floating exchange rate regime brings more advantages as compared to the fixed regime. For example, we can refer to the experience of Azerbaijan with the fixed exchange rate regime, when the new economic reality made it inevitable to move to the floating exchange rate and this process created huge problems in the state economy of Azerbaijan.

Labor Party

The Labor Party has not published its program, but key messages of their election pledges are known. The Labor Party messages are mainly dictated by emotional aspects and they tedo not rely on specific economic calculations. The party has not introduced a substantiated analysis of their own election promises.

For example, the Labor Party calls for lowering pension age to 55 and 60 years old for women and men respectively. Naturally, similar pledges are evidently ungrounded and unsubstantiated as compared to the Georgian state budget potential. Lowering pension age will bring very heavy fiscal burden. Moreover, TV commercials have notified that pensioners will receive the 13th pension on birthdays. Populism signs of the mentioned promise consists in the mentioned fiscal burden. On the other hand, the 13th pension for birthdays sounds comical.

Moreover, the Labor Party promises to issue 100 GEL bonuses to all pensioners over 80 years old, while pensioners over 100 years old will receive 2000 GEL pensions. Reality and feasibility of these pledges should be appraised by electors.

Alliance of Patriots

Like all other parties, pledges by the Alliance of Patriots are not based on specific economic analysis. The action plan of the Party makes focus on the issues that are very relevant in the society. For example, the Alliance promises to create 10-year schedule for return of the Soviet deposits. The mentioned promise is very popular in the pre-election period, but a major part of the Soviet depositors do not believe in similar pledges, because, on the one hand, enormous fiscal resources are required to serve similar obligations, on the other hand, specific legal aspects of return of Soviet deposits are questionable.

The Alliance of Patriots also believes that the Government should set up  special fund that will help about 8000 families launch startup business activities every year.

“If a citizen has an interesting business idea, he/she should apply to the Fund. The latter should assign an accountant, lawyers, economic, co-manager, required space and, the most important component, the Fund should allocate 20-80 thousand GEL loans without mortgages and guarantees or with very low annual interest rate of 2-3%”, the election promises of the Alliance of Patriots read.

It should be noted that similar calculations enable to appraise the issue skeptically, because there is no substantiation to prove the mentioned opinions. Moreover, the mentioned 2-3% is illogic interest rate and therefore, populism signs of these promises become more evident and manifest.

As to taxes, the Alliance assures that enterprises should pay only one tax due to geographical location of business. It should not be mandatory to hold cash registers and petite entrepreneurs should not have to submit any documentation and so on.

It should be noted that similar tax oasis puts the existing taxation model upside down and entirely contradicts the contemporary standards of taxation systems.  The Alliance offers to resolve problems of mortgagees through issuing long-term interest-free loans from the state budget. Naturally, this theme and in general interest-free loans are main subjects of populism.

As part of the healthcare reform, the Alliance of Patriots pledges to ensure free of charge hospitals, besides private paid hospitals. Naturally, any free of charge business supported by the Authorities directly hits the private business and in this situation its is unimaginable to develop the private sector.  To put simply, pledges by the Alliance of Patriots are unrealistic and unsubstantiated.

Free Democrats

Economic part of election pledges by Alasania’s Party seem unreal at one glance. For example,  no specific plan for growing the state budget by 4 billion GEL has been introduced. Their promises for minimum salaries are also unacceptable. Today salaries at the labor market are determined by the demand and supply. Consequently, strictly determined forms of minimal salaries will move a major part of salaries to the shadowy segment and similar changes will provoke other law violations.

As to Alasania’s pledges regarding minimal salaries, this component is very unclear from the standpoint of the mentioned heavy fiscal burden.

As to the ruling party, it should be noted that at this stage, they have not published an economic program and therefore, it is impossible to provide any appraisals.