Wealth tax should be levied
WHAT IS THE COST OF EARTHQUAKES FOR THE ECONOMY?
The cost is estimated between USD 50bn-100bn in the long-term considering production losses and infrastructure investments. There is a serious manufacturing industry in Gaziantep and Kahramanmaras that should be considered. Malatya is an important export hub. Iskenderun is an important port for the region. Earthquakes also affected surrounding cities. The international press reported that there is substantial immigration from Syria to Turkey. This will also create an impact. It’s too early to evaluate all these effects but the cost won’t be less than USD 150bn. It will emerge in an 8-to-10-year period. This is a significant amount for the Turkish economy when it is compared with the gross domestic product (GDP).
HOW WILL THIS DAMAGE BE RELIEVED?
There is no cash to relieve this damage. Interior Minister Suleyman Soylu also mentioned that there is a significant decline in aid. Although people mobilize and sacrifice a lot, contributions start to decline after the government steps in. It’s impossible to overcome this process without people’s support. Taxes will obviously be collected as there is no resource to finance it. But tax rates are already high and there is a serious inequity in taxes. The rate of indirect taxes is higher than the rate of direct taxes. The Special Consumption Tax for automobiles is a serious problem. It seems difficult to impose additional taxes in a period when people aren’t pleased with these factors, in addition to high inflation and poverty. However, one thing can be done. Income distribution has highly deteriorated and there is a great wealth transfer. I think that the wealth tax can be imposed at this point. It will also balance income distribution.
CAN YOU SPECIFY YOUR WEALTH TAX PROPOSAL?
The richest 1% and the richest 10% take a very high share of the wealth created in Turkey. The rate is quite higher in Turkey than in Europe. That’s why the wealth tax, which will ensure equality in income distribution, should be levied. It’s necessary to mention its extensions. We are transforming into an economy that continuously creates an unearned income. The construction move started more than 10 years ago. It’s impossible to design a development model which is based on the sector that creates such unearned income. I read an interesting article. 83% of building demolitions are carried out in the countries with the highest corruption. There is a serious correlation between corruption and buildings of poor quality and buildings collapsing in earthquakes. As corruption increases the quality of buildings decreases. Because bribery mechanisms step in at many stages. There is one more thing that has been experienced especially in the recent period. We’ve made it official through the government with zoning amnesty. We should abandon this economy that creates unearned income. Otherwise, we won’t be able to construct qualified buildings and head toward an economy with a solid infrastructure.
HOW WILL EARTHQUAKES AFFECT MACROECONOMIC INDICATORS?
Economic contraction is inevitable. The share of the quake-hit cities in the economy is less than the share of the provinces hit by the 1999 Marmara Earthquake. The Marmara region constitutes a 65% share of the economy. That’s why it can be considered that the Kahramanmaras earthquakes won’t create an impact on the market. However, we also have to take the concerns in Istanbul following these quakes into account. In Istanbul, a lot of people has started to apply for land survey and quality control for their buildings. New construction sales and their addition to the housing stocks seem impossible in such an environment with lack of confidence. The foreign trade deficit and current account deficit, on the other hand, break records. Moreover, I have concerns whether tourists will visit a country that has experienced such quakes. That’s why I think that there will be significant losses in tourism revenues. Considering all these factors together, the services sector will suffer in general. 2023 will certainly be a year of loss. Hopefully, we’ll start to recover by 2024.
WILL TURKEY RECOVER?
Turkey had a good growth level in 2000 after the 1999 Marmara Earthquake. But the European Union (EU) membership process was supportive on the positive ambiance and there was resource inflow from Europe. But we experienced one of the most serious crises in our history in 2001. A permanent recovery wasn’t ensured. We moved forward with the restructuring of our economy in the following period. Today, the minimum wage employment rate reaches 60%, indicating a serious level of poverty in the economy. I think that it will deepen further with the slowdown in the manufacturing industry.
WILL THE NEWLY INTRODUCED REGULATIONS FOR THE STOCK MARKET ELIMINATE THE UNJUST SUFFERING OF EARTHQUAKE VICTIMS AT BORSA ISTANBUL?
The management of the economy introduced new regulations for healthy pricing in the stock market such as increasing the share of equity funds in the Private Pension System (BES), and incentive to promote stock buybacks. I don’t think that they can eliminate unjust suffering. For instance, stock buyback has become a factor that raises a serious wealth transfer. Considering the companies based in the quake-hit regions that are quoted on the stock exchange, I don’t think that they can carry out stock buyback transactions in such an environment. The tax exemption for stock buybacks doesn’t look like the right step. It becomes a factor that accelerates wealth transfer further. The supports on the BES side look like measures, which have been taken to strengthen Borsa Istanbul. However, it’s hard to sustain the stock exchange with the transfer of resources from the public sector.
“The cost of the earthquakes may reach USD 150bn in the long run. Income distribution has highly deteriorated and there is a great wealth transfer. The wealth tax can be imposed at this point to relieve the damage.”