A new bag law tosses together a wild medley of economic fixes, our columnists say
1 Whither Albayrak?
Last week, a new bag law on the economy was referred to the parliament. This time, the announcement was made by AK Party Deputy Chairman Mehmet Mus instead of Treasury and Finance Minister, Berat Albayrak. The fact that the issue was not adopted by the relevant minister caused a little concern.
2 Have MPs even read it?
The proposal was signed by 76 deputies. Upon closer examination, it appears that many added their signatures in a rush. How many of these 76 people read the text before or after signing it? Why do they even need to read it? Well, at the very least they will have to talk about its contents in their districts and holiday resorts soon.
3 A weighty law
The law proposal, which reportedly focuses on the economy, consists of a total of 30 items, excluding those covering enforcement and execution. However, 15 different laws are being amended. It is clearly a densely packed law.
4 Unconstitutional regulations
Off the top, one of the outstanding concerns is that there are unconstitutional regulations in the proposal. In particular, the authority given to the executive body on tax and the revision of contracts on health-related “public-private partnership” (PPP) projects is not likely to be accepted according to the Constitution.
5 A lack of focus
The goal of the law is to wriggle Turkey loose from its financial troubles in the real sector stemming from the current national and international environments. Incentives for electric vehicle production and renewable energy are mentioned. Social security premium debts of Turkish citizens abroad are regulated. In some ways, a near-informal atmosphere is being created to increase revenue base. For instance, foreign assets brought to Turkey receive a tax amnesty. Of particular concern are regulations aimed at the CBRT which seriously undermine its independence. In short, the law includes a medley of regulations haphazardly brought together.
6 Short term fix, at best
The proposal includes very serious regulations. But for our economy, which is in crisis, very little of the law makes sense at this stage. The state of the country’s finances signals danger. Tax cannot be collected, state institutions cannot pay their debts, a large part of the budget goes to interest, priorities are not set in expenditures. There is no economic program, with specific goals and timeframes, to overcome the crisis. Therefore, such regulations cannot go beyond temporary measures but at the cost of long term stability.
7 Informality is encouraged
In Turkey’s current economic situation, what’s needed is to raise funds through taxation. But instead, this law does the exact opposite: it promotes informality in the economy. A revenue-based income determination is introduced for income taxpayers. In other words, it is envisaged that only 10 percent of the income (gross proceeds) of the income tax payer, which we call SME, will be taxable income. To cap it all, corporate taxpayers are also included in it.
8 Uncertainty without end
There seems to be no sunset on many of the regulations contained in this law. In other words, instead of aiming to grow and establish institutional structures, the opposite is being accomplished. The extent, quality and scope of powers delegated to the executive body in the regulations paves the way for arbitrariness in the future.
9 Increased stress on markets
The law presented to the parliament coincides with the dismissal of the Central Bank governor, which will undoubtedly generate pressure on the exchange rates and interest rates. These decisions, taken in advance of the July 25 CBRT Monetary Policy Committee Meeting, will increase stress on the markets. Nevertheless, the finance sector expects a serious interest rate cut.
10 Contradictions in messaging
New tax bills submitted to the parliament indicate that the public sector is in serious need of funding. New tax revenues are needed but tax regulations should be made only in the parliament. Imposing new taxes by presidential decree is unconstitutional. With this bag law, it was done correctly: MPs in Parliament will draft and vote on the tax bill. On the other hand, the public’s need for funding sources is clear and urgent. So, statements made earlier – suggesting there are no problems for this year’s financing –appear to be incorrect.