Hodge-podge

A new bag law tosses together a wild medley of economic fixes, our columnists say

Dünya Executive - - COVER PAGE - By Nevzat Saygiliogl­u & Emre Alkin

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.

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