The limits of Turkey's budget

It is out of the question for Turkey to meet the genuine demand and need for public services (e.g., quality education, health, justice) with 17.5 percent of GDP.

Graph 2 of Turkey's 2024 Budget Justification shows that the 2022 central government budget expenditures, excluding interest payments, only reached 17.5% of GDP (Gross Domestic Product).

Graph 4 of the same Budget Justification shows that tax revenues 2022 reached only 15.7% of GDP. With such a small budget, neither a social democratic budget policy nor any other budget policy can be realized.

During budget periods, we sometimes read evaluations in the press or academia, such as "This budget is an enemy of labor" or "This budget is the budget of capital." From my point of view, with such small expenditure and income budgets, the material basis for such claims does not seem realistic.

These budgets cannot be pro-labor, but the alternatives do not make much sense either; these claims are slightly exaggerated.

The difficulty of assessing tax expenditures

"Tax expenditure" is a term used to refer to tax revenues that the state forgoes through legal arrangements, such as exemptions and exceptions, by inventing a legal basis.

The 2024 budget envisages a tax expenditure of around 2.2 trillion TL.

It is challenging to remark on the net tax spending, which approaches a quarter of tax revenues, even if we are aware of the 2.2 trillion TL tax expenditure. This information is in the Finance Ministry's records, but we are unable to access it.

1 trillion TL of the tax expenditures, which will reach TL 2.2 trillion in 2024, will come from income tax, 650 billion TL from corporate tax, and 400 billion TL from VAT and SCT.

But the Budget Justification text also states that they will attempt to stop using tax expenditures based on exclusions in the future. Therefore, even if they don't admit it, the Ministry of Finance is aware that this approach is absurd. Even yet, I don't think they'll be able to do away with these caveats and exceptions.

The overwhelming majority of these tax expenditures come from business and income taxes, which is obviously quite unpleasant. Even yet, it is difficult to conclude that the budget favors capital over labor.

The sincerity principle and inflation

At the beginning of this article, I mentioned that budget expenditures, excluding interest expenditures, will reach 17.5 percent of GDP by the end of 2022.

Table 2 of the 2024 Budget Justification states that 2023 non-interest expenditures will reach 23.2 percent of GDP.

One of the basic budgetary principles is the principle of sincerity in the budget, and it should be clearly stated that the increase in budget expenditures from 17.5 percent of GDP in 2022 to 23.2 percent of GDP by the end of 2023 can only be explained by earthquake expenditures.

In the same period, Turkey was officially stated to be in the process of fighting inflation. Still, it is very doubtful what fighting inflation can mean in a country where budget expenditures and deficits have increased significantly.

The budget deficit is expected to increase from one percent of GDP in 2022 to 4.4 percent of GDP in 2023, and with this fiscal picture, the meaning of fighting inflation is lost.

We are entering an exciting period for economists.

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