The MTP does not foresee an improvement in public savings. If public savings are constant while revenues increase, then the plan is to increase expenditures as well.

Two weeks I wrote, “When I finished reading the last Medium Term Program (MTP), I felt like I had watched a television show about how you can lose weight by eating.” The program claimed that Turkey would consume more and grow on the basis of domestic consumption on the one hand and save more at the same time. That’s why I thought I was misinterpreting something and said “maybe I should read the MTP document once again from the top” at the end. I checked the program for a second time to see if I had missed a reform program. I also read the recently announced Draft Bill on Income Tax, and the draft bill on 2014 budget law. At first sight, I sensed a mood of reformation and started wondering if Turkey was going on the Karatay diet. But it did not work out again in the end. Let me tell you how.

What is Turkey’s ambition today? To become a high-income country. This is the main meaning of the 2023 goals. During this process, Turkey will face three fundamental constraints:  The first constrain is the national education system, which is unable to furnish students the technical skills required by our time. The second is the judicial system in which seeking your rights is impossible and tyranny goes unpunished. The third is the Third-World-like budget structure that clashes with Turkey’s bright economic performance. Unless these three constrains are overcome, all efforts will be unyielding. Let me focus on the third one today. Around one quarter of budget revenues come from direct taxes, whereas the rate is around 70 percent across high-income countries and about 50 percent across middle-income countries. Turkey, a middle-income county which aims to make it to the league of high-income, competes with low-income countries with a 25 percent direct tax revenue in its budget. Turkey’s economy belongs to the First World whereas its public finances are in the Third World.

As I was thinking about this, a friend of mine called my attention to the draft bill on income tax that is waiting for codification in the Parliament. Was it then that I first wondered if the Turkish state is going on the Karatay Diet? Or was it when I heard the finance minister Mehmet Şimşek, claiming when announcing the new budget plan that they will limit the growth of the number of public employees, which currently is around 20 percent annually? I am not sure. But it has struck me. It actually is possible to lose weight by eating. The trick is to go on a new diet that requires you to change your lifestyle. The Karatay Diet is one that works. Its principles are very simple: avoid high-glycemic index food that instantly releases sugar, choose natural over processed food, and exercise more. For instance, the inflation of public personnel pool is like the high-glycemic index food. They instantly release sugar into blood, consuming from the energy needed for politics. Your blood sugar gives you the energy instantly whereas fats are waiting as a source of extra energy. In other words, the high load of public employees makes the economy sluggish, but brings you victory during the elections. It is for a reason that the number of public employees has been increasing by a double-digit figure. Although this issue was not addressed in the MTP, the finance minister said the increase will be limited in 2014. I guess it was when I read the budget proposal that my hopes for the diet increased.

Then I read the draft bill on income tax. Urban land profits will be subjected to income tax, as the draft bill suggests. There is a similar approach to construction revenues. It makes an effort at a more efficient taxation scheme for rental income. It limits exemptions for income earned from stock value increases. The content might be open to debate, but this indeed is a draft for structural reform. Let me tell you what it looks like: the essence of the Karatay Diet is to change your lifestyle and exercise more.  An attempt at a permanent change in the budget revenue structure and an objective to increase the share of direct taxes in budget revenues is a structural decision. It is a change in lifestyle. Turkey pursued a difficult diet in 2001 and 2002 and eventually lost the surplus weight. We have put weight back on and have become clumsy since then because we have failed to complete the second-generation reforms that will help us change our life style. Today changing our life style is the only way to become a high-income country. There is no other option.

What surprised me is that the positive influence of the will to change our lifestyle, as hinted in the draft bill on income tax, is sensed neither in the MTP nor in the budget proposal. The MTP does not foresee an improvement in public savings. If public savings are constant while revenues increase, then the plan is to increase expenditures as well. But I could not follow this arithmetic in the report. No, public savings are not increasing; only private savings are going up. Consumption, on the other hand, increases for both the public and the private sectors. What about the current account deficit, then? The math does not work for this plan. Either the state has to stick fully to the Karatay Diet or tell us how it will become healthier by eating all the sugar and drinking raki.

This commentary was published in Radikal daily on 25.10.2013