Prof Hayri Kozanoglu, renown economist and one of the leading left-wing intellectuals of the older generation writes for the daily BirGun. He addressed the question of how the excruciating cost of quake recovery ought to be financed. This is a question on which both Erdogan and the main opposition Nation Alliance have been silent.
PATurkey editors speculate the if Erdogan wins again, the financing will be divided between domestic bond issuance and hikes to indirect taxes such as those collected on alcohol-tobacco, gasoline and imported luxury consumer items, such as smart phones.
If the Nation Alliance wins, it is more likely to rely on international sources. Prof Kozanoglu suggests that wealth and income tax surcharges on the top-tier rich would be more appropriate.
These are his views:
Since the society showed a serious determination of solidarity in the face of this great disaster, no one should object to fair taxation, when it comes to healing the wounds.
On the cost of the February 2023 earthquake, the World Bank, various banks and research institutions published reports based on different assumptions. However, the most comprehensive and detailed of these studies was the Post-earthquake Evaluation Report of the Strategy and Budget Office of the Presidency (SBB). In this article, we will base our views on the SBB report. In short, the report projects a daunting cost of 103.8 billion dollars.
Housing damage alone accounts for 54.9% of the total cost caused by the earthquake. This item corresponds to 5 percent of the national income in 2023. The total cost reaches up to 9 percent of GDP.
It should be noted that financing reconstruction, repairs and additional social welfare payments will be spread over time, that is; they do not have to be raised in a single year with the internal and external financing opportunities to be provided. However, it is clear that we are still faced with a very large bill.
GO AFTER THE DEEP POCKETS OF THE RICH
115 billion TL has been collected within the scope of Türkiye One Heart Campaign; a donation drive organized by the government. TL 30 billion of this comes from the Central Bank, which had to transfer its profits to the Treasury. TL 39 billion came from state banks. In other words, 90 billion of the money collected belonged to public institutions. In other words, the money was transferred from one pocket of the state to the other. As a matter of fact, last week, Ziraat and Halkbank increased their capital by 30 billion TL and Vakıfbank by 32 billion TL, closing the circle.
Meanwhile, on March 21, a Disaster Reconstruction Fund was established. The AKP government formed a new structure under the management of 7 ministers, without any planning or systematic work, and which, of course, cannot take a step without taking instructions from the President. It is stated that the income sources of the fund will consist of donations, aids, grants and loans, since they do not want to frighten any segment that may be taxed towards the election. The fund is already dysfunctional, as it is only possible to get a loan if the Fund were to generate income that will pay back the principal and interest, which would defeat its purpose.
So, where can the income sources be obtained to finance the losses of the earthquake? Here is a quick answer; Whoever has the money, whoever has made great profits in recent years. Let’s say from the word go that it is not to be collected from the working class, whose share in national income has gradually decreased, from 30.1 percent in 2021 to 26.5 percent in 2022. The wealthy, which represent the share of capital in value added, seized 54.5 percent of the pie in 2022. That is, profits, rents and interest have grown astoundingly under Erdogan’s regime.
As can be seen, there is a huge amount of income sources that can be taxed to cover earthquake costs, embedded in excess bank profits, stock exchange gains, profit made from house sales and over 190 billion of FX deposits in commercial banks.
Since the society showed a serious determination of solidarity in the face of this great disaster, no one should object to fair taxation.
In addition to tangible assets, there are also tangible liabilities. A fair rate of taxation should be designed with an understanding that aggregates all wealth as much as possible and is calculated on net figures after liabilities are deducted.
Since the costs of the earthquake will be spread over time, the tax policy should be designed in a way that will reach the goal in the medium term, without opening the door to expropriation of wealth and disruptive reallocation of financial capital from the private sector to the public.
Presidential candidate Kemal Kilicdaroglu and the Nation Alliance should not think of beginning their administration by raising tax revenues from indirect taxes paid by the working masses, as usual, without taxing the capital and rentiers significantly. The socialist opposition, on the other hand, should continue to press for more fair and egalitarian policies on the new government after the election.
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