Turkey’s dilemma: Dead men don’t pay taxes
Turkey, like other developing countries, is being forced to make tough decisions as it considers policy trade-offs to offset the impact of the corona pandemic.
The government in Ankara has chosen to prioritise the economy rather than public health. The disease is spreading quickly and it is uncertain how long the government can sustain this policy. Should the death toll increase beyond expectations, prioritising the economy would not only be inhumane, but would be financially counterproductive.
The crisis that Turkey faces has three aspects: Social, economic and public health-related. With limited financial resources, high unemployment and many workers vulnerable to layoffs, Turkey has elected to put the economy ahead of societal and health concerns.
On public health, the government has refrained from taking steps that would deter economic activity, particularly in manufacturing and exports. It has enforced daily curfews that do not include people between the ages of 20 and 65. It has restricted mobility between cities rather than within cities. To tackle the social crisis, the government has introduced narrow measures financed by extra-budgetary funds that do not provide sufficient financial incentive for workers to stay at home.
The measures that do not directly affect economic activity are implemented very strictly. Absolute curfews for older people and children ban them from stepping out of their homes even for shopping or sports. The general curfew enforced for this weekend and last also bans shopping. Consequently, Turks rushed out to buy food late on Friday when the restrictions were suddenly declared two hours before they were to come into effect.
Although the virus has affected Turkey relatively late, the government has failed to take lessons from other nations and adopt a comprehensive policy framework to deal with the pandemic. The infection is spreading quickly and the death toll is growing. Should the current increase in mortality and infections continue, the health system would finally collapse, and Turkey would have to belatedly reverse the decisions it has taken.
Against this backdrop, the government is attempting to tackle the economic aspect of the crisis with measures designed to keep the wheels of the economy turning, such as postponing tax payments, introducing short-employment schemes, and extending cheap loans in the hope that it will sooner or later collect delayed revenue.
However, considering the seriousness of the public health risk, many economists find this approach short-sighted and counterproductive. Well-regarded fiscal expert Ozan Bingöl even argues that the government will eventually declare a tax amnesty.
The underlying reason behind Turkey’s ill-advised policies is the political ambition of President Recep Tayyip Erdoğan and his son-in-law, Treasury and Finance Minister Berat Albayrak. This picture is reminiscent of the so-called principal-agent problem of autocratic regimes. Erdoğan depicts the coronavirus crisis as an opportunity for his country, while the general public sees the outbreak as a tragedy. Erdoğan argues that the world order enabling Western powers to exploit the rest of the world will not be sustainable after the crisis and Turkey will thus emerge stronger.
In this regard, Turkey has also joined a soft power race with Russia and China to send medical supplies and other aid to many affected countries. Erdoğan showcased his own political position by labelling the aid parcels with the presidential coat of arms. The aid was also used in government PR campaigns to persuade people that Turkey is in better shape than more advanced economies.
A conflict of interest has also played a role in Erdoğan’s policy decisions. The companies close to him who built and now operate large infrastructure projects already enjoyed comprehensive Treasury guarantees. Turkey’s limited bail-out package of 100 billion liras ($15 billion), if maintainable, will prove ideal for such firms as it would keep the budget deficit at manageable levels and prevent an interruption in state guarantees that provide them with financial advantages over the competition.
In the fight against the pandemic, Erdoğan has refrained from generously mobilising public resources as he does during election periods. The prime minister turned all-powerful president has always turned elections into a life or death issue and boosted social expenditure both formally and informally. Now, confronted by a genuine life or death situation, the government sends lemon cologne and masks to the elderly, accompanied by a personal presidential letter.
Erdoğan may be calculating that there is much time until the next presidential and parliamentary elections, which are due in 2023. Three years is indeed a long period in Turkey because the political agenda changes rapidly and Erdoğan depends on his ability to switch gears when needed.
Before the outbreak, Turkey was already experiencing a social crisis triggered by high unemployment. As of January, there were 5.3 million jobless people and about 1 million who were ready to work, but had lost hope of finding a position. The number of unemployed people who could not find work for a year or more has increased by an annual 25 percent to more than 1.1 million. The government's fragmented measures against COVID-19 are now pushing businesses to fire more workers. It has responded by passing legislation that bars redundancies for three months but allows firms to put workers on unpaid leave.
Public discontent may increase as unemployment rises and more lives are lost. A jump in unemployment will intensify competition for jobs. Some people may start to believe that only those close to the government can find work or receive social benefits. Perhaps foreseeing this situation, the government is not disclosing the terms of financial aid or loans provided to companies in order to retain policy flexibility. Erdoğan knows that he should keep the hope of his supporters alive and manage expectations.
The government appears to believe that if the economy keeps ticking along, the funds at its disposal will prove sufficient to ensure Turkey’s financial survival without outside help. But now it seems clear that this assumption is way too optimistic, given weak demand for exports and the seriousness of the health crisis.
At this point, the viable option for Turkey would be to turn to the International Monetary Fund for help. But asking for money from the fund contradicts with the government’s attempts to sell Turkey as a financially strong country able to wield significant regional and global political influence.
The illusion will not last long. The spread of the disease in the workplace will not only affect the working-age population but older people and people with chronic conditions that workers live with. The government has demonstrated indifference towards the lives of political prisoners by excluding them from a mass-release amnesty this month. But the real possibility of surging mortality rates resulting from a collapse in the country's health system would not be tolerated and could prove politically catastrophic.
Sooner or later, people will react against the government’s laissez-faire approach to dealing with COVID-19. It will then be forced to take backward steps and consider stricter measures, likely resulting in a sudden stop for the economy.
In conclusion, Turkey's attempts to keep factories open and the economy running at the expense of public health and society risks more death and hence less money. Dead men don’t pay taxes.