Is CHP Economic Program Realistic?

The Republican People's Party (CHP), the main opposition party, has provoked a passionate debate regarding economic promises in electoral campaigns, after promising quite sizable income support for disadvantaged groups.

The public debate is mainly about the public resources that would be needed in order to provide this income support.

As expected, the incumbent Justice and Development Party (AKP) claims that the CHP economic program is totally unrealistic because the public budget does not have the necessary resources to support the plans. Besides the issue of “resources,” there are other debatable issues in the CHP economic program, such as pledges of high economic growth.

The CHP did not integrate in its electoral program estimations of the social transfer projects that necessitate extra public expenditures and loss of tax earnings. The limits of this column do not allow me to enumerate the complete list of social transfer projects, but let me note the main ones. The CHP promises two months extra salary for retirees and a raise in retirement salaries, a minimum monthly income of TL 720 for households and TL 400 subsidies for nursery expenditures, etc. These plans, if implemented, would increase budget expenditures tremendously, for sure. On the other hand, the CHP promises fuel for farmers at a very low price by exempting fuel from high taxes. The party also pledges to exempt minimum wage earning from income tax. These kinds of promises would decrease budget incomes.

The CHP did not include an estimation of these extra expenditures and tax losses in its electoral program. This was its first error, I think. These estimations must be followed by policies that would allow a future CHP government to raise enough resources to finance these extra expenditures.

Theoretically there are three ways to finance them. One may accept an increase in the budget deficit if it is already low. This is the case in Turkey. The deficit was limited to 1.5 percent of the gross domestic product (GDP) in 2014. The CHP might have proposed allowing the deficit ratio to increase to 3 percent, the upper limit according to the Maastricht criteria. The CHP is rather vague on budget policy. It only says that it will be faithful to budget discipline.

The second way to finance the plans is with a reallocation of public expenditures. You can, for example, cut military expenditures and allocate the money saved to social expenditures. The CHP has said nothing about this kind of reallocation. However, after the publication of the electoral program, CHP leaders have been obliged to pronounce some tradeoff between public expenditures, like cutting luxury expenditures in the state. Some savings in expenditures are possible and legitimate, but they are far from enough.

The third way would be to increase public resources through higher GDP growth, either in addition to, or instead of, increasing tax revenues by squeezing tax evasion. The CHP's electoral program does not contain comprehensive tax reform but promises an effective fight against tax evasion. However, no quantitative estimation of the amounts of evasion is mentioned.

A pledge of higher growth seems to be the key response of CHP leaders concerning the need for extra resources. The CHP put its GDP growth target at 6 percent. The average GDP growth during the last three years has been quite low at 3 percent. Now, the AKP government has promised, in official economic programs, a growth of 5 percent, which is considered to be the limit of the potential of the Turkish economy. I agree. However, the AKP did not succeed.

I am ready to discuss whether a growth target higher than 5 percent is possible or not. In order to reach 6 percent growth, the CHP suggests increasing the investment/GDP ratio from 20 percent to 29 percent. Because, at the same time, the CHP promises to end the current account deficit, it promises to double domestic savings: from 15 percent to 30 percent. These aims are consistent but unfortunately no single policy has been proposed to account for the unbelievable increase of domestic savings.

To summarize, I fully agree with some of the income support promised by the CHP, such as the nursery subsidies and various scholar grants. Regarding the other income support, the CHP must do its homework and come up with accurate estimates of the amount of funds needed, the policies necessary to provide these amounts and a reasonable timeline for the implementation of the various kinds of support. I may also affirm that realistic claims regarding the current account deficit and domestic savings, and thus a convincing growth strategy, would have been sufficient for a good redistribution strategy. (SEYFETTİN GÜRSEL/Today's Zaman)