ANKARA – Turkey’s government is preparing to boost wages and cut some taxes to support lower-income households that are battling high inflation, according to two senior officials familiar with the plan to tap the country’s relatively strong budget.
Turkey’s public finances are strong compared to emerging market peers, leaving it room for potential fiscal stimulus. The budget deficit has dipped to 1.5% of GDP so far this year, and is projected to be about 3.5% for this year and next.
The officials, who requested anonymity because plans are not yet public, said the fiscal support would aim to offset pressure on more vulnerable households from inflation running near 20%.
The Treasury and Finance Ministry declined to comment. Family and Social Services Minister Derya Yanik said on Monday that 2.5 billion lira in aid will be provided to ease fuel and electricity expenses for needy citizens during the winter.
Among the options being considered is lifting the minimum wage by more than the inflation rate, as well as providing relief on the rising cost of energy and raising the salaries for some civil servants, the officials told Reuters.
“There is a bit more tightness than there should be in the budget. This must be opened somewhat and a step will be taken in this regard (at least) from the start of next year,” said one senior official.
“Work is being done so that those with low incomes are impacted less by inflation,” the person added.
President Tayyip Erdogan faces tough elections no later than mid-2023 and his approval ratings have been hit by inflation, with staples such as food and gas recently jumping.
Under pressure from Erdogan for monetary stimulus, the central bank surprised markets by sharply cutting interest rates in the last two months, sending the lira currency to all-time lows and adding to price pressures via imports.
Persistently high inflation was long the bane of the Turkish economy, and vanquishing it was one of the main early achievements of Erdogan’s nearly two-decade rule. But prices are again rising and have been in double digits for most of the last five years.
The budget has held strong, however. In August, Fitch Ratings said Turkey’s public finances “continue to be a key rating strength”, noting the general government deficit will narrow to 3.9% of GDP this year, well below a 5.8% forecast for peers.
Turkey’s budget deficit to gross domestic product (GDP) hovered near 1% until 2016 when it began edging up to the government’s projected 3.5% for 2021 and 2022.
The 12-month budget deficit was 95.8 billion liras ($10 billion) as of September thanks in part to rising income and consumption tax revenues, according to Oyak Securities.