Eser Karakaş
Nov 24 2018

Turkish budget does not reliably reflect government's preferences

Budgets are important political documents, but this importance is mostly due to the fact that they reflect public-political preferences in democratic constitutional states. Budgetary effects on macroeconomic balances are more accidental. In fact, in well-governed, productive economies, there is no room for budgetary politics whether they may be policies of economic stabilisation, slow-down, or expansion.

In modern states, budgets account for between twenty and forty percent of the national income. For states with strong traditions of providing social welfare, the budget can exceed forty percent of the national income, but it rarely falls under twenty percent, even in states with low demand for social welfare.

The portion of the national income (value added) that falls outside of the budget is allocated through markets or central planning mechanisms; resources within the budget are allocated by parliaments in democratic constitutional states.

Although this introduction may come off as a bit of a lecture, I think it provides necessary background. I would now like to discuss the logic and process of resource allocation in the budget of Turkey.

The budget is a complicated issue in Turkey, and even the experts are having trouble muddling through it.

The first problem is that we do not know exactly how much of our national income is used for public resources every year. We have information on the size of the central budget and the national income, but this information is not very illuminating because every year there are significant discrepancies between initial allocations and finalized amounts. The same issue arises with projected and actual national income statistics.

Problems arise from the start, we have no idea how many resources we allocate for public needs, and as inflation rises to 25 percent these issues will be exacerbated as the unpredictable inflation further distorts the size of the budget.

This brings us to the changes public preferences for different public utilities over the past decade and a half. Here as well, there are challenges in administration and calculation, because although different ministries provide services that are grouped under the same category, we cannot identify all of the resources various ministries allocate to each service, and therefore cannot entirely aggregate this information. For example, when calculating the amount of resources distributed to education services in 2018, we know the value of services provided by the Ministry of Education, the Council of Higher Education, and universities, but we do not have access to the educational services provided within almost every ministry, as well as other entities included in the budget.

Nevertheless, we can rely on the data provided by the Treasury, as well as the 2019 Budget Justification to share the following information with Ahval readers.

The 2019 Budget Justification divides basic public services as follows:

Turkey Budget
Eser Karakaş

This table was taken from the 2019 Budget Justification and constitutes the most concrete information we have, but it still contains some issues.

For example, the budget of the Ministry of Religious Affairs, which garners significant attention in debates over secularism, is grouped with the unrelated categories of culture and recreation. Divinity schools should also be grouped under this category, but instead are folded into university budgets without differentiation. 

Functionally, it is very difficult to perform a true study and comparison of public services. The best course of option is to use the data presented in the budgetary breakdown, despite its shortcomings.

The table above presents the changing proportion of public services within the budget, from 2002 (the year before today’s governing Justice and Development Party—the AKP—came to power) until now. We can see in the table, for example, that environmental protection services have consistently accounted for an unchanging one tenth of a percent of the budget since 2002.

Public health services rose from 5.2 percent to 5.3 percent. Despite claims that health services have been expanded significantly, there was only a marginal increase, and the lack of reporting makes it impossible to track accurately changes in private health services.

Since 2002, education services increased by around four percent of the budget, rising from 12.4 to 16.3 percent. However, neither this increased percentage within the budget nor the increase in educational spending from the national income has improved the quality of education in the country. This arithmetically significant increase therefore does not seem to be reflected sufficiently in our society.

Defence spending, which accounted for 6.5 percent of the national income in 2002, fell by a noteworthy two percent of national income to 4.5, but then rose back to 5.5 percent in 2018, suggesting that the AKP will return to previous spending levels. The most striking increase in the table is the social security and welfare spending: the pre-AKP spending levels amounted to 14.7 percent in 2002, but under the AKP rose to 21.6 percent of the budget in 2018—an increase that amounts to seven percent of national income.

In a country like Turkey, treating the government budget as a document of public political preferences may be hypothetically correct, but is misleading in practice. Political forces in power transfer resources to their political supporters not through the budget, but through other mechanisms. The table above shows that although 2002-2018 corresponds to a period of political transformation, aside from social security and welfare (and perhaps public education), there were no significant changes in public allocations for public service categories.

The political preferences of the governing parties manifest not in budgetary instruments, but in rent production and distribution mechanisms. These preferences can be more successfully tracked through public contracts, incentive systems, public relief, tax exemptions and exceptions, land allocations, general allocation mechanisms, and selective employment policies.

Despite its opacity and shortcomings, the budget is ultimately subject to the oversight of the Court of Accounts, whereas public contracts, incentive mechanisms, allocations, etc are in large part free from oversight. For those that are not free from oversight, the government has significant discretionary powers, and the government therefore prefers these mechanisms for manifesting its public-political preferences.