Turkey plans labor tax cut

ANKARA (Reuters) – Turkey’s government plans to cut tax on employment after a general election in July, the finance minister said yesterday, but he reiterated he would not allow budget targets to be missed because of the polls. Recent polls have shown the Justice and Development Party (AKP) gaining the most seats in the July 22 election. It has ruled in a single-party government since a landslide victory in 2002 following a financial crisis. «After the election, we will cut the tax burden on employment,» Finance Minister Kemal Unakitan told a news conference on Monday. Despite strong growth in European Union candidate Turkey – targeted at 5 percent this year – unemployment remains high, at 11.4 percent, according to the most recent data. Turkey’s major lender, the International Monetary Fund, has criticized sectoral tax cuts made by Ankara in the past, but analysts said reducing tax on employment could increase the tax base and cut the relative size of Turkey’s large underground economy. «An employment tax cut would obviously raise eyebrows at the IMF, but it is not such a bad idea, given the state needs to continue to raise the income tax base and bring more people out of the informal economy,» said Simon Quijano-Evans, economist at CA IB. Last month the government, which called elections early amid a political crisis, announced a 10 percentage-point cut in value-added tax on the crucial foreign currency-earning tourism sector – after months of lobbying from the sector – and another reduction for food. Economists said those moves looked like electioneering, although the government has continued to swear it will stick to fiscal discipline despite the election. John Lipsky, the IMF’s first deputy managing director, said late on Monday that the tax cuts were not particularly pleasing but he said no «break-the-bank» spending had been seen in the election runup. Turkey’s loan program is set to expire next year. Unakitan said again yesterday that it remained committed to targets. «Spending is exactly in line with the program,» he told reporters. «We will not allow the targets to be missed because of the election.» Unakitan also reiterated that the current account deficit – seen as a major weak spot of Turkey’s fast-growing economy – would continue to shrink, to a «significant degree.» In April the deficit – which is swelled by oil imports – came in at $3.13 billion, 20.4 percent tighter year-on-year.

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