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When the state privatized the tobacco and alcohol monopoly in 2004, for example, a consortium led by Limak acquired it for just $292 million. Two years later, the consortium sold it to a private equity firm for $810 million, which re-sold it five years later for $2.1 billion.
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The basis of Erdoganomics is unfairly burdening the urban middle class, which generally does not support Erdogan, through absurdly weighted taxation. Though always unfair, Turkey’s tax system has reached new heights under Erdogan. Two-thirds of Turkey’s public revenues are raised through indirect taxes. The 18-percent value-added tax and the special consumption tax—levied on petroleum products, automobiles, tobacco, alcohol and other luxury goods like smartphones—together contribute over half of all tax income.
While the special consumption tax reads like a tax on the rich, its burden falls mostly on Turkey’s middle class. Sixty-six percent of what motorists pay for diesel goes to taxes, but there is no tax on fuel for private jets and luxury yachts. More than half of the price of a smartphone goes to taxes, but diamonds and gemstones are tax-exempt. The special consumption tax alone makes up 40 to 60 percent of the list price of a car in Turkey, not to mention a half-dozen other taxes. The same holds true of services like cellular and broadband. Erdogan’s AKP-led government also uses taxes to advance its conservative, Islamist agenda: 73 percent on a bottle of raki, 68 percent on a can of beer and 65 percent on a pack of cigarettes. From early 2003, when Erdogan came to power, to October 2017, prices of raki have jumped by 665 percent and beer prices by 580 percent.
While Turkey’s middle-class consumers pay taxes with every card swipe, phone call and gas refill, corporations in Turkey enjoy hundreds of exemptions and loopholes. The law allows them to deduct almost every expense from their tax bill. Even then, many choose to evade taxes until the government passes a “tax amnesty,” as it does every few years, and then the companies get a write-off. Official data from the Turkish Revenue Administration shows that large corporations signed 538 tax settlements from 2013 to 2017, paying only 855 million out of 4.83 billion liras in taxes, or just 17 percent, and 41 million out of 3.1 billion liras in fines, or just 1 percent. Under Erdogan, inequality has skyrocketed. The country’s richest one-fifth hold almost half of its entire wealth, while its poorest one-fifth account for less than 5 percent of all wealth.
Meanwhile, Erdogan has used the state’s coffers to pay for the extravagant and expressly neo-Ottoman political and development projects designed to boost his legitimacy and please his base. Over the past decade, Erdogan cronies have substantially expanded their fortunes through public works contracts, privatization tenders, energy licenses, mining permits and media takeovers. From Istanbul’s gargantuan new airport to the Eurasia Tunnel underneath the Bosphorus, megaprojects under Erdogan have always involved a politically connected conglomerate like Cengiz, Kolin and Limak, often in sweetheart deals. When the state privatized the tobacco and alcohol monopoly in 2004, for example, a consortium led by Limak acquired it for just $292 million. Two years later, the consortium sold it to a private equity firm for $810 million, which re-sold it five years later for $2.1 billion.
As taxpayers fund cronies, the cronies fund the parallel welfare state that Erdogan has built for his voters through donations to his party, AKP-controlled municipalities and politically connected foundations. Some 15.5 million Turks, out of a population approaching 80 million, receive government assistance that exceeded $10 billion in 2017. Excluded from this figure are city-funded public programs that, in Istanbul for example, include billions every year on food stamps, neighborhood clinics, after-school programs and jobs training. Political loyalty is rewarded with such preferential treatment that Erdogan-friendly mayors don’t even bother hiding it. Earlier this month, Istanbul’s mayor boasted that neighborhoods that vote for Erdogan and the AKP in next month’s elections would be first in line for subway extensions.
Parallel to this welfare state are over 300 charities indirectly controlled by political interests loyal to Erdogan. All these charities have coveted tax-exempt status that requires Cabinet approval. Most of them are funded through corporate sponsorships, handouts from city governments and contracts awarded by ministries. Their boards include a who’s-who of Erdogan allies and associates. Every member of the Erdogan family also has his or her own charity, a pet project used to curry support with voters and advance the AKP’s Islamist agenda, through religious education and other programs. These foundations have also been mired in scandal.
If, as the sociologist Rudolf Goldscheid put it, “the budget is the skeleton of the state stripped of all misleading ideologies,” focusing solely on Erdogan’s political fortunes and posturing loses sight of the economic edifice he has built to keep himself in power. A sinking economy or volatile market may not stop Erdogan, no matter how high prices rise or how low the lira falls.
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