Turkish government’s 45-billion lira pre-election employment drive on shaky ground

News About Turkey - NAT
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By Zulfikar Dogan

With weeks remaining until Turkey’s March 31 local elections, the ruling Justice and Development Party (AKP) is well aware of the danger that public discontent with a year of weak economic performance could translate to a serious loss of votes.

The party has scrambled for months to provide incentives to voters, including subsidised energy bills and cheap fruit and vegetables to ease the strain of 20-percent inflation. But the latest AKP move, an initiative that promises to put as many as 2.5 million unemployed Turks back in work, may prove to be cripplingly expensive.

The government announced similar drives before the constitutional referendum in April 2017 and last year’s presidential and parliamentary elections. On both occasions the government promised to pay the social security and income tax of 1 million new employees for one year.

This time the government has upped the ante even further, promising the same benefits for one year for up to 2.5 million new workers, but this time also offering benefits to their employers.

During the previous campaigns, President Recep Tayyip Erdoğan called on 1.3 million private sector businesses to each take on one new worker, but without adequate investment to justify so many new employees, the rise in employment figures proved short-lived.

Under pressure thanks to the devaluation of the lira and interest rate rises that sent the economy into crisis last year, businesses in many sectors saw a sharp decrease in demand, leading to lowered production and, consequently, staff layoffs.

Together with the rising number of businesses that have been forced to close down or seek bankruptcy protection, this has led to a 12.3-percent rise in unemployment, according to official figures. That adds up to 3.9 million people unemployed, and 6 million in total who do not work.

That adds up to a lot of people who can benefit from the employment drive. But it would also amount to massive costs for the government.

Minister of Labour, Social Services and Family Zehra Zümrüt Selçuk has stated that in the new employment drive the state would not only pay for new employees’ social security and income tax for a year, but would also cover their wages for the first three months.

Thus, having already pressured banks to lower interest rates and extend more credit to businesses, the government is now also putting pressure on employers to take on more staff. The artificial creation of 2.5 million new jobs will cost the state billions.

Going by Turkey’s minimum monthly wage of 2,020 lira ($378), plus the 986 lira in social security and income tax, the unemployment insurance fund would potentially end up paying 22.5 billion lira ($4.2 billion) for 2.5 million new workers. Employers will be saddled with a similar amount to pay in wages for the remainder of the year, adding up to a total expense of 44.7 billion lira ($8. 4 billion).

The unemployment fund is already straining under the weight of payments to 684,355 people, including unemployed benefits claimants, whose numbers have risen by around 50 percent to 650,000 since last year. The total annual payments according to these figures will reach 8.2 billion lira ($1.5 billion) by the year’s end.

The fund’s expenses have also greatly increased this year with a massive jump in part-time workers’ benefits. Just six people claimed these in January 2018, but last January this rose to 21,056 claimants. Likewise, benefits paid monthly to those seeking bankruptcy protection jumped from 1.6 million lira in January 2018 to 15.79 million lira in January this year, as the number of claimants increased from 334 to 7,394.

The 128.5-billion lira ($23.87 billion) fund’s income, which comes from monthly contributions from workers and employers, came to 2.7 billion lira ($500 million) in January. According to the figures above, this amount would not cover the monthly expenses incurred by the unemployment benefits and employment campaign, forcing the fund to dip into its cash savings.

Just over 8 percent of these savings are held in bank deposits, with the remainder held in Treasury bonds. The interest from these in the year up to January 2019 amounted to 10.9 percent. But the domestic producer price index over the same period showed an inflation rate of 32.9 percent.

The huge difference between the interest accrued by the unemployment fund and the market rates of between 24 percent and 29 percent indicate that the Treasury has been taking advantage of the fund’s cash reserves. In October, 12 billion lira was transferred from the fund to the state-owned Halkbank, Vakıfbank and Türk Eximbank. Now a further 45-billion lira from the fund has been earmarked to go to the government’s quest for votes in the March 31 local elections. Businesses are also expected to bear the expense of paying new workers’ wages for nine months.

It is doubtful, though, whether in the current strained economy many of those businesses will be prepared to go along with this. Meaning that this time, the AKP’s plan to boost its chances in the election with an employment drive could well misfire.

Source: Ahval News

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