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Turkey finance minister: further tax cuts may be needed to boost growth

  • Economy hit by failed military coup in July
  • Turkey PM met heads of biggest banks to urge lower interest rates
  • Government is targeting growth of 4.4 per cent next year

Turkey may make further temporary tax reductions to try to boost flagging growth after a disappointing third quarter, in addition to its efforts to expand credit and bolster domestic demand, Finance Minister Naci Agbal told Reuters.

After the coup

Turkey’s economy has been hit by a failed military coup in July and uncertainty about the emergency rule imposed in its wake, which has made both investors and consumers cut back on spending. Ankara’s deepening involvement in the conflicts in neighbouring Syria and Iraq have added to the concerns.

Industrial production shrank 3.1 per cent year-on-year in September, prompting economists to cut their growth forecasts and making the government’s target of 3.2 per cent growth in 2016 look extremely difficult to achieve.

Bad quarter

“We are aware of the problem. The economy is slowing… The third quarter numbers did not come in well,” Agbal said in an interview in his office late on Thursday, declining to say whether the official growth target would be changed.

“The government is trying to use all possible instruments, including monetary policy, including macroprudential measures and fiscal policy measures, and we will continue to take any additional measures in order to give the economy some impetus.”

Interests and taxes

Prime Minister Binali Yildirim met the heads of Turkey’s biggest banks this month to urge them to lower their interest rates. The central bank has meanwhile cut policy rates at seven of its last eight meetings despite weakness in the lira currency, which has hit a series of record lows in recent weeks.

“At the ministry of finance, we are working on some tax measures, temporary tax reductions if possible, but at the same time we have to take into account fiscal discipline,” Agbal said, without giving further details.

The government is targeting growth of 4.4 per cent next year, but that also looks optimistic, economists say, particularly if Turkey holds a referendum on changing the constitution to create a more powerful presidency in the spring, as expected.

Investors fear the ruling AK Party will be too busy campaigning for the change, long wanted by President Tayyip Erdogan, to push ahead with its economic reform plans.

Amnesty plan

Agbal also said Turkey had collected an additional 1.7 billion lira ($520 million) so far under a tax amnesty which was announced on Aug. 4 and runs until Nov. 25.

A total of 54 billion lira in taxes have been restructured so far under the programme, he said, meaning the government’s final additional take is likely to rise significantly. Under the amnesty, debts can be cleared in cash within 36 months.

Agbal also said he was optimistic that a measure allowing people to bring assets held abroad to Turkey to invest in companies, property or banks without being taxed, would see a “huge amount of money” pour in, though he declined to say how much. The scheme runs until the end of 2016.