Turkey is planning to collect a total of Turkish lira (TRY) 557mn ($17mn) in additional tax income by hiking the tax rate for contractors of public-private-partnership (PPP) projects to 30% from the current 25%, local news portal T24 reported on July 19.

The figures were shared by the government when its latest tax bill was sent to the parliament.

Forty four highway, bridge and city hospital construction contractors, will be affected by the change.

In its 2024 budget, the government has, meanwhile, allocated TRY 162bn for payments to the contractors in question.

TRY 5bn will be paid for the Eurasia Tunnel while TRY 74bn will be paid for the highways and bridges. The remaining TRY 84bn will be paid for city hospitals.

The actual payments will turn out to be dramatically higher than the budgeted figures as such payments are hiked four times a year based on the exchange rates.

Turkey’s government has provided a total of $153bn in income guarantees to PPP projects, including $78bn for city hospitals (to be paid from 2021 to 2045), $35bn for the Akkuyu nuclear plant project (2021-2035) being built by Russian contractors, $32bn for highways and bridges (2021-2042) as well as $7bn for airports (2021-2042), according to calculations made by Ugur Emek of Baskent University.

All of the $78bn sum will assuredly be paid to city hospital operators in the form of rent expended by the health ministry.

Some guarantees given by the government could possibly go unrealised if the projects concerned were to earn money. However, among the completed projects, there is yet to be a self-financing project.

The latest tax "hike" targeting the PPP contractors is part of an ongoing "fiscal tightening" campaign conducted by Turkey’s "orthodox" finance minister Mehmet Simsek.

In April, following the local polls held on March 31, the finance industry raised some concerns suggesting that Simsek’s fiscal policy was not supporting the central bank’s widely praised monetary tightening cycle.

In response, Simsek on May 13 held a press conference to release a “savings package” that was supposed to cut budget spending. He also gave a Powerpoint presentation.

bne IntelliNews noted: “The Erdogan regime is, however, not in a position to cut its spending. It has long-term contracts for mega-infrastructure projects and, what’s more, is among the most corrupt governments in the world.”

“Nevertheless, there are officials who indulge in accounting tricks with the budget figures that are coupled with fake GDP numbers to help cut the budget deficit to GDP ratio,” it added.

Wolfango Piccoli, co-president of political risk advisory at consultancy Teneo, meanwhile, noted: “Turkey [should] bring in important reforms, such as the removal of tax exemptions and savings from private-public partnership (PPP) schemes.”

In his latest tax bill, Simsek has addressed the demands regarding the PPP projects.

On May 15, the European Bank for Reconstruction and Development (EBRD) revised down its GDP growth forecast for Turkey, citing expectations of continued monetary and fiscal policy tightening in the face of persistently high inflation.

On June 2, bne IntelliNews noted: “Simsek’s talk of tightening is doing its job as the finance industry is noting in its analysis that he is applying a fiscal tightening policy.”

On July 19, when it hiked Turkey’s credit rating by two notches, Moody’s Investors Service noted: “Besides continued monetary orthodoxy we expect fiscal policy to be tightened significantly next year, with reforms to broaden the tax base and reduce the size of the informal economy on the agenda.”

So, while it’s largely just talk, it should perhaps be reiterated that Simsek’s talk of tightening is still doing its job.