- Education and defence win
- Struggling agriculture faces cuts
- Possible rise in income tax
Turkey’s government is set to increase spending sharply in 2026, a move experts say marks the beginning of the country’s next election cycle.
Education and defence are the big winners in next year’s proposed programme for outlays and revenue, while agriculture will face cuts.
The draft 2026 budget, presented to parliament last week, set expenditure at $452 billion, a 28 percent increase on this year. Although this will be offset by revenue of $387 billion, up more than a quarter on the 2025 projections, the budget will still be in deficit by $65 billion.
Under the budget forecast, the Turkish economy will expand by 3.8 percent in 2026, versus projected growth of 3.3 percent this year.
Education has been allocated $69 billion, 15 percent of government spending, while defence and security will receive more than 11 percent for a total of $51 billion, with a similar figure set aside for interest payments.
The biggest single budgetary line was staffing, with $131 billion set aside to fund the wages and costs of state employees, representing a 65 percent rise in personnel outlays.
By contrast, while its lira-denominated allocation increased, spending on agriculture – including subsidies and tax breaks – fell marginally in percentage terms to less than a twentieth of all outlays. The sector is still struggling to recover from drought and frost damage that weakened output this year.
Turkish Vice President Cevdet Yilmaz said: “With our 2026 budget, we will continue our march toward a strong and prosperous Turkey, in line with our holistic development vision encompassing education, healthcare, energy, agriculture and industry.”
Turkish GDP
At least part of the spending will be funded by an estimated 65 percent gain in income tax revenue. This flags a potential hike in income tax rates, as the forecast increase is well above the 16 percent inflation projected in the 2026 budgetary papers, down from 33 percent in September.
Some of these increases may be felt by the public well before the effects of higher outlays, economist and commentator Mustafa Sonmez said.
The authorities are “already introducing new regulations such as increasing fines and taxes in order to reduce the budget deficit”, he told AGBI.
The wider budgetary deficit projection points to higher expenditure next year and beyond, a signal that the government may be preparing for the next election cycle, financial markets executive Iris Cibre said.
“The budget deficit expectation shows a 17 percent increase,” she said, adding that the government will raise spending because it is entering an election period.
Though presidential and parliamentary elections are not due until 2028, there has been speculation an early ballot may be called, Cibre said.
“Election spending has to start well in advance, so by the last quarter of 2026 spending is likely to begin so as to have an impact on the coming elections.”
There is concern that higher spending could add inflationary pressure, signalling an end to the tighter monetary policy the government and the central bank have been pursuing over the past two years.
Further reading:
Another potential sign that the policy position may ease could come as early as October 23, when officials at the central bank meet to discuss interest rates. Despite inflation increasing in September, there are expectations the bank will further reduce its key lending rate, currently at 40.5 percent.
The proposed budget comes against a backdrop of political and economic uncertainty, following a court order last month to remove Özğur Çelik, head of the opposition Republican People’s Party’s (CHP) Istanbul branch, over alleged electoral fraud. Çelik and the party have denied wrongdoing.
The court decision prompted widespread street protests and a sharp fall in the stock market, which dipped 5 percent in the following days.
A related court case involving the election of CHP chair Özgür Özel in 2023 is also expected to be heard this month, according to Reuters.