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    It is OK for them, but what about our government?

    Güven Sak, PhD17 September 2009 - Okunma Sayısı: 1105

     

    Medium Term Fiscal Program (MTFP) began to be shaped. Now we at least know that there exists a text on which an agreement is reached "within the government" in general terms. This is a positive development. Now we will wait to see what the general statements mean and whether or not these will be put into practice problem-free. Of course in the meanwhile we can start evaluating the existing parts of the document. Today, let us continue thinking on the fiscal discipline and fiscal rule concepts. In this context, it might be easier to evaluate the figures announced.

    Caption of yesterday's Washington Post reading that world's wealthy are paying a price in crisis and governments are tightening regulations. The paper says so because the FED and International Monetary Fund (IMF) have made great effort to secure that the recession in developed countries do not turn into a depression and create stagnation. They guided relevant governments in pursuing expansionary fiscal policies and distributing funds to stimulate domestic demand. They tried to compensate for the fall in international fund flows. They have leaded everyone in that "thinking off the box is normal in such period. The mission is not accomplished yet. The economic climate forcing us to think off the box has not ended. But the first wave did. It becomes clearer each day that the attitude was proper. This is good news.

    The attitude was not normal; but neither was the climate. Governments that rapidly adopted expansionary fiscal policies and increased public expenditures pushing budget facilities hard were more untroubled at the beginning. As no one demanded or extended credits, they were able to collect the liquidity without pushing hard on interest rates. Now however, an exit strategy from the existing anomaly is needed to reinvigorate private economic activities.

    The first point here is the issue emphasized on in Washington Post: Governments tend to increase the taxes incurred on wealthy. Why is this so? For two reasons I guess: First, there is a need for arrangements that will allow increases in revenues so as to compensate for the rise in public expenditures and debt stock. Second, until today only some certain sectors of the society have suffered from the burden of the crisis. Some sectors do not appear to have faced much burden. Therefore, increasing tax burden for some sectors and so reducing their incomes is reflected as legitimate in regard to public relation. Thus, generalization of the belief that governments act fairly is contributed to.

    In this context, governments of developed countries have prioritized measures against tax haven. Americans have signed agreements that will provide Switzerland to disclose more information on the wealth deposited there. A similar law code tightening the controls for those moving their wealth to tax havens is accepted in the European Parliament last week. In France, wages of financial sector employees were limited directly. Based on these examples, two points can be highlighted: First, countries that increased public expenditures rapidly and carefully during the crisis are implementing measures to increase tax revenues. Second, those measures are not imposed on all tax payers but only on those who are genuinely rich and who focus on tax planning.

    The situation in Turkey is an odd one. To begin with, the structural reform measures and the direction of the changes in the composition of public expenditures that will be used to achieve primary surplus target for 2011 is not yet certain. Besides, amount of total public expenditures is not announced either. However, it is possible to say that 2011 cannot be better than 2010 unless aided with a series of public expenditure measures. Second, in this context there is a need for a story determining how the share of budget deficit in national income will be reduced. Will public expenditures be limited? What type of expenditures will be lowered? Will tax revenues be improved; and if yes how? The text published at the website of the Treasury before the press release does not contain such details. Third point is: Developed countries that talk about tax measures are those who took the necessary actions yesterday. However, in the same period Turkey directed public expenditures to wrong areas leading to serious damage in the corporate sector. It is just pathetic that the government that did not follow the same path with developed countries until today does so when it comes to imposing burden on the society.

    We now have to go into details of the MTP.

    We are still at the same spot; those figures will seem more realistic in the presence of the IMF.

     

    This commentary was published in Referans daily on 17.09.2009

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