We could have tightened the budget further to save means for rainy days and to reduce the current account deficit. We still can.

The budget balance is affected severely by the general outlook of the economy. For instance, in phases of rapid economic growth, tax revenues increase even if the decision makers made no concrete attempt to this end. On the other hand, when the economy contracts, budget transfers grow depending on the prevalence of social policy decisions. For example, budget expenditures increase due to the rise in the unemployment payments. Since the relevant laws define the preconditions and amounts of such transfer expenditures, certain falls or rises in expenditures occur automatically regardless of new economic decisions.

Revision of figures

Therefore, budget figures are revised in order to understand whether the changes in the budget deficit resulted from the general outlook of the economy or from a change in the economic policy. For instance, the corrected budget takes into account the level of tax revenues that would have attained if the economy had grown more slowly than the actual pace in the year in question. Many developed countries issue corrected budget figures alongside the initial budget balance.

The main reason for the issuance of corrected budget figures is not to satisfy the "academic curiosity".  Apparently such data is of significance for academic research. But corrected budget figures have another important function. For example, under "fiscal rule" practices, some part of the budget revenues in an economy which grew faster than a pace considered to be normal is saved for "rainy" days or used to reduce the level of debt.

'Hormone-injected' balance

There is another critical dimension about the corrected data, more importantly about the issuance of it. This applies particularly in countries which live with high current account deficits. Those responsible for economic policy administration and implementation in Turkey have recently been highly complainant about this phenomenon. That the high current account deficit is financed by short term capital inflows elevated complaints further.

On the other hand, we know that the current account deficit has two components: the difference between the investments and savings of the private sector, and the difference between the investments and the savings of the public sector which we can call the budget deficit. We cannot expect any economic policy to change the first component in the short term. But it is our call to change the second component, that is, the budget deficit.

The moral of the story goes as follows: Figures at hand might be pointing at a pleasing budget balance. However, given that the economy grew at a substantially high pace in 2010, we should note that the mentioned balance is not that pleasing but a bit "hormone-injected". We could have tightened the budget further to save means for rainy days and to reduce the current account deficit. We still can.

This commentary was published in Radikal daily on 22.03.2011