We can back the measures against heating up by raising taxes on certain consumption goods.

Findings concerning the financial crisis in many countries suggest that the unemployment rate, which moves up along with crises, fall back to the pre-crisis levels way later than the recovery of the gross domestic product (GDP). According to a famous study, if the banking crisis is accompanied with a monetary crisis, the GDP achieves the pre-crisis level in average in 3.8 years. On the other hand, unemployment rate ameliorates a year later.

The pre-crisis peak of the seasonally adjusted GDP in Turkey was achieved in the first quarter of 2008. The peak was re-achieved in the second quarter of 2010, in two years and a quarter. This is quite a long time; but it is relatively shorter than the experiences studies reflected. Turkey did not simultaneously suffer from banking and monetary crises. In this context, this comparison might not be of significance for some. But I am just trying to give a broad picture. Seasonally adjusted unemployment rate has been moving around the pre-crisis 10 percent since February. Again in the light of international experiences, unemployment in Turkey recovered relatively rapidly, which is a favorable development.

One-time improvement

I will not address this development in the context of the economic heating up because I do not want to add a "but" and I talked insistently about the heating up issue this week and the week before. The central government budget also reflected a favorable outlook: it attained a surplus in the first half of the year. In same period in 2010, the budget had a deficit of 15 billion TL. I would like to draw your attention to another important development considering budget expenditures: interest expenditures decreased by 19 percent year-on-year.

Here comes the "but": the budget has enjoyed a one-time improvement indicating that the remarkably good performance will not be permanent. The "tax amnesty" law was enforced at the end of February 2011. This enabled a 8.3 billion TL improvement in budget revenues as of the end of June. This increase is expected to vanish after some time. Similar one-time movements can be observed also in other revenue items. I am not willing to drawn in details. The tax amnesty example proves the point to some degree.

In this context, it will be useful to announce the budget figures adjusted to temporary improvements and deteriorations in the performance. This process must also consider the improvement and deterioration in the budget performance caused by growth above or below normal. It will be of great use if the Ministry of Finance announces such data. If these data were published, for instance, we would be able to realize that in 2009 the budget did not deteriorate considerably compared to 2008 and that did not improve significantly in 2010 compared to 2009. Thus, we could have pursued healthier economic policy debates.

Tax base must be expanded

For a permanent improvement in budget revenue, reforms to expand the tax base are needed, as frequently discussed in this column. As you might remember, this complex reform proposal has a simple starting point: the ratio of Turkey's tax revenues to the GDP is almost 10 points below the OECD average. There is a large room to maneuver. On the other hand, in order to use this room, politically difficult reforms which involve fighting informality are needed.

Even if we start right now this task which is required but difficult to do, result will be obtained only in the medium term. In the current milieu in which high officials talk about the risk of crisis next door, one-time improvements in revenues can be used as an insurance mechanism for some time so that the high current account deficit does not come to the attention of our neighbors. For instance, we can use this additional revenue to reduce the debt ratio further. Additionally, we can back the measures against heating up by raising taxes on certain consumption goods.

This commentary was published in Radikal daily on 21.07.2011