The articles and opinions on the TEPAV website are solely those of the authors and do not represent the official views of TEPAV.
© TEPAV, all rights reserved unless otherwise stated.
Söğütözü Cad. No:43 TOBB-ETÜ Campus, Section 2, 06560 Söğütözü-Ankara
Phone: +90 312 292 5500Fax: +90 312 292 5555
tepav@tepav.org.tr / tepav.org.trTEPAV is a non-profit, non-partisan research institution that contributes to the policy design process through data-driven analysis, adhering to academic ethics and quality without compromise.
First of all I have to apologize. I do not remember exactly how many columns I have written on the senselessness of automotive sector tax cuts. I argued that it will not have effect on domestic production and will increase imports. I maintained that through domestic production increases at a certain level, this will happen temporarily as people will backdate automobile consumption to benefit from price advantage. I said that rather than using budget resources in this area, budget resources would rather be transferred to poor sectors that will by domestically produced goods, for instance to unemployed. This way, I said, social justice would also be protected.
However, I understand that tax cuts had a purpose I never thought of. That purpose was temporarily increasing automobile sales regardless of whether they are produced domestically or abroad. I see the plan was that following the tax cats, fuel and diesel oil prices would be raised and automobiles, the number of which increased as a result of the tax cut, would consume more fuel and diesel oil. As a result, budget revenues would increase immediately. I could not guess they had such a farsighted plan.
Please think this way: Budget deficit reached record high levels. Furthermore, debt stock of the public sector has jumped up to skies. Everyone says and writes that the economic program being implemented is not sustainable. As a result, risk perception has fallen down and real interest rates are heading up. This pushes up the interest you have to pay for your debt and further deteriorates the budget balance revealing the concerns of unsustainability. It is a typical vicious circle. Under these circumstances, there is only one thing you can do: To change the perception.
However, this change cannot be ensured by giving an order reading "Everyone will suppose from now on that the risks are lower". You have to take radical steps and spread the perception that "decision makers are now coming to heel; this time they are serious". The way to do this is to advance upon the main reason behind the existing risk perception. That is to say, to convince people that the budget is sustainable, it is necessary to discipline the budget. You will tighten the expenditures as much as you can and try to increase tax revenues by the easiest way possible.
To be clear, we need a firefighting operation. The situation was the same after the 2001 crisis. It was necessary to discipline the budget as soon as possible. Therefore, a series of immediate measures including raising the prices of various commodities were implemented. You know what came next: Budget deficit that reached record high levels at the end of 2001 was almost met as of the end of 2006. Public debt problem almost disappeared.
It was time to make the recovery of budget permanent. In other words, reforms would be implemented in areas which would turn into bigger problems in the future. Budget discipline would not be ensured through price or tax raises but through sustainable structural reforms. And therefore, for instance, social security reform was launched. At the preparation stage, other priorities came into prominence. Reforms were suspended for the sake of the elections which were already definite to be won and instead practices that would deteriorate the budget but increase the possibility of winning the elections were introduced. Therefore, Turkey entered the global crisis with a budget rapidly moving in the direction of deterioration. Let us go back to the 'moment'. There are two reasons behind the gradual increase in the budget deficit.
First is cyclical; as national income falls down, tax revenues fall down. However, there is a second reason as important as the first one: health and social security systems are on red alert.
Upon the years and efforts following the 2001 crisis, we are back to square one: We do not advance on the fundamental problems but carry out a firefighting operation. What is more, four months after the implementation of tax cut decision, a decision in the opposite direction is made.
Can such a zigzag in economic policy achieve the required confidence? What do you think is more important for us as voters: your winning the elections or improving our welfare level? Do we really deserve these?
This commentary was published in Radikal daily on 19.07.2009
N. Murat Ersavcı
27/03/2024
N. Murat Ersavcı
07/12/2022
N. Murat Ersavcı
06/03/2022
Güven Sak, PhD
26/01/2022
Güven Sak, PhD
30/11/2021