Since October 2021, the Turkish economy has been grappling with inflation and the economic damage it has caused. Although topics like foreign policy occasionally dominate the agenda, the sharp decline in purchasing power—particularly among the lowest-income groups—remains the most pressing issue. Combating inflation relies on two primary tools: monetary policy and fiscal policy. While monetary policy has been implemented stringently since the 2024 local elections, fiscal policy has seen insufficient steps taken to address inflation. The lack of coordination between these two tools has negatively impacted efforts to fight inflation. At the core of this dissonance lies the inability to control budget expenditures within fiscal policy.Although it may seem contradictory to the previous point, it can still be argued that disciplined fiscal management exists. Fiscal discipline has been one of the most defining economic features of the AK Party era. Despite adverse factors such as the economic downturn and the earthquake, budget discipline continues to be maintained. Thanks to this continuity, the public budget deficit in 2025 is expected to be 3.1% of the national income—a figure quite close to the 3% threshold set by the Maastricht Criteria, which Turkey once aimed to meet as part of its EU aspirations.This seemingly paradoxical situation is explained by a key factor: despite high public expenditures, balance is maintained through equally high tax revenues. Although it would be possible to achieve lower public spending and revenue levels, economic management has opted to keep both at elevated levels. The main driver of this elevated balance is the inability to control public expenditures. Unable to cut spending, the government is forced to increase tax rates to boost revenue.The increase in taxes has two adverse effects on inflation. First, rising public expenditures fail to reduce demand sufficiently, preventing inflation from declining rapidly. Second, high tax rates push up the prices of goods and services, driving inflation higher. In this context, the revaluation rate for public service prices being set at a high level of 43.93% further limits the decline in inflation. Additionally, some public services previously financed through direct and indirect taxes have recently been subjected to new charges. The two latest examples of this can be seen in last week's decisions.The first of these decisions involves the Revenue Administration’s new policy of charging fees for inquiries made by legal entities such as companies, chambers, bar associations, and notaries[2]. For instance, the fee for a balance sheet inquiry can go up to 518 TL. This means that inquiries, which were previously financed through existing taxes and should have been covered as such, now require additional payments as if public taxes were not already funding them. The second decision concerns charging fees for certain health reports. For example, citizens seeking a driver’s license report will now have to pay a separate service fee specifically for the report, in addition to the taxes they already pay.[3] These measures suggest an approach that resembles the re-taxation of nearly every service to fund public expenditures. The economic administration anticipates that tax revenues will increase significantly, exceeding the expected inflation rate in 2025. It projects that these revenues will rise by 46.5%, reaching 11.139 trillion TL.The sharp increases in public revenues and expenditures, as outlined above, complicate efforts to combat inflation and place a heavier burden on the Central Bank. Lacking sufficient support from the public sector, the Central Bank is compelled to maintain the exchange rate at its current levels for a longer period to fight inflation. This, in turn, leads to the spread of price anomalies—arising from the appreciation of dollar-based products—across broader segments of the economy, disrupting the balance. Additionally, the inability to reduce public expenditures negatively impacts inflation expectations. However, the high level of public spending does not only affect inflation. While public revenues represent an expense for taxpayers, public expenditures serve as a source of income for other groups. Considering the inefficiency of public spending, the effectiveness of this resource transfer is highly questionable. These issues collectively push us further away from a market economy, steering the system toward one where income and income distribution are centrally determined from the top.* Dr. Caner Gerek<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;"> 1 Venice Commission, Türkiye - Opinion on the composition of the Council of Judges and Prosecutors and the procedure for the election of its members, adopted by the Venice Commission at its 141st Plenary Session (Venice, 6-7 December 2024) CDL-AD(2024)041-e&nbsp;https://www.venice.coe.int/webforms/documents/?pdf=CDL-AD(2024)041-e2 https://www.ekoturk.com/haberler/gelir-idaresindeki-sorgular-ucretli-oldu-iste-en-dusuk-sorgulama-ucreti/3 https://www.ekonomim.com/gundem/ayakta-tedavide-katki-payi-10-kat-artirildi-aile-hekiminden-alinacak-bazi-raporlar-artik-ucretli-haberi-791970

The Freedom Observer

While public revenues represent an expense for taxpayers, public expenditures serve as a source of income for other groups. Considering the inefficiency of public spending, the effectiveness of this resource transfer is highly questionable. These issues collectively push us further away from a market economy, steering the system toward one where income and income distribution are centrally determined from the top.

Maastricht Criteria ile ilgili hikayeler