Upon assuming the role from his predecessor Nurettin Nebati, Treasury and Finance Minister Mehmet Şimşek's initial pronouncements resonated with the public and market participants alike, signaling a pivot towards a more pragmatic approach in economic policies. While these declarations were interpreted by the public as an implicit acknowledgment that prior economic policies, particularly those steered by Nebati and Berat Albayrak, were lacking rationality, it became necessary to undertake tangible actions to substantiate Şimşek's commitment to rationality. The emergence of a new phase in Turkey's economic landscape, under the leadership of Mehmet Şimşek, infused optimism that appointments would be grounded in merit and that pragmatic policies would be promptly implemented, akin to the developments surrounding the appointment of Central Bank Governor Hafize Gaye Erkan.Indeed, the recent interest rate hike determinations made by the new economic team distinctly signal the abandonment of the longstanding notion that "interest rates are the cause, and inflation is the effect." This paradigm had previously posed a significant impediment to ushering in rationality within the economy. Furthermore, both Mehmet Şimşek and Gaye Erkan have consistently emphasized that the central objective of Turkey's novel economic approach is the curbing of inflation. In line with this objective, not only monetary measures such as interest rate hikes are being pursued, but also fiscal discipline within the public sector is being enforced.However, the public perception created by the term "savings" has raised the question of whether these policies will primarily target government institutions or citizens, given the connotation of austerity associated with it. In fact, one of the initial steps taken by Mehmet Şimşek's economic team has been to raise various indirect taxes, particularly the Special Consumption Tax. It's evident that the hikes in indirect taxes are aimed at consumers. Similarly, recognizing that the Special Consumption Tax functions as a negative externality tax and encompasses goods and services with limited price elasticity, it can be acknowledged that raising taxes on these products is a potentially "favorable" way to address the fiscal deficit generated through public sector savings.While Mehmet Şimşek has emphasized that these tax hikes won't be a recurrent practice, speculations about potential new tax increases often circulate on social media. Nonetheless, any such measures should be executed in a manner that mitigates the weight of austerity policies on citizens. Notably, this approach does not encompass escalating indirect taxes. <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 https://www.sozcu.com.tr/2023/gundem/tutuklu-ve-hukumlu-sayisinda-yeni-rekor-7566559/&nbsp;2 https://www.mfa.gov.tr/soru-cevap.tr.mfa&nbsp;3 https://www.bbc.com/turkce/haberler-turkiye-522697244https://www.sondakika.com/haber/haber-rtuk-tele1-ve-krt-ye-program-durdurma-cezasi-verdi-16211060/&nbsp;

The Freedom Observer

In fact, one of the initial steps taken by Mehmet Şimşek's economic team has been to raise various indirect taxes, particularly the Special Consumption Tax. It's evident that the hikes in indirect taxes are aimed at consumers.

Increases in various indirect tax items continue

The economic steps taken by governments in competitive authoritarian regimes have only one goal: to win elections. It is not surprising that this is the only goal in any system that does not depend on a certain set of rules, foresight, and long-term interests. Although the problems that we will scrutinize below overturn the free market rules, such populist practices will lead to only a short-term increase in the welfare of Turkish citizens in the current economic environment. However, the fact that all these moves, which temporarily increase the welfare of citizens, come before the elections show us that they are only aimed at creating an electoral economy.Populist moves will result in a permanent deterioration in the budget balance and an increase in foreign debt interest rates in order to meet the short-term welfare increase of citizens. In addition, the efforts to provide resources for all these populist economic moves are disrupting not only the labor market but also the job market, and the foreign investment figures that Turkey needs lag far behind expectations.The implementation of populist economic moves is almost the golden rule in competitive authoritarian regimes. However, how these moves will change voting behavior is not as such strict as one. In other words, although the changes in economic voting behavior require economic reasons, it should be considered that the result may be different from the one envisaged by the government. On the other hand, however different it may be for political power, the result does not change in terms of citizens’ long-term economic interests. The only result to be obtained from populist economic policies is backsliding on democracy and economic collapse.Erdogan's electoral economy practices are numerous and varied. For this reason, we will refer to this subject frequently in future bulletins. These illiberal economic moves may even form part of our newsletter. Since this is an introductory part, it will suffice to mention the most basic move below.

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