Even if it’s been a month since the government reduced the VAT on food products to 1% and “wanted” the same reduction on the markets, the shelves remain expensive. Tax economist Prof. Dr. Duran Bülbül has made remarkable statements regarding the inflation that has paralyzed the citizens and what needs to be done. Speaking to Yusuf Körükmez of Aegean Clock, Bülbül said: “Turkey’s main problem is the lack of production. Either way, the government has no policy to reduce inflation,” he said. Körükmez’s questions and Prof. Dr. Bulbul’s answers are as follows:
– Why can’t the government stop rising inflation? If this rate of increase continues in this way, what kind of problems will arise in front of Turkey?
The main reason for inflation in Turkey is due to costs. In other words, Turkey’s inflation is cost inflation. One of the reasons for cost inflation may be due to imported intermediate goods. However, this is only a partial cause of inflation. Turkey’s main problem is that it does not produce. It will not be possible for an economy which cannot produce intermediate goods and which relies only on rent to solve its macro problems. It is not possible for an economy that cannot produce productive inputs such as oil, power and natural gas to solve this problem permanently. Moreover, an executive policy such as “Interest is the cause, inflation is the result”, which is not included in economic theory, will make no contribution to the solution of inflation. and will further increase inflation.
“THE POOR IN TURKEY MAINTAIN THE EXISTENCE OF THE RICH”
The policy of reducing inflation by lowering interest rates has created a very different and negative picture of the economy. Currently, we are facing a situation that cannot be explained by economics. The inflation rate is 61%, the Central Bank policy rate is 14%, the Treasury borrowing rate is 27% and the market rate is around 26%. With such a policy, the state is driving down Turkish currency holdings in real terms. However, some people’s money is protected by exchange-protected deposit interest and this difference is covered by Treasury taxes. For example, the money paid for quarterly currency-protected interest is around $13 billion. This money is paid by the taxes of the people. The poor fund the rich.
In short, the poor maintain the existence of the rich in Turkey. It is not possible to solve Turkey’s inflation and other macroeconomic problems with these policies. Anyway, the government does not have a policy of reducing inflation.
“DUE TO THE UNSCIENTIFIC ECONOMIC POLICIES OF THE GOVERNMENT, IT IS NOT POSSIBLE TO DECREASE INFLATION”
The duty of central banks around the world is to ensure price stability. This is to avoid inflation. However, the Central Bank’s monetary policy has been seriously pacified and completely committed to the government’s unscientific policies. It is therefore not possible to reduce inflation. If this continues, it will be inevitable that Turkey will face hyperinflation in the periods to come.
Continuing inflation in this way and dealing with hyperinflation will lead to further impoverishment of the country’s population, a real decline in tax revenue and government spending, and a more skewed distribution of income. In fact, this will lead to the deterioration of all macroeconomic balances.
– Citizens cannot agree, there are queues for bread, oil, sugar and meat. As he questions what could be worse, he encounters new challenges. Is it worse than the current situation? What awaits Turkey?
If the Turkish economy, as mentioned above, cannot solve the problem of inflation and does not adopt an economic policy to increase production, impoverishment will be greater and people’s access to food staple foods will gradually disappear.
“GOVERNMENT JUST SAVES PRINTING MONEY”
The only policy produced by the state is to print money to save the situation and prevent the fall in purchasing power caused by the rise in prices. Even though printing money relieves workers for a short time, it causes them to become poorer in real terms with higher inflation after a while.
The Turkish economy ranks high in the world in terms of interest rates and is among the top ten countries in terms of high inflation. It is inevitable that the dollar will exceed 20 TL at the end of the period with these policies. In international reports, it is stated that 2022 will be worse in terms of economy.
Contrary to expectations, it is stated in various reports that the “currency-protected TL term deposits” did not decrease dollarization.
If Turkey’s inflation in 2022 continues like this, it will exceed 150%. As the dollar exchange rate increases, the stock of external debt will gradually increase. Only Turkey’s external debt, which must be paid in 2022, is around 170 billion dollars. This is an indication that the macroeconomic balances will be much more deteriorated in the coming days. In summary, when we look at the macro indicators and the values, it is clear that 2022 will be a very problematic and difficult year in terms of the economy.
A 7% discount on food will not have a positive impact on food prices, which have tripled in recent years. Even if it has a positive effect for a very short time, it will mean nothing compared to the increased costs of energy and other inputs. The increase in the PPI will be reflected in the CPI after some time. It will not be possible to offset the sharp price increase caused by a 50% reflection on the CPI with a 7% discount.
“THE TAX STRUCTURE IN TURKEY IS AN INJUSTICE”
Mainly, VAT rates on energy prices and production inputs should be reduced. Therefore, since there is a significant difference between the PPI and the CPI, such VAT reductions will not be a permanent solution to inflation.
The tax structure in Turkey is unfair. The main example is that the share of indirect taxes in total taxes is around 65%. Indirect taxes do not capture ability to pay and are instead progressive. This situation will worsen the income distribution of the country whose income distribution is skewed. Therefore, the country that emphasizes the welfare state must first correct this situation. Furthermore, the removal of VAT rates on commodities used by middle and low income segments is a necessity of understanding the welfare state. In conclusion, from the point of view of economic and fiscal policies, Turkey is not a social state.
“VAT BURDEN SHOULD BE TAKEN FROM THE LARGE NUMBER AND TRANSFERRED TO THE HIGH INCOME GROUP”
We are told that radical changes are needed in our tax system. In the current ordinance, the burden of VAT remains with the final consumer. While businesses pass on the VAT they pay, the final consumer, ie the citizen, bears it. Is there a need for change at this stage?
Value added tax is technically an averaging transaction tax. In other words, it is a tax levied at each stage from production to consumption. However, the tax collected at each stage is ultimately transferred to the consumer. This situation both increases the burden on the consumer and increases current prices even more.
There is a need to seriously renew the tax system in Turkey. The tax system must be fair. Care should be taken to ensure that the burden of VAT is borne by the entire population and shifted to the high income group. However, fundamentally, a tax system should be based on income. The basis of taxes is the ability to pay. A heavy tax burden in Turkey falls on middle and low income groups. A system should be put in place to ensure a fair distribution of the tax burden between income groups. The way to achieve this is to increase the share of direct taxes in total tax revenue.
“TURKISH ECONOMY IS IN STAGFLATION”
– The term is pronounced “inflation”, but people are familiar with stagflation, ie the negative aspects of inflation and deflation are felt together. Wouldn’t it be more correct to use the term stagflation at this point?
Stagflation, which means high inflation accompanied by stagnation, is an economic problem that has emerged all over the world, especially during the oil crisis of the 1970s.
The stagflation crisis that emerged at that time would of course be different from the current situation. However, there is severe cost inflation in the Turkish economy today. In particular, the increase in energy prices, which is an important input in production, will further increase Turkey’s inflation rate in the coming periods. Moreover, the poor exchange rate and interest rate policy applied by the Turkish economy creates much more negative results. If rising costs lead to higher prices, they also reduce the possibility of producing at high costs, causing stagnation and unemployment. Experiencing these two problems in Turkey reveals stagflation. In fact, if no action is taken against this situation, it is inevitable to encounter the much worse problem of slumpflation. Slumpflation, on the other hand, is inflation in an economic depression. Therefore, it is possible to say that the Turkish economy is in stagflation. In fact, slumpflation should come as no surprise unless action is taken and global liquidity is also reduced.