Sour Blackberries and Apples
Below is my Hurriyet Daily News column for this week, which you can also read at the Daily News website. I have had a cheesy title three weeks in a row, so I guess I am breaking my own rule of one-on one-off with cheesy titles.
I have quite a few things to add to the column, so there will be a proper addendum later in the day, but before that, let me provide you with some complimentary reading for the column: It turned out that Monday’s Daily News was largely devoted to the tax hikes. This wasn’t planned, i..e no one told me to write about that topic (my column was more about the MTP anyway), but it turned out really well, especially in the hard copy of the paper.
For example, there is a long piece about the PM’s recommendation to mere mortals like myself on dealing with the tax hikes in today’s paper, and Yusuf Kanli, a respected politics columnist (that’s two differences with your friendly neighborhood economist), has an aptly-titled column “Don’t ride in a Porsche” .
And to add some humor to all this, a Twitter follower had the following to say on my patriotism:
@EmreDeliveli I’d have called you ‘patriotic’ if you have increased cigarette and alcohol consumption instead of not buying a new Iphone
I totally agree, but as I tweeted him, I celebrated the tax hikes with a 35lik Tekirdag yesterday at Muhammet’s place (Sardunya) in Selimiye. Quite a few readers already cherish the place, so I even toasted for them as well:) But unfortunately, I don’t smoke. In fact, I learned about the price of a Marlboro only two weeks ago, on my way to pub-night at the British Consulate, when my friend there asked me to get one for him on the way. It was seven liras; I have no ideas how much it would be now:). Well, I’ll buy my friend another one before the next pub-night so that I “update” myself on the “updated price”, as Finance Minister was referring to the tax hikes…
Anyway, here’s what I have to say for the moment. Later today, I will be posting ad addendum, with today’s cigarette price hikes, latest data and more comments on the MTP, among other things. So on to the column:
For those of you who are not gadget geeks, I am not talking about fruits, but of cellphones.
I decided not to buy a new Blackberry smartphone, and it is not because I am frustrated with the email outage of this past week. In fact, despite the urging of my Apple fanboy friends, I have no intention of switching to an Iphone. But after learning from the learned Finance Minister Mehmet Şimşek that cellphone imports are behind the country’s current account deficit, I have postponed buying one.
The long-awaited 2012-2014 Medium-Term Program, or MTP, was announced on Thursday, and it brought along another round of tax hikes. The Special Consumption Tax on cellphones will be raised from 20 to 25 percent, a change that Şimşek says is to reduce imports and thus the current account deficit.
This is a huge disappointment. Back in the summer, the government was saying that the current account deficit would be addressed with a multi-faceted strategy, which would include improving the fiscal position, advancing the investment environment, increasing employment and making Istanbul a financial center, among other things.
Government officials and bureaucrats recently shared their enthusiasm for this last item at the Istanbul Finance Summit, but apart from a little bit of infrastructure build-up, we have until now seen a lot of talk, but no deed. Similarly, the MTP is vague on the investment climate.
As for employment, according to the macroeconomic projections in the MTP, unemployment is expected to decrease to 10.4 percent in 2012 from 10.5 percent this year. As any Turkish labor economist would tell you, even the MTP’s optimistic growth scenario would not be enough to reduce unemployment.
The MTP’s biggest disappointment is, however, fiscal policy. A small minority of economists, including your friendly neighborhood economist and the IMF, argue that Turkey’s current account deficit should be addressed with tighter fiscal policy. While the new fiscal path is certainly tighter than in the previous year, it is not strong enough to tackle the deficit.
Besides, all the extra savings in the budget are coming from the revenue side, namely tax hikes and privatization revenues. This is not encouraging, as recent research shows that expenditure cuts are more effective than revenue increases in addressing current account deficits.
As a result, it is not surprising that the deficit falls only gradually to 8 percent next year from 9.4 percent this year in the MTP projections. This only confirms what I have been suspecting, based on the recent actions of the Central Bank: That Ankara has given up on inflation and the current account in favor of growth. Officials will cross their fingers and hope that Turkey does not experience a sudden stop, or that higher inflation does not find its way to price-setting behavior.
As for my part, in addition to foregoing the sour blackberries and apples, I have also started getting up early to save on electricity, as Energy Minister Taner Yıldız was recommending on Thursday. I guess you could call me a true patriot.
However, I suspect that it is Turkish economic policymaking, and not the fruits, that have turned sour.
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