Inflation commentary from Mahfi Eğilmez: "The fight against inflation is nothing more than rhetoric"

The Budget Enigma

The table below shows the 2022 year-end figures, the 2023 initial and supplementary budgets, and the projections made with the Medium-Term Program (OVP):

This table has many interesting features. First of all, when the 2023 budget was being prepared, a 52 percent increase was projected compared to the 2022 budget. This means that an average inflation rate of over 50 percent was initially estimated for 2023. Since the initial budget for 2023 went into effect at the end of 2022, there were no appropriations for the earthquake, as it had not yet occurred.

Secondly, after the earthquakes in February, it was anticipated that the appropriations in the budget (and naturally the revenues) would not be sufficient, so a supplementary budget was enacted in July, and an addition equal to the budget expenditures and revenues (1 trillion 119.5 billion TL) was made. By law, revenue equal to the expenditures projected in the supplementary budget must be generated. In this case, the budget deficit remained the same (659.4 billion TL).

While there are some problems up to this point, let us set them aside and address the real major problem that has emerged with the OVP. If one pays attention to the table, the budget expenditure realization estimate in the OVP (based on the total of budget expenditures increased by the supplementary budget) appears to have been increased by 973.5 billion TL. In contrast, there is no increase in budget revenues. Therefore, the budget deficit is projected at 1 trillion 632.9 billion TL.

How will this additional 973.5 billion TL in expenditures be covered? While the 1 trillion 119.5 billion TL revenue increase from the supplementary budget has not yet been met, how will the additional 973.5 billion TL expenditure increase on top of that be financed, and how will this financing be budgeted? In developed countries, where the money collected from the public in the form of taxes and other means to finance public expenditures will be spent is shown down to the last cent and accounted for. In our case, let alone the expenditures, even how the revenue to be collected will be gathered has become an enigma (an incomprehensible matter, a riddle). Where will the 973.5 billion TL of additional revenue come from? Which tax will be increased and by how much? Will there be new taxes? We will only understand these when the omnibus bill arrives at the Parliament.

It is at this stage that inflation comes to the rescue here, just as it does in many other areas: The fight against inflation is nothing more than rhetoric. We can say that in reality, no such fight is taking place, and the real issue is using inflation as a tool. As long as the internal loss of value of the Turkish Lira is higher than its external loss of value, revenues rise, GDP appears higher, and the economy appears to have grown. In short, we can say that Turkey's fight against inflation is not real.

The answer to the question of whether the Grand National Assembly of Turkey (TBMM) can exercise its power of the purse has been negative for years, but I think it has never been this negative. The table above cannot even answer the question of why we are making a budget.

News Source: 12punto