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Turkey: Budget
Country Study > Chapter 3 > The Economy > Role of Government in the Economy > Budget

BUDGET


Public-sector spending is the most important means of state intervention in the Turkish economy. The consolidated government budget comprises central government spending and a number of annexed budgets of such partially autonomous entities as the State Highway Administration, state monopolies, and some universities and academies. Local budgets and most SEE budgets generally are not included in the consolidated budget, nor are special and extrabudgetary funds. The most important of the latter are the Mass Housing Fund, financed from luxury-import duties; the Defense Industry Support Fund, financed from levies on sales of gasoline, cigarettes, and alcoholic beverages; and the Public Revenue Sharing Schemes Fund. The partially autonomous organizations are included in the calculations for the public-sector borrowing requirement (PSBR).

Since 1983 the Treasury, under the direct control of the prime minister's office, has had sole responsibility to raise domestic tax revenues. The Ministry of Finance and the SPO are mainly responsible for planning spending policies, but the minister of finance presents the annual budget to parliament, which approves the annual government budget and legislates supplementary appropriations as required during the fiscal year, at times making significant modifications.

Turkish governments have persistently run large budget deficits, which have fueled inflation, capital flight, and heavy foreign and domestic borrowing. At the heart of this problem is the political system, which tends to be largely unrepresentative even when democracy is formally operating. Prior to major elections, governments have been prone to boost spending, particularly salaries for government workers. Despite recent modest changes to this system, Turkish governments have been averse to increasing taxes to pay for their high spending. Taxes, excluding social security contributions, are still around 20 percent of GNP -- the lowest figure among the member countries of the Organisation for Economic Co-operation and Development.

Prior to 1980, local administrations had limited revenue-earning power and depended heavily on funds transferred from the central government. Even with such transfers, local governments were often short of funds needed to provide services required during a period of rapid urbanization when many city dwellers lacked even the most basic services. After 1980 reforms significantly strengthened the revenue base of municipalities, in part by providing that 5 percent of government tax revenues would be withheld at the local level. In 1994 Çiller also attempted to increase the revenues that local governments might raise.

During the early and mid-1980s, the government made serious attempts to reduce Turkey's inflationary budget deficits, implementing policies to streamline government, improve public resources allocation, and modernize the tax system. The government, for example, designed tax reforms to increase revenues and to reduce inequities. In addition, the introduction of a lump sum tax on small businesses and a new system of income tax payments for self-employed people reduced tax evasion. The government also started to tax farmers' incomes systematically for the first time since the 1920s. Other reforms strengthened tax administration, established new tax courts, and instituted heavier penalties for tax evasion.

Overall, the consolidated budget deficit declined during the 1980s as a result of the reform measures. During the decade, the deficit averaged 3 percent of GNP. However, the deficit went up in the 1990s, reaching 7.4 percent in 1991, 6.1 percent in 1992, 9.8 percent in 1993, and 8 percent in 1994. The 1994 figure includes a first-quarter budget deficit of 17 percent, which was sharply offset in subsequent quarters after the promulgation of the April 5 measures and tight supervision by the IMF. These measures more than reversed some of the increases in wages and other spending made in 1992 and 1993. Public-sector borrowing requirements have been much higher as a percentage of GNP. After averaging around 6 percent during the 1980s, they ranged from about 10 to 17 percent in the 1990s.

Data as of January 1995




Last Updated: January 1995


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Turkey was first published in 1995. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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