Turkish Finance Minister defends tax hikes by pointing to increasing current account deficit

Turkish Treasury and Finance Minister Mehmet Şimşek has defended the recent series of tax increases by pointing to the growing current account deficit. He also said that the February earthquakes will create a burden of 761.7 billion liras on the government budget this year, amounting to 3.1 percent of national income.

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Turkish Treasury and Finance Minister Mehmet Şimşek has said that the government implemented the recent series of tax increases to close the growing current account deficit.

“The National Solidarity Package discussed at the parliament aims partially to reduce the effect of the additional costs caused by the earthquakes. The regulations in question will also implicitly support to keep current account deficit under control,” Şimşek tweeted on July 9.

Earlier this week, the ruling Justice and Development Party (AKP) submitted a bill to the parliament under the name of “National Solidarity Package,” to reduce what it said the financial burden caused by the Feb. 6-dated major earthquakes. The bill proposed doubling the motor vehicles tax (MTV) for vehicles. 

Afterwards, the government hiked the value-added tax on goods and services to 20% from 18% while it also increased tax collected on bank consumer loans, the country's Official Gazette said on July 7.

“We will support the Central Bank’s struggle with inflation by reinforcing the concord between the monetary policy and fiscal policy. We will lower our country’s risk premium by taking the steps to reduce the current account deficit,” Şimşek tweeted.

He said that the government’s expenses to reconstruct the earthquake-hit regions will reach 761.7 billion liras only this year, amounting to 3.1 percent of national income. “Within this framework, the construction of 179,000 houses in the earthquake region started. We plan to hand 319,000 residences to the quake victims in approximately one year,” he said.  

The series of taxes came after the government budget recorded a deficit of 263.6 billion liras ($10.21 billion) in the first five months of this year, compared to 124.6 billion liras a year ago due to increased spending ahead of May elections and the impact of February's devastating earthquakes in southern Turkey.

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Topics Turkey Tax increases Mehmet Şimşek Şimşek Turkish economy