In the modern political agenda, governments are responsible for numerous elements that are directly involved with their citizens’ lives. As the legislative body of the country, the main duty of a government is to acknowledge the power they hold, and use it in the most optimal way possible to increase the wealth and wellbeing of the people they represent. Fiscal policy, which is how a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy, plays an important role in making sure that governments can stay flexible enough to successfully bring their plans and ideas into life, as it is directly involved with the budget a government sets for itself.
A successful fiscal policy must aim to cover certain things to benefit both the government and the citizens of a country. Policies that are too lenient or too strict can cause the overall happiness of a country’s citizens to decrease, and may even cause a domino effect to negatively impact economies by causing changes in the money supply. A consistent fiscal policy can help investors and businesses foresee what the near future holds. Therefore, in the era of opportunities, successful investments, whether it is done by governments or independent business, are a must for economic growth.
While this bombardment of formal info on fiscal policy may help understand the magnitude of the responsibilities a government holds, it sadly falls short of providing an accurate picture of the volatility of some governments around the globe. Regardless of all the theory that can be provided on how a successful fiscal policy must pan out, many governments prioritize self interest over overall welfare in their countries. For this article, I believe it makes sense to use my native country of Turkey as an example for volatility in fiscal policy, having lived through it myself for over 18 years.
While debating over the economic situation of Turkey, it is important to keep in mind the situation of the Turkish Lira (TL). The currency was introduced by the newly formed government shortly after the formation of the republic, and has been subject to interesting debates, as it was announced as the least valuable currency in the world by the Guinness World Records in 1995 and 1996, and again from 1999 to 2004. While this may sound like a fun trivial fact for the sake of making this article more colorful, it actually gives an accurate representation of the history of the currency, as it has been subjected to shifts in large magnitudes regarding the value of it.
Let’s look at things from an international standpoint. As of 15th of February, 2018, 1 Euro is equivalent to 4.71 Turkish Liras, which is 250% higher than the valuation of 2.05 Turkish Liras at the end of 2010. It is important to keep in mind the value of the TL against currencies such as the Euro, Dollar or the Yen, as Turkey is a country that is heavily dependent on imports in booming markets, such as the market for vehicles.
Owning a vehicle is considered a must for the average Turkish citizen. The country is built on long autobahns and countless car roads, as distances from point a and point b are usually too far away to cover by walking or biking. With addition to this, luxurious automobiles are at high demand, as many citizens prioritize the prestigious status they provide to their owners and even go as far as taking bank loans to complete their purchases.
The need for cars have taken its toll on the daily life of citizens as well. Istanbul, which is the most populated city in the country, on it’s own holds 4.3 million of the registered cars in Turkey, and the total number reaches as high as 22.3 million registered cars. Ever since reports started to surface regarding the amount of cars in the country reaching a level of discomfort, the government has been increasing the taxes for owning a motor vehicle. While this may seem like a reasonable method of combating the problem, it left a few question marks unanswered for me.
One major question left unanswered for me was regarding the level of increase in the tax itself. While increases in the prices of privately owned products are subject to change every year, Turkey has been subjected to drastic changes over the past few years. At the end of 2017, the private consumption tax for cars was increased to a whopping 110% by the Turkish government, a change from around 60% that was announced at the end of 2016. Something similar regarding alcoholic beverages occurred as well. Because of the heavy taxation on alcoholic drinks, Rakı, a Turkish alcoholic beverage, has more than doubled in price, and is being sold for lower prices in The Netherlands as an imported good, when compared to Turkey. So the question that dawned on me was a very simple “Why?’. What magnitude of government spending could cause an increase like this?
The second question I was left unanswered with was regarding the possible alternatives that the government provides in transportation. While the public transportation systems all around the country are available nearly 24/7, they cause inconveniences for citizens, as most of these vehicles still share the same roads as individually owned cars, and are subject to traffic just as much as they are , while not providing enough comfort for the citizen. With this, electric cars, which are favorable options when trying to avoid pollution, are subjected to similar levels of taxation as regular cars, in fact higher, at 110%. They are also not being imported as much as they should be, which further tarnishes their availability to the citizens. Several other transportation options such as bikes also hit the inconvenience wall, as distances are too grand to cover and bike roads in large cities like Istanbul stands at total lengths around 34 kilometers.
Looking at the situation at hand, it can be said that the Turkish government is still struggling to find a harmony between their goals and what they are doing to achieve them. While the increases of taxes for motor vehicles have slowed down the demand for luxurious items such as cars, phones and even alcohol, the pricing has been set too high for majority of the citizens to continue their lives comfortably. The unbalanced and exaggerated tax increases have also been subjected to criticism and accusations regarding corruption as well, which has further tarnished the reputation of the current administration. A forward thinking approach that focuses on finding investment opportunities, attracting foreign investors, improving relationships with countries that are close by, and helping the Turkish Lira seems like a must for the Turkish government to be able to find the flexibility they are searching for; while also keeping their citizens happy.