Mehmet Şimşek: The main reason for the high cost of living is high rents.

The Minister of Treasury and Finance, Mehmet Şimşek, spoke at the "MÜSİAD 2024 Year Assessment and 2025 Year Expectations" program.

In his speech, Minister Mehmet Şimşek mentioned that the budget deficit was limited to 5.2% last year, stating, "There is a limit to monetary policy and fiscal policy; therefore, we prioritize production and exports."

Minister Mehmet Şimşek also talked about measures to ensure a fair distribution of the tax burden, emphasizing that they prioritize the examination of large taxpayers and those who have reported losses for years, and mentioned that there will be sectoral field audits in 2025.

"THE TAX BURDEN WILL BE DISTRIBUTED FAIRLY"

Stating that the budget deficit was limited to 5.2% last year, Şimşek also mentioned measures to ensure a fair distribution of the tax burden: Budget discipline is important; we had to take measures last year. No one wants high taxes, I understand, but if we hadn't taken those measures, the consequences would have been more severe. We limited the budget deficit to 5.2% last year. There is a limit to monetary policy and fiscal policy; therefore, we prioritize production and exports. There are measures to ensure a fair distribution of the tax burden.

"THE NUMBER OF RENTED VEHICLES IN THE PUBLIC SECTOR DROPPED BY 16%"

We prioritized the examination of large taxpayers and those who have reported losses for years. In 2025, our priorities will be large taxpayer audits and sectoral field inspections, focusing on taxpayers with low sectoral profitability ratios. We have reduced the number of rented vehicles in the public sector by 16%. Turkey's gross external financing need is decreasing. Our goal for 2025 is for disinflation to be more noticeable and for structural transformation to accelerate.

"TURKEY WILL BE LESS AFFECTED BY UNCERTAINTIES"

Minister Şimşek stated that part of the new period's uncertainty is sourced from the USA, mentioning that everyone will be affected by the uncertainties of the US trade policy, but Turkey is expected to be less affected: After World War II, rule-based mechanisms were established. There is a move away from rule-based, i.e., free trade. Industrial production in the USA has not increased in the last 25 years. GDP and consumer spending have increased tremendously, influenced by China.

Due to competition with China, fragmentation in global trade is now the new normal. Sourcing from friendly countries has become a significant trend. The index of global trade policies has reached serious dimensions, reflecting what kind of changes will occur in customs tariffs after January 20.

Part of the new period's uncertainty is sourced from the USA. Everyone will be affected by the uncertainties of US trade policy. Some countries will be less affected, while others will be more affected. It is expected that we will be less affected. The impact of the new US trade policies on us could be significant due to the redirection of Chinese exports. It will affect all of us. Perhaps you will point to the program as a reason, showing the developments inside. If the new US administration acts on what it said before the elections and increases customs tariffs on China by 60%, this could seriously affect us indirectly.

"THE DOLLAR CONCERNS US ALL"

Şimşek mentioned that the fluctuations in the dollar also affect Turkey, discussing the uncertainty in the markets:

The dollar concerns us all; it is a global currency. The fluctuations in the dollar affect us; we import raw materials in dollars and export in euros. Changes in the exchange rate affect our competitiveness. If trade wars start, it will negatively impact growth. Therefore, these are structural; we do not know; there is uncertainty.

"THERE IS A SUPPORTIVE ENVIRONMENT FOR THE TURKISH ECONOMY"

Mehmet Şimşek mentioned that there are supportive environments for the Turkish economy and program in the short term: Both the European Central Bank and the Fed may lower their interest rates. This positively affects the global funding cost in the short term. Long-term borrowing rates are on the rise, reflecting uncertainty. There is an increase in geopolitical tensions. Financial markets seem to be indifferent to this. They think the effects will be limited or there is a disconnect. Markets appear to be insensitive to geopolitical developments. In the short term, there are those who may be affected. In the short term, there is a supportive environment for the Turkish economy and program. The world is facing significant issues. There is fragmentation and protectionism in global trade. The environment with long-term interest rates is a source of problems. The world population is aging.

"OUR CREDIT RATING WILL CONTINUE TO INCREASE"

Minister Şimşek also mentioned that the current account deficit in Turkey has decreased, stating that the credit rating will continue to increase: The current account deficit in Turkey has dramatically decreased, which is good news. This means we will borrow less from abroad. Our reserves have increased, and vulnerability has decreased. Turkey's risk premium has decreased, affecting borrowing rates. KKM reached a peak of 144 billion dollars, with a decline of over 110 billion dollars from that peak. We genuinely want you to believe in this program. As long as we continue to implement this program, our credit rating will also continue to increase. There is a limit to monetary policy and fiscal policy; therefore, we prioritize production and exports.

"THE TARGET IS TO REDUCE INFLATION TO AROUND 20%"

Minister Şimşek also stated, "Turkey's total debt-to-GDP ratio is 95%. The world average is 346%. Turkey is advantageous in this regard."

He mentioned that the target this year is to reduce inflation to around 20%, and that they plan to reduce inflation to around 10% by 2026: Our goal for 2025 is for disinflation to be more noticeable and for structural transformation to accelerate. We will continue to ensure budget discipline. The disinflation process has begun. Our target is to reduce inflation to around 20% this year, around 10% next year, and then to single digits. There is significant rigidity in inflation in the service sector, and breaking this rigidity will take time.

While the price of goods has increased by 36%, why has headline inflation reached 44%? Because we lifted the upper limit on rent. If we consider all services, it has increased by 66%. Service inflation is more rigid and higher than we anticipated, and it has just started to react. There are several factors behind a few percentage points of deviation, but the picture is very clear. With the disinflation program, we have established our forecasts for 2024-2026. There was a few percentage points of deviation in the first half of last year; we believe this will be compensated in the second half of this year. Therefore, this inflation will decrease. To support the Central Bank of the Republic of Turkey, fiscal and revenue policies must be implemented.

"RENT IS THE MOST IMPORTANT COMPONENT OF THE HIGH COST OF LIVING"

Minister Şimşek stated that it is a priority for low-income citizens to purchase their first homes, continuing his statement: Access to housing for our low-income citizens who will buy a home for the first time is our most important priority in this period. Rent is the most important component of the high cost of living; therefore, we will place great importance on this area. As the effects of the earthquake diminish, we will direct the largest portion of the resources to the housing supply channel.

We will take all measures to increase housing supply. Increasing food supply is also one of our priority areas. There is significant subsidy in energy, we are continuing it, both in electricity and natural gas. We prioritize renewable energy.

"WE SUPPORT EXPORTS"

Stating that exports are one of the biggest priorities, Minister Şimşek also added that they support exports and investments without disrupting budget discipline: We have reduced the rediscount credit, and if possible, we will reduce it further. We did not increase the corporate tax for exporters; on the contrary, we reduced it. Recently, we decreased the rediscount credit cost from 35% to 30%, while the Central Bank of the Republic of Turkey (CBRT) reduced the interest rate by 250 basis points; our priority is production and exports.

There are some sectors that are struggling; we have developed solutions for certain sectors through KOSGEB, such as premium support and financing support. We will continue to support our farmers strongly. We cover 70% of the interest on the loans used by farmers from the budget, and we have a budget allocation of 160 billion TL in 2025. Agricultural production, the agricultural sector, and our farmers are important to us. We also support our tradespeople, increasing our support to 60 billion TL for 802,000 tradespeople. We support exports and investments without disrupting budget discipline.