Country Report Turkey April 2011

Economic policy: Central government budget remains in surplus in February

The central government budget was in surplus for the second successive month in February, following a large deficit in December 2010 caused by a surge in government spending (February 2011, Economic policy). The budget surplus in the first two months of 2011 amounted to TL2bn compared with a deficit in the same period of 2010. The strong tax revenue growth recorded in 2010, as the economy rebounded from the recession of 2008-9, spilled over into 2011. Revenue from indirect taxes, and especially value-added tax (VAT), remained very strong. VAT collected on imports rose by 20% year on year in the first two months, to TL6bn, while revenue from domestic VAT was up 43%, at TL5.7bn. There was also a noticeable increase in corporation tax revenue, which was 45% higher than a year earlier, at TL6.3bn. Moderate expenditure growth reflected modest increases in both interest and non-interest spending, although some non-interest expenditure items recorded increases well above inflation, particularly personnel costs, which rose by 16% year on year, to TL13bn. However, only TL4bn was transferred to cover social security deficits, which was 22% lower than a year earlier, and agricultural support payments were 45% down, at TL1.1bn. Low expenditure on such items may not be sustainable or may not be maintained ahead of the general election in June. The 2011 budget law foresees a deficit of TL33.5bn, or 2.8% of officially projected GDP.

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