Fatih Özatay, PhD - [Archive]

Seventeenth biggest 13/07/2009 - Viewed 1558 times

Automotive sector market data for June was announced. Now it is time for intellectual monitoring. Tax cat was implemented for the automotive sector effective as of the mid March. It is obvious that the mentioned sector is important for Turkey in particular when considered together with its sub-industry. A slack in the sector affects the economy as a whole. Despite the importance of the sector, however, I argued immediately after the implementation of the tax cut that the decision is wrong. Because, we exported a large proportion of the automobiles we produced. The decision however had no effect on export prices. On the other hand, a significant proportion of the automobiles sold within the country were imported. The decision led to a reduction in the prices of imported cars as well. In that case budget balance, which is already deteriorated, became worse due to the sacrifice from a tax item. However, this sacrifice was beneficial more for foreign automobile producers.

Table -1 gives comparatively the production and import figures for the first six months of 2008 and 2009. The result is not so different than what I argued about the tax cut. We have imported more automobiles in March, April, May and June 2009 than in the same months of 2008 where the impacts of the crisis were not being felt and export performance was not affected.

It is also obvious that the pace of fall in production has eased. There is no doubt that, in the light if this; it can be argued that the decision for tax cut was not wrong. But, two points must be noted: First, we have proponed automobile demand which would most probably be spread all over the year. When the decision steps out, automotive sector will face even lower demand. Second, if we had made the same budget sacrifice in another policy area, we would have stimulate domestic demand more, would not we? The answer to this question is obviously 'yes', as I already discussed several times in this column (for instance by increasing the amount of benefits paid to the unemployed). This is the real critical point considering the tax cut.

In fact, it should be quite obvious that important decisions must not be made 'on the run'. However, if you have taken part in economic administration for a while, you terrifyingly see that it does not work that way. For instance, a critical statement can be made without notifying the relevant minister. Then, you are in a pretty scrape. Ideal case is before making a decision assessing it with possible impacts and then comparing those impacts with what is targeted. If the possible impacts do not seem to fulfill the target, it is necessary to seek new alternatives. Acting out of this ideal case does not suit well to the 'world's seventeenth biggest economy'.

Table 1: Automobile production and import levels (units)

This commentary was published in Radikal daily on 13.07.2009