Türkiye absorbed fuel shock through tax cuts, says Şimşek

ISTANBUL

Türkiye’s fuel tax adjustment mechanism cost the budget 90 billion Turkish Liras, or about $2 billion, in its first two months, Treasury and Finance Minister Mehmet Şimşek has said.

Speaking during a television program, Şimşek said inflation would have risen much more sharply if the government had not used the sliding scale mechanism, known as “eşel mobil,” to limit the impact of higher fuel prices.

“The first two months cost us 90 billion liras. This is a serious figure, $2 billion,” Şimşek said.

“If a similar situation continues for the whole year, the impact will be around 600 billion liras. At today’s prices, we are talking about $13 billion to $14 billion.”

Şimşek said the war in the Middle East had caused a major energy shock in the global economy, but added that Türkiye was not facing a problem in energy supply.

He said Türkiye’s dependence on the Strait of Hormuz was low, though rising oil prices would still widen the external deficit and add to inflationary pressure.

“We are not on a separate planet. There is a very large supply shock in the world, and this will affect Türkiye,” he said.

Şimşek said the government had used the fixed special consumption tax on fuel products to absorb part of the shock instead of passing it fully on to consumers and businesses.

Without the mechanism, diesel would have reached around 90 liras per liter, compared with below 73 liras now, while gasoline would have been around 79 liras instead of about 65 liras, he said.

“We gave up special consumption tax through the eşel mobil system and limited the reflection of this shock on citizens,” Şimşek said.

“A significant part of the shock was not reflected on our citizens, companies operating in Türkiye, industrialists and tradesmen.”

Şimşek said the government aimed to protect purchasing power and business competitiveness, adding that the inflation impact would have been “much more dramatic” without the system.

“If we had passed the increase in crude oil prices directly to pump prices, inflation would have risen to much higher levels,” he said.

The minister said the measure was possible because of the government’s efforts to impose budget discipline, control spending, increase revenues and reduce the budget deficit last year.

“If we had not established serious discipline in the budget, made savings in the public sector and brought expenditures under control, we would not have had the opportunity to do this,” Şimşek said.