The effects of price reduction on economy and minimum wage hike

The effects of price reduction on economy and minimum wage hike

The Turkish government’s discounts on electricity and natural gas prices, along with a hike in the minimum wage, have been a subject of debate. 

Sources close to the government claim these will not bring additional burden to the budget and the decisions will contribute to reducing economic problems as we head toward elections.

Sources close to the government do, in a way, accept that these decisions are election investments. The sources accept that the effect on the votes by the opposition’s pledge for a high rise in the minimum wage in the past elections was taken note of and the recent 26 percent rise aims to take away this trump card from the opposition hands.

The number of public officials getting paid the minimum wage is low, but this will increase tax revenues, argued an official, saying that the rise in the minimum wage will mean more income to the budget rather than a burden.

The burden of the minimum wage will instead be on the shoulders of the private sector, the official confirmed. He also admitted that the private sector will reflect this burden on the prices and that this will inevitably have an upward effect on inflation.

A source close to the government said a rise in the minimum wage has a psychological effect, and the pledge of the opposition that the employees of the municipalities will have a monthly minimum wage of 2,200 Turkish Liras will no longer hold significance in municipal elections.

The source admitted that the ruling party had to go along with the opposition’s “populist” promises and said: “I wish the opposition did not pave the way, but it did, and now this has to carry on.”

The effect of oil

It is also natural to see the reduction in the energy prices, according to the same source, who added that oil prices go around $58 against the expected $80, which provides a very important advantage.

It is therefore natural to have a reduction in natural gas and electric prices along with the reduction that are being done from time to time in fuel oil prices.

The source provided an extremely optimistic picture about global economic developments.

The U.S. Federal Reserve will not easily increase interest rates from now on, which will benefit countries like Turkey and the slowdown in global growth will come as an advantage to Turkey in 2019, the source believes.

Even if not at the same levels as the other developing countries, the government seems to expect flows from the funds to continue in 2019. It does not expect a major rise in foreign currencies. The source added that the banks’ situations are improving and a growth trend will be caught after the first sixth months despite some regression in the first half. Investments need to be revived, possibly requiring new arrangements for foreign direct investment. Otherwise, the source said, it will not be easy to eliminate the weaknesses in the economy.

My observation is that the government has a more optimistic outlook to the economic climate and is more hopeful of the elections.

Turkish economy, Finance, Turkey elections 2019,