The Difference Between Pragmatic and Practical

The Difference Between Pragmatic and Practical

 

As of yesterday, the new tax hikes entered into force. I expect that many mistakes will be made in VAT calculations, but as with any change, people will eventually get used to it. However, ever-increasing taxes on essential goods and services create a higher cost of living and make it impossible for people to save money.

 

Increasing taxes means taking back the raises recently made to public servants and pensioners pay. It is not possible to consider this as net tax revenue. It’s just that the revenue-spending scale is growing further. In fact, what the government needs is net tax revenue. In order to get it right, the welfare of the citizens must improve and businesses must make a profit. Any step taken without ensuring these two vital needs will have undesirable outcomes.

 

As I mentioned last week, the KKM (FX volatility-hedged TRY deposit scheme) has become the most suitable instrument for Turkish people under the circumstances. Their savings do not depreciate whether the exchange rates rise or fall. However, people will still struggle against the high cost of living. For instance, hedging against exchange rate risk does not work well for Turkish people who live abroad or have businesses abroad. KKM is a very risky instrument even for those who are working to send their children abroad for education, those who have established a business abroad, those who often travel abroad for business purposes, or those who find Turkey expensive and want to spend their holidays abroad at affordable prices.

 

However, exorbitant taxes and prices do not allow us to turn to another instrument. The fact that the KKM payments are transferred from the Treasury to the Central Bank also tells us that the amount of cash in the system will keep increasing. We are entering a process in which cause-effect relationships have become more and more complex, as the growth of bank money, rather than the increase in money supply, is fuelling inflation.

 

Given the circumstances and ineffective solutions that the Government is implementing, patience alone will not be enough to build a better future. It figures that the staff at the Ministry of Finance and the Treasury have practical, not pragmatic, ideas. Whether something is pragmatic or not is closely associated with the value and the advantage it creates. Every other idea, procedure or practice which may seem to work for a short term would be considered “practical”, but as their hindrances or disadvantages arise in the long term, it will be understood that they are not pragmatic at all.

 

I could say that the decisions put into action so far by the Government have been hardly pragmatic and accordingly I sense that the Central Bank must be under huge pressure before its next rate decision.

 

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