Mehmet Şimşek Signals No New Tax Hikes as Türkiye’s ‘Disinflation Gains Ground’

Türkiye’s economic leadership is signaling confidence at a delicate global moment. Treasury and Finance Minister Mehmet Şimşek, speaking on NTV in an interview with Ahmet Ergen, pushed back against speculation of tax increases and defended the government’s multi-layered disinflation strategy.

His remarks go beyond routine policy messaging. They offer insight into how Ankara sees global capital flows, fiscal consolidation, and inflation dynamics intersecting with structural reform in 2026.

Global Risk Appetite Outpaces Growth

Şimşek began with a broader view of the global economy, describing it as more resilient than headlines suggest.

“The global economy is quite resilient despite the uncertainties we are experiencing and some structural issues in the system architecture. It grew by 3.2% last year. Given the significant uncertainties, this is a reasonable rate of growth. Risk appetite is stronger than growth itself. Emerging markets are growing faster.”

This distinction matters. By emphasizing that risk appetite exceeds global growth, Şimşek is effectively arguing that capital is not retreating—it is reallocating. For mid-sized emerging economies like Türkiye, that shift can translate into renewed portfolio flows and foreign direct investment.

Energy Prices Could Accelerate Disinflation

Energy remains one of Türkiye’s most critical macro variables due to its structural reliance on imports. Şimşek suggested geopolitical normalization could provide an unexpected tailwind.

“Once the uncertainties regarding Iran are resolved, energy prices will decline. This will positively reflect on Türkiye through disinflation and growth.”

Lower energy costs would reduce input prices across manufacturing, ease pressure on the current account deficit, and reinforce the ongoing disinflation process. In a country where imported energy historically amplifies inflation shocks, such a development would carry outsized macroeconomic weight.

Investor Meetings Signal Renewed Interest

One of the most striking revelations was the scale of investor engagement. Şimşek disclosed that he met with more than 800 investors across major financial hubs.

“There is genuinely strong interest in Türkiye. We visited London, New York, and Hong Kong in January. I held meetings with 800 investors. I used to travel frequently between 2007 and 2018, but this is the first time I have seen such intense interest. The last time I recall this level was in 2013.”

This comparison to 2013—often viewed as a peak year for capital inflows into Türkiye—is deliberate. It signals confidence that the country’s economic program has regained credibility in global markets.

He also underlined Türkiye’s geopolitical positioning, arguing that the country cannot be separated from Europe economically or strategically.

Fiscal Discipline: Borrow Less Than You Repay

A central pillar of the interview was fiscal consolidation. Şimşek framed the shift in borrowing strategy as a structural correction.

“This year, we will repay 100 lira of debt and borrow 80 lira. We will borrow less than the amount of debt we repay.”

This move toward a primary surplus and reduced net borrowing is designed to free up financial space for the private sector while lowering vulnerability to external shocks.

He also addressed Türkiye’s long-standing external imbalance.

“Türkiye’s weak spot has always been the current account deficit. This is not new. But we have seen remarkable improvement in external balances. It may be early to claim a current account surplus—that requires structural transformation—but we will achieve that transformation.”

KKM Exit and Inflation Path

Şimşek described the exit from the FX-protected deposit scheme as a major milestone.

“We achieved a successful exit from KKM. The stock, which had reached 143 billion dollars, has largely been eliminated.”

He reiterated that inflation remains the most significant macro imbalance.

“The most important imbalance right now is inflation. There are no easy solutions.”

According to the minister, disinflation began in the second half of 2024. Inflation closed 2024 at around 44% and 2025 at approximately 30%. The strategy relies not only on monetary tightening but also on fiscal restraint and supply-side reforms.

Spring Inflation Surprise?

Addressing higher-than-expected readings in January and February, Şimşek rejected claims of policy failure.

“There is no deterioration in disinflation. There may be a temporary slowdown. If the increase is food-driven—due to last year’s drought or winter conditions—we must interpret it correctly. These are temporary factors.”

He went further, offering a forward-looking projection.

“In March, April, and May, we may fall below past period averages.”

If realized, such a development would reinforce confidence in Türkiye’s inflation outlook for 2026 and strengthen the policy narrative.

Monetary Policy Is Not Enough

Şimşek acknowledged criticism that the program relies too heavily on interest rates.

“We accept that monetary policy hasa  limited impact.”

Instead, he emphasized supply-side interventions, particularly housing. Rental inflation remains one of the largest components of cost-of-living pressures. With hundreds of thousands of housing units delivered in the earthquake region and 750,000 social housing units targeted over the next few years, the government aims to ease structural price pressures rather than relying solely on rate adjustments.

January Interest Payments Clarified

Responding to claims of excessive January interest payments, Şimşek provided a technical explanation.

“Fifty-three percent of January’s interest payments stemmed from the maturity of a single instrument. It was issued in 2016 and accumulated inflation-linked payments over time.”

He dismissed alternative narratives bluntly:

“To build a story from this, one must either be ignorant or acting in bad faith.”

No VAT, Income, or Corporate Tax Increases

Perhaps the most market-sensitive statement concerned taxation.

“There is no plan to increase Corporate Tax, Income Tax, or VAT.”

Rather than raising rates, the government intends to reduce inefficient tax expenditures and exemptions. Şimşek added that the share of indirect taxes in total tax revenues has declined for the first time in years, suggesting progress in improving tax fairness and fiscal balance.

AI-Powered Crackdown on Tax Evasion

Enforcement, however, is intensifying.

“We have activated very serious artificial intelligence algorithms against fake invoicing. A company operating for two days will no longer issue billions of lira in invoices.”

Authorities are also cross-referencing property valuation data and monitoring high-income groups and luxury assets to combat tax evasion.