The gradual increase in public expenses has made it compulsory to classify these expenses according to certain criteria. In case a classification of expenses is made, a balance can be provided among different public services and it is possible to equitably distribute the limited resources of the public according to the needs of the country.
Thus, it be- comes evident how much is spent for which services of the taxes paid and it will be possible to measure the productivity of the expenses. In Turkey the classifications made in relation to budget expenses are divided into three.
These are: "Administrative Classification", which separates expenses among the administrative units within the framework of the administrative structures of the organizations; "Functional Classification", which separates the expenses according to their goals, such as health, education and defense; and "Economic Classification", which separates expenses as real expenses and transfer expenses. In the Turkish budget system, real expenses include the current and investment expenses.
Great fluctuations did not occur in Turkey in the ratio of the budget expenses to the Gross National Product (GNP) until the petroleum crisis in 1973. When the negative influences of the petroleum crisis started to be felt in the economy, it caused the budget expenses to enter into a new period. Substantial increases have been observed in budget expenses and budget deficits during the period between 1975-1980. The share of expenses in the GNP has increased to around 28 percent and share of the budget deficits in the GNP to about 2 percent.
The influence of the petroleum crises, which were experienced one after another and negatively affected the world economy, were clearly felt in these developments. Budget expenses followed a fluctuating course in the years after 1980 with the start of the application of a more liberal economy policy in Turkey.
The shares of budget expenses in the GNP which was around 16 percent between 1985-1990, increased to 20.9 percent in 1991, and to 24.6 percent in 1993. There were substantial increases in budget deficits in this period. The reduction in the budget expenses obtained in 1994 and 1995 could not be maintained in 1996 and domestic debt interest payments and transfers made to the social security organizations increased to over 200 percent.
Thus, the share of interest expenditures in the budget alone has reached the level of around 38 percent. In fact, the ratio of budget expenses to the GNP in 1997 increased to 27.4 percent by increasing one point compared with the previous year, due to the influences of the debt interest payments, transfers made to the social security organizations, defense and security services and provision of the needs of these organizations, the high rate of increase in the salaries of the personnel, the significant amount of transfers made to the state banks as duty losses and agricultural support subsidies.
The application of a three-month budget and loan program was initiated in 1998 in order to improve the financing balance of the non-interest public sector and to decrease inflation. The envisaged targets were reached in the budget in the first nine months of the year and the loan prog- ram was realized as targeted in the first half of the year. But the negative impact of the global crisis on financial markets, which was started by the crisis in Asian countries in 1997, later included Russia and expanded, led to some deviations in the application of the loan program in the second half of the year.
In the same year, the ratio of budget expenses to GNP was realized at 29.5 percent. 39.6 percent of the expenses consisted of interest payments and 24.8 percent of personnel outlays. The ratio of tax revenues to budget expenses was realized at 59.1 percent. Total public sector expenditures have rapidly increased, especially as of 1989 as a result of the increase in personnel and interest expenses. The share of the total public expenses in the GNP, that was 30.9 percent in 1997, reached 34.2 percent in 1998.
The basic determinant of this increase in total public expenditures is the 4 points rise in transfer expenses compared with the previous year due to a rapid increase in the budget interest payments. Personnel expenses and the transfer expenses had the highest share, especially in the 1990s, in the distribution of the budget expenses according to economic classifications.
The share of personnel expenses in the budget, that was 38.7 percent in 1990, reached 41.7 percent in 1992, which was the highest level in the history of the Republic, and then fell to 29.2 percent in 1995 and 24.8 percent in 1998. While the share of interest payments in transfer expenses was 20.4 percent in 1990, it increased to 39.6 percent in 1998. Similarly, while 30.8 percent of the tax revenues were used for interest payments in 1990, this figure reached 66.9 percent in 1998. A total of 87 percent of interest payments made from the budget originated from domestic borrowing.
The share of investment expenses in the budget has decreased in recent years from 15 percent to below 10 percent. In contrast, a rapid increase is observed in private sector investments. The share of the private sector in the total fixed capital investments made in Turkey in recent years is over 80 percent. The fields in which the state invested the most are the housing sector, transportation, communications and manufacturing industries.