Persistent government budget deficits combined with a lack of confidence in the government have forced the government to borrow for short terms and at high cost, which has generally kept real interest rates high. These elements have helped to maintain Turkey's persistently high inflation over the past decade. Structural economic reform, combined with both more effective government regulation and a streamlined public sector are widely seen as the key to remedying Turkey's fundamental economic problems. The structural reforms have been on the agenda of successive governments for years, but strong political opposition has slowed progress. The government in mid-1998 is considering legislation to increase retirement ages, but is facing strong resistance.
Tax evasion is rampant in Turkey.
Despite very high nominal tax rates, Turkey's tax revenues equal about 22 percent of GNP, well below the OECD average of 39 percent. Overhaul of the tax system is a top priority. The tax reform bill, which parliament passed in July 1998, should help improve the situation in conjunction with a multi-year World Bank project to revamp the tax administration. Privatization has been on the government's agenda since the early 1980s. Political opposition and debate over government sales methods have slowed progress, although the current government has proven more successful than its predecessors in bringing some important deals to closure.