The government is struggling to balance its widening budget deficit.
Ali Sarzaeem, an economic expert in an interview with Persian-language weekly Seda, has expounded on different means the government can employ to do so under US sanctions regime and the economic distress it has created.
Sarzaeem believes economic reconstruction is what matters most now, which can be applied to a wide range of areas.
“Redistribution of wealth, i.e. the transfer of income and wealth from the rich to the underprivileged by means of a social mechanism such as taxation, is one of the procedures of undertaking the process of economic reconstruction,” he said.
“The government will face public opposition, no matter what it decides to do to acquire its financial resources. If it opts for economic reconstruction, special groups who might find themselves on the losing end will cry out; if it introduces energy price reforms, more than a few eyebrows will be raised.”
The economic expert noted that the government has been taken to task time after time over the past couple of years on all decisions it has made to increase its income from changes in departure tax to removal of high-income deciles from cash subsidies to discontinuing subsidized currency for outbound trips.
“The government must not fear people’s reaction when it comes to carrying out its economic policies,” he said.
On potential government revenues from discontinuing the cultural funding of special institutions, the economist said, “Some experts’ overconcentration on these budgetary categories is no less than misleading people.
“How big is the share of these institutions from the government’s total budget? Overall, they account for less than 10 trillion rials [$79 million] of government’s expenditure. Think about the country’s biggest budget spenders like healthcare sector or pension funds. The funding for cultural affairs of special institutions pales in comparison with the budget being allocated to healthcare sector or pension funds annually,” he said.
“Overhauling the structural budget of healthcare and welfare systems is a very grueling technical task. That’s why it’s easier to shift focus on the funding for special institutions instead of racking one’s brains to fix budget-guzzlers’ structures. On top of that, ideological disagreements some people have with these institutions give them a pretext to over-exaggerate and dish irrational opinions about cultural institutions’ share in the spending budget.”
The government must reduce its operating expenditure by cutting its employees’ inflated paychecks and reducing the costs of running some of its agencies; any state organization engaging in duplicative and overlapping assignments must be either merged or dismantled
The Iranian government allocates funds from the budget to cultural institutions, including the mausoleum and residence of Ayatollah Ruhollah Khomeini, the late founder of the Islamic Republic, for protecting his ideological heritage by publishing books and holding commemorations and conferences, the High Council of Religious Seminaries and Al-Mustafa International University, an umbrella organization for religious seminaries providing education to foreign students within and outside of Iran, among others.
To address its budget deficit, Sarzaeem said the government needs to prioritize some important reforms over other tasks.
“First, it must reduce its operating expenditure by cutting its employees’ inflated paychecks and reducing the costs of running some of its agencies; any state organization engaging in duplicative and overlapping assignments must be either merged or dismantled,” he said.
“The second step should be introduction of wealth tax: high-income deciles must be required to pay wealth and income tax. Later, the government needs to charge all economic sectors with taxes. Under the current conditions, offering tax exemption is completely uncalled for. Even a mere 1% tax must be imposed on all economic enterprises.”
In addition to above recommendations, Sarzaeem said the government has two other options to tackle its budget deficit, one being borrowing from the Central Bank of Iran, which is definitely inflationary, and the other is selling debt bonds, which is neither inflationary nor raises interest rates.
H1 Budget Deficit at $5b
Iran’s budget deficit in the first half of the current year (March 21-Sept. 22) hit 632.8 trillion rials ($5 billion), according to Mohammad Hosseini, a member of Majlis Plan and Budget Commission.
The government’s overall revenues during the period amounted to 776.69 trillion rials ($6.13 billion) as its spending stood at 1,409.49 trillion rials ($11.14 billion), Fars News Agency reported.
Revenues associated with the sales of oil and petroleum stood at 210 trillion rials ($1.66 billion) whereas the projected budgetary figure for H1 was 792.61 trillion rials ($6.26 billion).
The budget law estimate of revenues from the sale of oil and petroleum products for the whole year is at 1,585.23 trillion rials ($12.53 billion).
Tax revenues were estimated to hover around 862.68 trillion rials ($6.81 billion) in H1, but they reached 647.01 trillion rials ($5.11 billion).
The budget law estimate of tax revenues for the whole year is at 1,725.36 trillion rials ($13.63 billion).
The government spent 66.85 trillion rials ($528.45 million) on development projects during the six months under review. The projected figure for H1 was at 334.28 trillion rials ($2.64 billion). As per the budget law, the government should spend a total of 668.57 trillion rials ($5.28 billion) on development projects this year.
During the period under review, the government paid 365.79 trillion rials ($2.89 billion) as employees’ compensation.
The projected annual figure for employees’ compensation stands at 975.46 trillion rials ($7.71 billion).
The government sold 255 trillion rials ($2.01 billion) worth of bonds and bought back 58.69 trillion rials ($463.95 million) worth of bonds that had reached their maturity date in the six-month period.
A total of 510 trillion rials ($4.03 billion) in government bonds will be sold and 293.47 trillion rials ($2.31 billion) of government debts will be bought back this year.
