The heads of three branches of power (executive, judiciary, legislative) approved on Saturday the four main outlines of an initiative to improve budgeting and help reduce the country’s dependence on oil revenues.
“Strengthening the institutionalization of budget, improving spending efficiency, generating sustainable revenue growth and achieving macroeconomic stability and sustainable development are the main pivots of reforms that will be incorporated in the budget within nine packages,” Mohammad Baqer Nobakht, the head of Plan and Budget Organization, wrote on Twitter.
“Each package will feature short-, medium- and long-term plans and recommendations that will be weighed by special task forces from three branches of power; the Supreme Council of Economic Coordination will be then briefed on the developments,” he added.
The need for structural reform in the budget has been acknowledged for years, but it became more pressing last year when the United States reimposed sanctions against Iran’s oil sector that procures a substantial percentage of the budget revenues.
Last month, Plan and Budget Organization uploaded the framework of budget reforms on its website and sought comments from experts.
History of Failed Attempts
Undoubtedly, various opinions and consultation will help the government make more informed decisions, says the editorial columnist of Persian daily Donya-e-Eqtesad, Mohammad Amrollahi.
“It is, nevertheless, of utmost importance to take a look at previous attempts at improving the budget,” he said.
“Over the past decade, the government put forward the practice of preparing the budget based on the evaluation of the productivity of different operations—the so-called performance-based budgeting. What turned out in practice was far from favorable,” he wrote.
“Will the new designers of budget reforms tap into previous experiences? Are they aware of the causes of performance-based budgeting failure? Where do the writers and executers of reform plans stand scientifically?”
Noting that poor leadership was one of the reasons behind the collapse of performance-based budgeting, he said, “The implementation of budget reforms needs a competent, coherent team.”
Amrollahi believes that short-term plans included in the budget over the past couple of years, from narrowing down the list of cash subsidy receivers to balancing budget sources are all repetitive and predictable.
“What has become of the six-year-old slogan of cutting cash payments to high-income households? It seems unlikely that a system, which failed to do this correctly, could deliver on other pledges,” he said.
Medium-term plan, proposed by PBO, are mostly focused on reforming government subsidy programs. However, performance reports that provide detailed information on programs, such as Health Reform Plan, are nowhere to be seen.
The Cabinet recently ratified the implementation of Clause 14 of the Budget Law of the Fiscal 2019-20, which pertains to "Targeted Subsidies Law". The decision has been notified to relevant bodies, including the Ministry of Economic Affairs and Finance; Energy Ministry; Information and Communications Technology Ministry; Interior Ministry; and Plan and Budget Organization.
As per the directive signed by First Vice President Es’haq Jahangiri, related governmental bodies have been tasked with identifying and removing households belonging to the top three high-income deciles from the list of monthly cash subsidy receivers until Aug. 10, Mehr News Agency reported on Saturday.
Amrollahi noted that generating sustainable income, for instance, by diversifying tax revenues has always been among plans proposed by budget reformers.
“The implementation of value added tax is flawed, yet the government insists on retaining it. In fact, retention of defective, incomplete reform plans is one of the distinctive features of the current administration. A number of proposed reform plans are repetitive and incomplete, lacking specific objectives. Failure to heed these red flags would lead to nonproductive, ineffective structural reforms,” the columnist concluded.
President Hassan Rouhani submitted the budget bill to the parliament on Dec. 25, 2018. It was passed by lawmakers in less than a month and its outlines were passed on Feb. 16.
Rouhani signed into law the current fiscal year’s (March 2019-20) budget, following the parliament’s approval on April 5.
General resources in the budget bill stand at 4.07 quadrillion rials ($32 billion), 5.44% bigger than the budget law of fiscal 2018-19.
Latest on Budget Deficit
The Central Bank of Iran's latest budgetary report to date shows budget deficit came in bigger than expected in the nine months of the last fiscal year (March 21-Dec. 21, 2018) to hit 451.1 trillion rials ($3.57 billion).
The shortfall, which was larger than the budget law’s forecast of 243.9 trillion rials ($1.93 billion) for the nine-month period, registered an increase of 17% year-on-year.
To cover the deficit, the government sold 8.7% more bonds—a total of 653.7 trillion rials ($5.17 billion) YOY.
The government’s overall revenues during the period amounted to 575.8 trillion rials ($4.5 billion), indicating a rise of 69.2% YOY, while its spending hit 1026.9 trillion rials ($8.13 billion) to register a 41.5% growth YOY.
Revenues associated with the sales of oil and petroleum products were more than the projected budgetary figure of 763.8 trillion rials ($6.04 billion.) They reached 894.2 trillion rials ($7.07 billion), indicating a 39.8% rise YOY.
The budget’s estimated revenues from the sale of oil and petroleum products for the year to reach 1,010.1 trillion rials ($7.99 billion.)
The government spent 321 trillion rials ($2.54 billion) on development projects during the period, posting a 6.2% growth YOY, yet lower than the objective of 468.8 trillion rials ($3.71 billion) set in the budget law.
Tax revenues were estimated to hover around 1074.3 trillion rials ($8.5 billion), but they reached 771.2 trillion rials ($6.1 billion), registering a 12.8% increase YOY.
The government’s tax revenues consist of returns from direct and indirect taxation. Direct taxes include “tax on legal entities”, “income tax” and “wealth tax”.
Overall, direct tax revenues stood at 366.5 trillion rials ($2.9 billion) during the nine months, registering an increase of 9% YOY.
Tax on legal entities yielded 208.9 trillion rials ($1.65 billion) for the government, 1.7% more than the same period of last year. The nine-month objective stated in the budget law for tax on legal entities was 307.3 trillion rials ($2.43 billion).
The government collected 131.2 trillion rials ($1 billion) from income tax and 26.4 trillion rials ($209 million) from wealth tax, which show a respective growth of 17.8% and 35% over last year’s corresponding period.
Indirect taxes, including “tax on imports” and “tax on goods and services”, reached 404.7 trillion rials ($3.2 billion), indicating a 16.5% rise YOY.
The report also shows tax on imports generated 99.4 trillion rials ($787 million), 14.1% more than the year before while tax on goods and services earned the government 305.3 trillion rials ($2.41 billion), up 17.3% YOY.
Value added tax, which is a subcategory of tax on goods and services, increased by 17.6% to reach 191.8 trillion rials ($1.51 billion).
