Majlis Research Center, the research arm of Iranian Parliament, believes that the budget bill proposed by the government for the next fiscal year (March 2021-22) is riddled with fundamental flaws and has consequently called on members of the parliament to reject the bill’s outlines.
Among the fundamental flaws enumerated by MRC are its substantial structural budget deficit (close to 50%); overestimation of revenues generated from oil exports; 30% increase in budgetary dependency on oil (including the domestic sales of oil bonds); lower government investment (a drastic decline in the share of civil development funds from general expenditure) from 15% in the current Budget Law of the fiscal 2020-21 to 11% in the budget bill of the fiscal 2021-22; a considerable rise in current expenditure (60% growth); a decline in the share of tax revenues from the budget’s general resources from 36% in the 2020-21 budget to 27% in the next budget bill; surge in operational deficit (despite objectives set in the Sixth Five-Year Development Plan (2017-22); projection of significant resources from sales of oil bonds and creation of debt adjusted with foreign exchange rate fluctuations; and the budget’s non-alignment with budgetary structural reforms.
The proposed budget will increase operating expenditure and relies on unrealistic, unrealizable revenues, according to the parliamentary think tank.
As a result, general expenses have increased by 60% and the projected revenues have grown only modestly. Up to 3,200 trillion rials ($12.3 billion) of government expenditure, including government employees and pensions, will come from sales of assets or borrowings. That is in stark contrast to the objective set by the Sixth Five-Year Development Plan (2017-22), i.e. 26 trillion rials ($100 million).
Experts’ review of the bill shows that due to the overestimation of revenues from oil exports, even in the likelihood of the government selling all projected bonds, there would be a budget deficit of 3,200 trillion rials ($12.3 billion).
If banks and investment funds opt for buying bonds to the tune of 1,450 trillion rials ($5.57 billion), there would still be 1,750 trillion rials ($6.73 billion) in unmet budget deficit, which would either directly or indirectly lead to the growth in monetary base, money supply and inflation rates in years to come.
Given the fact that controlling operating expenses by improving government efficiency is one of the goals set for development plans, the government needs to curtail expenses related to state employees’ salaries and spend the available resources to eradicate deprivation, promote the livelihood of underprivileged people and invest in infrastructures.
At present, according to Plan and Budget organization, salaries and benefits of government employees and funds earmarked for pension funds account for more than 5,400 trillion rials ($20.76 billion) of government expenditure.
With the above points in mind, MRC underlines the necessity of MPs rejecting the next year’s budget bill and puts forward the following proposals to prevent high inflation rates:
The parliamentarians need to require the government to reduce operational deficit by creating sustainable, realizable income; tame the growth in expenditure through expense management; increase the share of capital expenditure from total expenses; reform the projected unrealistic oil revenues; delete the budgetary section on oil bond sales and finally the government must be tasked to prioritize the livelihood of general public and low-income deciles.
New Budget Bill’s Details
Vice President for Parliamentary Affairs Hosseinali Amiri submitted the budget bill for the next fiscal year (March 2021-22) to the parliament on Dec. 2.
In the next fiscal year (to start March 21, 2021), the operating budget (including revenues derived mainly from taxation and exports at the disposal of the government) has been projected to stand at 8,413 trillion rials ($32.35 billion at the market exchange rate of 260,000 rials per US dollar).
Add to this, revenues exclusive to ministries and governmental institutions worth 884 trillion rials ($3.4 billion), which takes the total sum of the general budget to 9,298 trillion rials ($35.76 billion).
The budget of state companies, banks and for-profit organizations has been put at 15,619 trillion rials ($60 billion).
All in all, the ceiling set for the government’s total budget is at 24,357 trillion rials ($93.68 billion).
Total tax earnings as per the fiscal 2021-22 budget bill have been set at 2,515 trillion rials ($9.67 billion), including 591 trillion rials ($2.27 billion) from tax on legal entities, 491 trillion rials ($1.88 billion) from income tax, 238 trillion rials ($915 million) from wealth tax, 235 trillion rials ($903 million) from tax on imports and 957 trillion rials ($3.68 billion) from tax on goods and services.
Revenues from the transfer of capital assets have been projected to stand at 2,255 trillion rials ($8.67 billion). The transfer of capital assets consists of several sections, including domestic sales and exports of oil products. As a result, the government has projected that its oil and oil product revenues will stand at 1,992 trillion rials ($7.66 billion) next year.
The share of the National Development Fund of Iran from oil resources (crude oil, gas condensates and natural gas exports) has been set at 20%. The government is obliged to pay 14.5% of oil revenues to the National Iranian Oil Company and 14.5% of the revenues from natural gas exports to the National Iranian Gas Company.
Earnings from the transfer of financial assets, including the sale of treasury bonds, are projected to reach 2,984 trillion rials ($11.47 billion).
On the side of expenditure, the government will spend 1,003 trillion rials ($3.85 billion) on financial assets, including payment of interest on bonds.
It has considered an average of 25% rise in the wages of employees next year. Next year’s salary of government employees and pensioners should not be lower than 35 million rials ($134) per month compared with the current year’s 28 million rials ($107).
Income tax exemption for government employees has been set at 480 million rials ($1,846) per year. The current year’s cap on public and private sector income tax exemption is 360 million rials ($1,440) per year.
The government will pay 428 trillion rials ($1.64 billion) in cash and non-cash subsidies next year as per the budget bill. On top of that, it will allocate 310 trillion rials ($1.19 billion) for the implementation of the so-called Livelihood Assistance Program, i.e. cash transfers as compensation for higher gasoline prices introduced in November 2019.
The government has also envisioned 70 trillion rials ($269 million) for “production and employment, support for businesses hit by coronavirus crisis and rail transportation” and 263 trillion rials ($1.01 billion) for “Health Ministry, Health Insurance, Family Doctor plan, subsidies on pharmaceuticals and baby formula, treatment of patients with special diseases, population policies, and procurement and production of Covid-19 vaccine”.
After studying the bill, MPs will put forward their proposals to the parliament’s special commissions.
Members of the special commissions will then submit their proposals and amendments to the budget bill to Majlis Joint Commission. The latter is a parliamentary body responsible for reviewing the budget bill as well as the five-year economic development plans proposed by the government before its final ratification.
The commission will have one month to bring the budget bill to the open session of the parliament.
The parliament-approved budget needs the final verification by the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.
