With a 40% inflation rate and a 25% rise in salaries, the purchasing power of wage earners will shrink by 15% in the next fiscal year (starting March 21, 2021), says Feryal Mostofi, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture.
“The next fiscal year’s budget (March 2021-22) has been set at 24,000 trillion rials ($92.3 billion) whereas the gross domestic product of the country is 32,000 trillion rials ($123.07 billion), which shows that the government budget accounts for 76% of GDP and that the government is in control of three-fourths of the economy,” she was quoted as saying by ILNA.
Mostofi noted that the budget consists of two parts: the general budget and the budget of state companies, banks and for-profit organizations.
“The general budget for the next fiscal year has been set at 9,300 trillion rials [$35.76 billion] and the budget of state companies is projected to stand at 15,600 trillion rials [$60 billion]. In other words, the share of companies is twice that of the general budget,” she added.
Huge Deficit on Horizon
Majlis Research Center, the research arm of Iranian Parliament, believes that the budget bill proposed by the government for the next fiscal year is riddled with fundamental flaws and has called on members of the parliament to reject the outlines of the bill.
“Budget deficit to the tune of 3,200 trillion rials [$12.3 billion] has been estimated for next year because revenues are not aligned with expenses, which are almost the same but the predicted revenues are optimistic,” it said.
Among the fundamental flaws enumerated by MRC are significant structural budget deficit (close to 50%); overestimation of revenues generated by exports of oil and 30% increase in budgetary dependency on oil (including the domestic sales of oil bonds); and a decline in government investment (a drastic decline in the share of civil development funds from general expenditure—from 15% in the Budget Law of Fiscal 2020-21 to 11% in the budget bill of fiscal 2021-22.
The considerable rise in current expenditure (60% growth); decline in the share of tax revenues from budget’s general resources—from 36% in the current year’s budget to 27% in the next budget bill; a 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 diversion from structural reforms are other deficiencies highlighted by MRC.
Oil Sales
Exports of one million barrels per day of oil were projected for the current year whereas the country’s exports did not exceed 500,000 barrels per day. How are we supposed to increase exports by four to five times overnight? Mostofi said.
On the domestic sale of oil, she said, “How can the private sector manage to sell oil when the government and the National Iranian Oil Company fail to do so? Sales of oil bonds are synonymous with government borrowing. The budget bill has set the price of a barrel of oil at $40 next year. Given the outbreak of the coronavirus and decline in demand as well as higher supply by other countries such as Venezuela, oil prices are bound to be lower than the predicted figure.”
The TCCIM member stressed that revenues to be earned next year have been overestimated. “You can’t bank on political developments that are unfolding. In fact, nothing has happened yet. Hypothetical political openings are unlikely to produce a significant change this year; procedures such as negotiations would take time.”
Tax Revenues
On projected tax revenues, Mostofi said taxes are levied on the net profits, but with the coronavirus on the march through much of the country this year, companies did not make any profit to be able to pay tax.
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.
Referring to the next year’s budget bill as inflationary, she said, “Next year’s deficit will force the government to borrow from the Central Bank of Iran and the National Development Fund of Iran. The 40% inflation rate and the 25% rise in salaries, wage earners’ purchasing power will shrink by 15%. Pensioners’ benefits will increase by 20% as per the budget bill; that would translate into a 20% decrease in their purchasing power as well.
Vice President for Parliamentary Affairs Hosseinali Amiri submitted the budget bill for the next fiscal year to the parliament last week.
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 commission 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 of the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.
