In the Iranian economy, political and ideological issues have become the prime concerns of economic decision-makers, which is a repeat of the Soviet Union experience and can take the economy into dangerous territory.
This was stated by Mahmoud Jamsaz, an economist, in an article for the Persian daily Shargh. What follows is a translation of the text:
Iran ranks eighth among 156 countries in the Misery Index. The index, first proposed by Arthur Okun, an American economist, is the sum of inflation and unemployment. One of the most important indicators of the economic, financial and welfare of a society, the Misery Index can be used to measure poverty.
Steve Hanke, a professor of applied economics at the Johns Hopkins University, later included the bank interest rate minus the percentage change in real GDP per capita to calculate the misery index.
According to the Statistical Center of Iran, the inflation rate was 40.2% and the unemployment rate 8.9% in the fiscal 2021-22, which puts the Misery Index at 49%. Inflation and unemployment stood at 36.4% and 9.7% in 2020-21, indicating that the index increased by four percentage points to stand at 45.1%.
In other words, Iranian people become poorer in 2021-22. Therefore, senior government officials should not mislead people by saying that the increase in the number of trips during the Norouz [Iranian New Year] holidays [March 21-April 2] is indicative of improvement in their economic conditions.
Government interference in the economy has created a vast, dysfunctional bureaucracy that devours 7,000 trillion rials ($25 billion) of the national income every year and the government’s capital expenditure budget is used to cover current expenditures
Studies show households earning less than 100 million rials [$357 at Saturday’s exchange rate] per month fall below poverty line and thus up to 60% of Iranian people, including swaths of workers, government employees, teachers and pensioners, are living below the poverty line and are eligible for government subsidies.
According to the Central Bank of Iran, the monetary base grew by 640% and money supply increased by 1,100% in the 2010s while the average economic growth was zero and fixed investment growth was negative. The real economy did not benefit from the growth in money supply. The consequences of such a dramatic increase in liquidity, inflation and the devaluation of local currency are the decline in people’s purchasing power that can be billed as poverty generating mechanism for public.
In addition, government interference in the economy has created a vast, dysfunctional bureaucracy that devours 7,000 trillion rials [$25 billion] of the national income every year and the government’s capital expenditure budget is used to cover current expenditures.
Lack of a favorable environment for investment, especially by the real sector of the economy, has led to a slowdown in economic growth in the last decade. Now the question is how much do state-owned companies pay taxes and what is their share in financing the budget in return for their large share in the Iranian economy? Almost zero!
They are either free from paying tax, or pay very little compared with their profits. The main burden of the tax falls on the shoulders of consumers, private sector enterprises, government employees, workers and guilds that are grappling with recession for years now.
For example, the working class accounted for 10% or 572 trillion rials ($2 billion] of the total 5,720 trillion rials [$20 billion] in tax income projected in the fiscal 2021-22 budget, whereas in developed countries, low-income strata of the society either don’t pay tax or their share is insignificant; large economic enterprises account for the lion’s share of tax revenues.
How can consumers, guilds and private-sector producers, which are hit by recession, inflation and pandemic, pay the bigger share of tax revenues while large state-owned and semi-governmental corporations refuse to pay taxes? This comes as some of the government’s sources are also based on wishful thinking.
What is the outcome? The government borrows from the central bank to cover its budget deficit, inflation rises and the poor become poorer and the rich become richer. In other words, the income gap deepens further.
In fact, an economy that violates basic human rights won’t step on the path to growth. One must ask that to what extent the policies of this economy are in line with the principles of economics.
Unfortunately, in the Iranian economy, we are witnessing the fact that political and ideological issues are prioritized by economic decision-makers. This is the repeat of the Soviet Union experience and can take the economyin to dangerous territory.
