Domestic Economy

Budget Takes Aim at Wealth Inequality

The government is raising fuel prices and investing to create 980,000 jobs while removing 34 million people from the list of monthly cash recipients and redistributing the money among the needy
Masoud NiliMasoud Nili
Elimination of absolute poverty, as declared by President Hassan Rouhani, is one of the major objectives of his second administration, which can materialize through effective taxation policy

President’s Special Aide on Economic Affairs Masoud Nili said the income ratio of the poorest to the richest is 1 to 86 in Iran, which is an unacceptable and unfair disparity.

“Should the taxation system target the wealthiest 800,000 individuals and redistribute the proceeds among 8 million of the first lowest income decile, the latter will be out of absolute poverty,” he said.

Nili’s remarks suggest that if the poorest member of the community earns an average of 90 million rials ($2,142) a year, the richest would get 7.74 billion rials ($184,285), which makes it glaringly obvious that wealth distribution in Iran is unjust.

Elimination of absolute poverty, as declared by President Hassan Rouhani, is one of the major objectives of his second administration, which can materialize through effective taxation policy, a report by the Persian daily Hamshahri reads.

According to Chairman of Majlis Economic Commission Mohammad Reza Pour-Ebrahimi, tax revenues would be the backbone of next year’s budget.

Kamel Taqavinejad, the chairman of Iran National Tax Administration, said the bill has predicted 1,050 trillion rials in tax and 230 trillion rials in duties for the next year.

“Together with customs duties, the government’s tax revenues will amount to around 1,450 trillion rials,” he said.

The Central Bank of Iran’s latest report shows tax revenues were estimated to hover around 593.5 trillion rials in the first half of the current fiscal year (started March 21), but they only reached 431.2 trillion, registering a 0.4% decline year-on-year.

  Shifting Direction

The latest stance adopted by the president’s special aide confirms that, at least in the past two decades, the rich have reaped the benefits of the country’s economic growth, while the poor were hit by economic recessions.

The government’s determination to shift this direction can be noticed in the financial policies of the budget bill for the fiscal 2018-19: From the rise in fuel prices and making investment to create 980,000 jobs to the removal of 34 million people from the list of monthly cash recipients and redistribution of money among the needy.

Deputy Minister of Industries Reza Rahmani recently said as per the budget bill of the coming fiscal year (March 2018-19), the government will allocate 180 trillion rials ($4.28 billion) out of the Subsidy Reform Plan’s resources for the production sector and creation of 634,000 jobs

“The current year’s budget had projected 450,000 jobs for the year, which objective was achieved in eight months,” he said. 

The average annual expenditure of a household in the first income decile (those with the lowest income) is around 86 million rials ($2,047), whereas the 10th decile (the richest) spends around 1.24 billion rials ($29,523) a year, according to the Central Bank of Iran.

The average expenditure of a household of 3.3 members stood at 390 million rials ($9,285) in the last fiscal (ended March 20, 2017), but official figures show that households that fall into the top six deciles (those of modest means) spent less than the average due to their insufficient income.

Figures on urban households’ expenditure last year show low-income families spent 70% of their overall income on food, housing and energy while high-income households used only 53% of their income on these items.

In addition, the quality of goods and services received by high- and low-income households indicate inequality in the distribution of wealth.

At least 48 million Iranians who fall into the category of low and middle income households are in need of government aid, such as direct support as well as employment for the jobless youths and equal opportunities to enjoy the benefits of the country’s economic growth.

  The Hardest Hit

Noting that the hardest-hit among the poor are those who are both poor and unemployed, Nili said just having a job does not create enough income.

“To lift people out of poverty, we need to improve job-holders’ level of income,” he said.

The economic expert noted that tax revenues in Iran have never been redistributed among the have-nots; rather it was a source for the budget. Overhauling redistribution of incomes can’t be accomplished overnight and “needs to be introduced gradually”.

Referring to the decision by the government to change the course of cash subsidies payments to the benefit of the needy, Nili said based on calculations and revenues earned from the removal of subsidies on fuel in 2010, cash handouts were set to hover around 180,000 rials ($4.2), but the figure was raised by former president, Mahmoud Ahmadinejad, regardless of the ensuing economic difficulties the move would bring about, including budget deficit.

As part of the Subsidy Reform Plan, the Ahmadinejad government removed subsidies on food and energy in 2010 and instead paid 455,000 rials ($10.8) to all Iranians on a monthly basis.

Rouhani’s first administration retained the plan, albeit reluctantly. After all, an overnight cancellation of the scheme, as many experts argue, could translate into political suicide as the recipients, mostly ordinary citizens from low income population, have grown accustomed to the monthly stipend over the years.

Nonetheless, the incumbent government has moved to restrict the number of cash subsidy recipients, slowly but steadily.

According to Government Spokesman Mohammad Baqer Nobakht, 4,853,386 people have been removed from the list of cash subsidy recipients as of January 20, 2017.

According to Chairman of Majlis Economic Commission Mohammad Reza Pour-Ebrahimi, the Iranian Parliament is determined to work in conjunction with the government to remove top three high-income deciles of Iranian households from the list of cash subsidy recipients in the new budget.

“Had the monthly grant of cash subsidies to these deciles been discontinued two years ago, 120 trillion rials would have been added to government revenues and development budget each year,” he said.

President Hassan Rouhani presented the budget bill for the fiscal 2018-19 to the parliament on December 10, a document he called a blueprint for generating employment, eliminating poverty and promoting equality.

The government is also looking to raise taxes from outbound tourists. As per the budget bill, the departure tax will see an almost threefold increase to reach 2.2 million rials ($52) from the current 750,000 rials ($17). The new fee is to rise by 50% for the second trip and 100% for the third and subsequent visits over a one-year period.

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