Economy, Domestic Economy

The Subsidy Conundrum

The Subsidy ConundrumThe Subsidy Conundrum

It has been a while since the issue of eliminating high-income households from the list of cash subsidies came under the spotlight; however, the fact that identifying the rich might not be that simple after all has raised concern among officials and experts who warn that taking any wrong measures in this regard might lead to hurting the needy.  

Although the Organization of Targeted Subsidies has the required instruments to gather information about the financial income of households, its databases have seemingly failed to provide a full coverage of the whole population, Iran newspaper reported.

“There are about 15 million people in the country whose financial statistics are not available in any databases, which can create a formidable challenge when it comes to implementing any plan to cut the cash subsidies” said Akbar Yazdi, head of the organization.

  Potential Saving

Estimates show that by cutting the cash subsidies paid to high-income families, the government can save 50 trillion rials ($1.8 billion at official rate) in its expenditures, as stated by Iran newspaper.  

The government can then invest this amount in the manufacturing sector, the report adds, saying that although the figure is not especially large, it can solve the cash flow problems faced by small manufacturing units, thereby helping them, for example, to develop new job opportunities.

The parliament reportedly wants the government to implement the plan as of the next Iranian year (starting March 21).  

  Target Groups

To reduce the share of cash subsidies in government expenditures, the Parliament Integration Committee has introduced four eligible target groups to receive the monthly payments.

These include all the households under the coverage of Imam Khomeini Relief Foundation and State Welfare Organization; nomads and villagers; pensioners provided that their monthly income is below 25 million rials ($714); and all households with a monthly income below $714.

It has been proposed that those who are not identified to be part of any of the aforementioned groups will hence be eliminated from the list of cash subsidy receivers.

  Criticism, Suggestions

Classifying households according to their income, however, is not as clear-cut as implied in the parliament’s categorization.

Describing the categorization of the households according to their income as a “vague” mechanism, Yazdi added that a hasty overhaul of the cash subsidy system could raise serious problems for citizens.

According to the official, the parliament needs to examine the plan in more detail. He also anticipated that it is unlikely that the parliament approves such a plan before it undergoes significant changes.

“It does not even specify the size of the households as well as the provinces to which the $714 ceiling applies,” he said. There are certainly differences among provinces in terms of household revenues and expenditures, especially when it comes to the capital Tehran, he added.

Noting that the goal cannot be reached overnight, Albert Beghzian, a university lecturer, says any delay in implementing the plan will result in further loss of the country’s resources.