Economy, Domestic Economy

Reality Visits Subsidy Reform

Reality Visits Subsidy Reform  Reality Visits Subsidy Reform

Over the past several months senior authorities, at regular intervals, have officially made known that the government is planning to delete all households who earn at least 25 million rials ($730) per month from the list of those entitled to cash subsidies. Almost every Iranian has been receiving 450,000 rails ($14) a month in cash for the past several years after the previous administration removed the expensive subsidies on energy and food.

Hussein Raghfar, an economist and teacher at the prestigious Alzahra University in Tehran, in a write-up in the Persian daily ‘Iran’ criticized the plan for “disregarding realities of the society.” Not only does it not solve existing problems, but has several implementation bottlenecks, he noted.

The first obvious problem, he says, is that the plan fails to delineate a specific number of people in a household to be shortlisted, or whether their dwelling places (urban/ rural) affect the living costs. For households with fewer members and/or residing in small towns or rural areas, the 25-million-rial benchmark is adequate and could well ensure a decent quality of life. Nonetheless, a family with five or more members living in a metropolis like Tehran with the same monthly earning is classified as “poor” due to higher costs of everything, namely food, clothing and shelter, the teacher wrote.

 “If you factor in two students in a family who attend private universities and must pay high tuition, or a member suffering from a rare disease that saddles the household with extra and agonizing costs,” the situation gets worse simply because the 2.5m rial cannot fill in the blanks. Health costs are up and rising at terrible speed.

  Huge Difference

Making the point clearer, he says, “Irrespective of the fact that a family owns or rents a house, how many breadwinning members are there are in one family? How many jobs each member of the family has creates a huge difference between two households earning the same amount of money.”

Raghfar pointed out that the government would have implemented such an “attractive plan” much sooner were it feasible by setting a wage ceiling. “But the available data is unreliable and insufficient.” He referred to the questionnaires for subsidy eligibility filled out y the people in April 2014 in which almost 90% claimed to earn less than 10 million rials ($290) per month, and 65% said they made less than six million rials ($176).

“It is indeed impossible to determine the economic state of a household based on such claims, especially because according to head of the Subsidy Reform Office, Muhammad Reza Farzin, the national databanks lack information on the economic condition of 7 to 15 million people.” Raghfar opined that a government committee should have assigned senior experts and sociologists to help determine the standard for removing households from the cash subsidy list, or it should have concentrated on their income and expenditures to get a better understanding of their quality of life.

  Simply Unaffordable

To identify households qualified for the grants, most countries have special ways that include verifiable information such as number of members in a household, age and gender of the head of the household, and where they dwell.

Raghfar urged the authorities to use similar accurate means to help ensure that vulnerable households receive subsidies while the well-to-do are removed from the long-list because the almost $1.5 billion the government pays every month in cash subsidies has turned into an unaffordable enterprise, keeping in mind the steep decline in international crude prices since the summer of last year.

Subsidy is a form of grant that is given to vulnerable families in many countries around the world to help the needy cushion the pain and maintain a sort of ‘economic balance’ in the community.

However, the haphazard subsidy plan, and the reforms that followed in Iran has “so far cost government(s) 1.9 quadrillion rials ($56 billion) that was wasted on the people that most experts insist did not deserve the largesse,” the economic expert wrote.

Policy and decision makers need to “exercise extra caution while working on alternative methods to reform the subsidy regime and ensure that a bad situation does not become worse.”