Economy, Domestic Economy

Cash Subsidy: Another Roadblock

The annual bill for the cash subsidy scheme is a whopping $12 billion that has become prohibitive for the treasury mainly due to the plummeting price of oil in international markets.
The annual bill for the cash subsidy scheme is a whopping $12 billion that has become prohibitive for the treasury mainly due to the plummeting price of oil in international markets.

A parliamentary move obliging the government to eliminate the top three deciles of the population from the cash subsidy list would be an exercise in futility, experts and academia say.

Jamshid Pajuyan is of the opinion that “The current manner of identifying those not deserving cash subsidy is not precise. A database that includes all financial aspects should be created to allow for correct classification” of Iranians in need of the monthly payments.

Last week the Majlis established that the top three deciles of the population would be removed from the long list of cash subsidies despite objections from the government. Those found ineligible for the monthly payment include: businessmen, lawmakers, judges, university teachers, government servants with an annual salary of over $11,250, members of company boards of directors, government inspectors and expatriate Iranians.

Mohammad Bagher Nobakht, the head of the newly-founded Planning and Budget Organization and government spokesman has said, “Eliminating the top three deciles from the cash subsidy list doesn’t comprise of 24 million people and cannot be executed.  It would barely remove 7.5 million people.”

The Persian-language news website Fararu put a key question to Pajuyan: Is this Majlis measure, to remove the top three deciles of the population and those who annually make more than 350 million rials, feasible?  

  Confounding Move

In response, the economic expert and university teacher said, “In my opinion, in this case the government is right. With all due respects to the parliament, they (lawmakers) sometimes come up with measures that are rather confounding.”

Criticizing the Majlis call, he said it simply cannot be implemented. “In this country there are people under the radar, the government doesn’t have the slightest idea about what they are doing or their professions. Then there are those who in less than half an hour or in one deal pocket billions. This is while the Majlis wants to remove judges and faculty members, who contribute the most to value-added in our society, from the subsidy list.”

Even though the targeted population may have a higher income, it may well be that they never applied for the cash subsidy in the first place. Therefore this identification is not accurate, the government spokesman said.

Elaborating the point, he said it may be that these people have high incomes and not need the subsidy, but there are much larger groups with significantly higher income the government cannot delete from the subsidy list because it has no information about them and cannot find them.

When asked if these categories apply for subsidy, Pajuyan said, “Of course, they seem to appear needy only to deceive the government from their true income and not pay tax.”

  Monumental Cost

Hadi Haghshenas, an economic expert and a former MP told the website, “Can we really presume that all physicians and businesspeople make more than $11,250 a year? Can we also say that those making more than this are in the top three deciles? It seems such information is riddled with holes.”

He concurred that the government is apparently short on financial resources and is finding it hard to pay the monumental subsidy bill every month.

According to official data, almost 74 million people receive 450,000 rials ($13) per month/per person in cash subsidy. The annual bill only for this controversial scheme is a whopping $12 billion that has become prohibitive for the treasury mainly due to the plummeting price of oil in international markets.

Haghshenas said the former government had failed to efficiently implement the cash subsidy scheme after launching it in December 2010. “As per law, 50% of the income from the targeted subsidy scheme was to be given to the people. However the government gave away the full 100%!”

According to Haghshenas, there are 20 million families in Iran, with an average of about 4 members per family. “In other words, the top three deciles would include six million families. Do these 6 million families really belong to this category?”

He is of the opinion that identifying 6 million people making over $11,250 p.a. is at best not possible. “This is because the government is capable of only identifying those who declare their wages (income) and have administrative or financial links to the government.”

One critical point both the above experts apparently missed has been raised by other respected economists and social scientists. They insist that the government can and should pinpoint the households really in need instead of wasting time and energy on navigating the “hidden” wealthy and undeserving of the cash payments.

The government must solicit relevant information and data from the Social Security Organization, the State Welfare Organization and the Imam Khomeini Relief Committee to determine the households at the low-end of the economic ladder and readjust the prohibitive and unsustainable subsidy program, the experts have said.