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More Signs Show Iran's Intention To Cut Large Subsidies

A new sign pointing to a desire by Iran’s new government to reduce billion-dollar subsidies and cash handouts to tens of millions of Iranians has emerged this week. The Majlis Research Center in a report released Wednesday has proposed replacing cash handouts with payments-in-kind linked to items such as milk, housing, education and healthcare.

The report, "Investigating Supportive Policies," says it has examined the "quasi-cash subsidies" model in the United States and other countries of the Organization for Economic Co-operation and Development (OECD) where such subsidies it says constitute an average 6 percent of government spending.

"By payment of quasi-cash subsidies, governments aim to encourage people to use a certain commodity or service instead of spending the money for other purposes if the subsidy was paid in cash," the report explains. It cites as common examples housing, health, education, nutrition, childcare and business improvement measures, such as incentives to maintain or create jobs.

The paper, however, says implementing its suggested system − which it calls "quasi-cash" or "paternal" subsidies − would be more difficult than current cash payments, which are now paid to heads of households.

A few days earlier, the head of The Budget and planning office also raised the issue of reducing subsidies, as the government has a serious shortage of revenues with US sanctions stifling oil exports.

Massoud Mirkazemi, nominated to be Iran's Budget and Planning chief. FILE

Cash handouts − sometimes confusingly called ‘direct’ subsidies’ − were introduced in November 2010 by the government of president Mahmoud Ahmadinejad, who claimed they would help the poorest Iranians, although in practice they went to nearly all. The move was broadly welcomed by economists internationally as part of a wider strategy to cut back on subsidies holding down the price of electricity, fuel, medicine and basic food. But in fact, both subsidies and cash handouts have survived.

Currently, 60 million also receiving an additional living assistance cash handout of between 410,000 to 550,000 (depending on the size of family) which is officially called "subsistence subsidies". The total for 60 million Iranians therefore amounts to a minimum of 860,000 (more than $3) per month.

The government of president Hassan Rouhani expressed its intention to withdraw these subsidies, but faced political opposition, especially from principlists. Raising gasoline prices in 2019 prompted widespread protests.

At the same time the value of the cash handouts, which have remained at 450,500 rial per person, has been eroded by inflation, currently close to 50 percent annually. What was worth $40 in 2010 is worth less than $2 at the current exchange rate of around 250,000 rial to the dollar.

A kilo of chicken costs roughly $1.50 and the cheapest cut of beef over $4 at municipality-run markets.

Paying for both cash-handouts, at 428 trillion rials ($1.7 billion) in the current Iranian year, and subsidies at more than $60 billion annually has become a major fiscal strain.

The new head of Iran’s Budget and Planning Organization, Massoud Mirkazemi put the cost of subsidies for fossil fuels, electricity, food and related commodities at $63 billion annually, or 50 percent more than the government’s operating budget.

In recent days several officials of the government of President Ebrahim Raisi (Raeesi) have  signaled their intention to tackle both subsidies and cash handouts, while some lawmakers this week proposed a referendum on replacing all subsidies with a cash handouts targeting those in greatest need.

A British-Iranian journalist, political analyst and former correspondent of The National and journalist at Iran International
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