Outgoing Iran parliament moves to radically cut cash handouts

Iran’s outgoing parliament has voted to oblige the Rouhani administration to halt monthly cash subsidy payments to one-third of the population.

al-monitor Conservative lawmaker Ahmad Tavakoli (standing) talks to parliament Speaker Ali Larijani (2nd R) in parliament in Tehran, Aug. 31, 2009. Tavakoli, who failed to retain his seat in recent elections, proposed a bill to cut cash subsidy payments to a large number of Iranians, despite opposition from the Rouhani administration. Photo by REUTERS/Morteza Nikoubazl.

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subsidies, poverty, majles, mahmoud ahmadinejad, iranian society, inflation, hassan rouhani, economic development

Apr 26, 2016

TEHRAN, Iran — One-third of Iran’s population will no longer receive monthly cash payments from the government. This decision was made by the outgoing parliament, based on a proposal from Ahmad Tavakoli, a conservative lawmaker from Tehran who failed to retain his seat in the Feb. 26 parliamentary elections. Payments to these individuals will be cut off in the second half of the current Iranian year — between September 2016 and March 2017. The bill was passed despite the disagreement of the administration of President Hassan Rouhani, which must implement it based on the budget law.

Given that Iran’s next presidential election is only a year away, Rouhani and his allies are preparing for the upcoming vote. As such, their reaction to the parliament’s vote has included a lot of "ifs" and "buts." Yet the law appears to be in line with the administration’s policies in the past few years, which have resulted in over 3 million people no longer receiving monthly cash payments. Moreover, the administration had proposed to cut the number of subsidy recipients until it reaches a stable figure in balance with budget revenues. Parliament voted for Tavakoli’s proposal after being unsatisfied with the number proposed by the administration.

More than half of incumbent members of parliament are slated to be replaced in the coming weeks. However, before leaving office, they will review two important pieces of legislation: the budget for the current Iranian calendar year (starting March 20) and the sixth Five-Year Development Plan.

The budget bill is important since its outcome will directly affect public opinion. Some political analysts say that if monthly payments to 24 million citizens are indeed cut, it will have a negative impact on the popularity of the Rouhani administration. The second piece of legislation is not as urgent. Moreover, even if it puts any obligations on the administration, it can always be altered by the incoming parliament.

Six years of cash subsidy payments

The targeted subsidy reform plan, which involves the distribution of huge amounts of cash among Iranian citizens, was first implemented almost six years ago. When then-President Mahmoud Ahmadinejad decided to implement this economic development plan, which eventually became a money distribution program, he came under a lot of criticism. Economists said it would increase the monetary base and inflation since there were no financial resources to fund it. Meanwhile, they argued that the revenue earned from increased energy prices would not be enough to cover the plan’s estimated expenses. Ahmadinejad, however, pressed ahead with the reform — an economic reform that some now consider as the most populist in Iran’s history.

Initially, people were asked to declare their assets to the administration so that it could pay a monthly amount of 455,000 rials ($15) per person. After receiving and recording all information, the Statistical Center of Iran divided families into seven brackets based on income. These brackets were originally meant to be used as a basis for only giving the subsidy money to low-income families. However, Ahmadinejad said that the money comes from the 12th Shiite Imam, the Mahdi, and should thus be divided equally among all Iranian citizens.

When Rouhani was elected president in 2013, he was duty-bound to implement the subsidy reform law, and thus had to continue to annually pay 480 trillion rials ($15.8 billion) in cash subsidies to people. Because of the decline in oil prices and international sanctions, the Ahmadinejad administration ended up owing a lot of money to commercial banks, the Central Bank of Iran and pension funds. Little by little, Rouhani’s ministers started to complain about the latter. Last August, Minister of Economic Affairs and Finance Ali Tayebnia called it a great catastrophe. A few weeks later, in September, Minister of Petroleum Bijan Zangeneh publicly stated that providing the financial resources for the subsidy reform program was such a great hardship that he lost sleep over it.

In November, amid growing protests, the administration's spokesperson, Mohammad-Bagher Nobakht, asked citizens who did not need the monthly subsidy payments to voluntarily opt out of the program. Subsequently, economists in favor of a free market economy launched a campaign to urge people to voluntarily decline receiving monthly cash payments. The result, according to Nobakht, was that 2.45 million people opted out, while 73 million decided to keep receiving cash payments.

As the protests, campaigns and cutting of expenses proved futile, First Vice President Eshaq Jahangiri stepped in to issue a direct warning. Jahangiri, who is known for his frankness when it comes to economic issues, cautioned that the administration was facing problems with the subsidy reform program, and that its budget deficit would increase if it opts to pay the cash subsidies in accordance with relevant expenses.

This was the starting point for the quiet cutting of subsidies. In January, Deputy Minister of Cooperatives, Labor and Social Welfare Seyed Abolhasan Firouzabadi announced that by the end of the Iranian calendar year 1394 (March 19, 2016) 3.3 million Iranians would be removed from the list of cash subsidy recipients.

Protests started to grow after these quiet cuts were made. In February, Nobakht reacted to these protests by announcing that only those recipients whose information had been securely gathered, and whose financial situation the administration had determined, had been removed from the list.

Almost 25 million rials for each Iranian

Some accounts suggest that by the end of the Iranian calendar year 1394, the Rouhani administration had in total paid 2.35 quadrillion rials ($77.5 billion) in cash subsidies: in other words, 24.54 million rials ($810) to each Iranian. Jahangiri said that before the cutting of 3.3 million cash subsidy recipients, the number of people on the list was 174,000 higher than Iran’s actual population.

When Ahmadinejad decided to pay cash subsidies to each citizen, oil prices were as high as $120 per barrel. The decline in oil prices created a lot of problems for the moderate Rouhani administration upon taking office. Nonetheless, despite the latter, Rouhani was still not planning to take the radical and sudden step that parliament just took.

The outgoing parliament has obliged the administration to halt payments to families who earn more than 350 million rials ($11,551) per year. By eliminating one-third of Iranians from the list of recipients, the administration’s annual cash subsidy bill will be some 100 trillion rials ($3.3 billion) less. No doubt, parliament’s measure will ease the government’s financial burden. The question, however, is whether it will also not result in the administration losing votes in the upcoming presidential election.

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