The subsidy that shrank and didn’t solve people’s problems
The subsidy that shrank and didn’t solve people’s problems has recently been discussed again in expert and legislative circles regarding its allocation to different segments of society. The focus of these discussions is the method of implementing welfare policies. Some believe that cash subsidies are effective, while others argue that the government is obligated to provide commodity vouchers or coupons.
Last year, at the same time the 2022 budget bill was submitted to the parliament, some representatives raised concerns about the government’s plans for the coming year. The government emphasized the need to eliminate the preferential exchange rate, also known as the 4,200 toman dollar, in the budget bill.
The alignment of the overwhelming majority of representatives with the Raisi government led to the implementation of this policy. However, some parliament members decided to pressure the government to distribute commodity vouchers in 2022.
Now seven months have passed in the year, and this policy has yet to be implemented. On the other hand, the cash subsidy, which was set at 300,000 tomans last year, continues to be paid. However, many economists believe that because the government is unwilling to bear the cost of commodity vouchers, it will certainly not comply with this law and will continue paying cash subsidies. The issue is that the 300,000 toman subsidy from last year has now lost much of its value.
How much was the real subsidy last year?
When the government and parliament decided together to increase the cash subsidy amount, many protested that 300,000 tomans would be too much. However, the point is that the government doesn’t pay a 300,000 toman subsidy but rather has added about 254,000 tomans to the cash subsidy amount. Yet, Raisi has repeatedly mentioned the 300,000 toman increase in the cash subsidy.
What is the value of the cash subsidy now?
The government began paying a 300,000 toman cash subsidy in 2021 but was legally obligated to meet a family’s need for essential goods each month. Meanwhile, the extraordinarily high inflation of essential goods over the past year has affected people’s wallets so much that the cash subsidy has lost even the slight impact it had last year.
Looking at the over 60% inflation in essential goods, one can say that the 300,000 toman cash subsidy has now lost about 180,000 tomans of its value. In other words, the Raisi government is currently not depositing a 300,000 toman subsidy into people’s accounts. Instead, given the inflation of essential goods in October 2022, it effectively deposits 120,000 tomans each month as a cash subsidy.
Now, if we assume that the inflation rate of essential goods remains at this level and, contrary to existing evidence, does not significantly increase over the next year, the cash subsidy in 2023 will have even less value than today’s 120,000 tomans.
Assuming a 60% inflation rate for essential goods, one can say that the cash subsidy will lose more than 72,000 tomans of its value by the end of October 2023. In other words, next year, the government will not only fail to pay the 300,000 toman subsidy but will deposit an amount equivalent to 48,000 tomans into citizens’ accounts.
Next year, the subsidy will again be 40,000 tomans
Based on the previously mentioned formula, it can be expected that in the second half of 2023, the value of the 300,000 toman subsidy being deposited today will fall to less than 40,000 tomans. This is a figure that was mocked and criticized by hardline conservatives concerning the Rouhani government’s performance because the government was depositing 45,500 tomans, while the Raisi government, with a broad media campaign, advertised the payment of a 300,000 toman subsidy.
Now, with this trend, it can be said that just a year and a half after Rouhani handed over power to Raisi, the value of cash subsidies will be less than the amount Rouhani was paying.
Is a cash subsidy better or a commodity one?
Given the rampant inflation that has taken hold of Iran’s economy, it can be said that paying any amount of cash subsidy not only cannot significantly impact people’s purchasing power but also becomes a populist and demagogic tool for some politicians to exploit. In reality, the government intends to divert public attention from receiving commodity baskets or electronic vouchers by depositing cash.
This is a point that, according to the law, should be implemented by the government. However, because the Raisi government sees such a policy as conflicting with its interests, it refrains from distributing commodity vouchers or baskets. In fact, if the government provides a commodity basket, it is forced to supply the items regardless of inflation rates and prices. But in the case of cash subsidies, not only does inflation benefit the government, but Raisi can also use it as a tool for propaganda.
Two related contents with this article on Iran Gate
- Raisi government’s statistics fabrication doesn’t solve any problems
- What has sanctions done to people’s livelihood?
