Mar 5, 2018

The discontinuation of cash handouts for a large segment of Iranians has become a controversial issue in the initial draft budget for the next Iranian year (beginning March 21). Some suggest that this prospect contributed to the grievances that caused the protests in late December. On Feb. 22, the new framework of cash handouts was finalized as part of the ratification of the coming Iranian year’s budget law. But what are the actual changes introduced by lawmakers, and what are their consequences for the Iranian economy?

President Hassan Rouhani’s administration has been facing a major dilemma in continuing the subsidy reforms that started in 2010. It was predicted that the cash handout program would be revamped after Rouhani’s re-election in May 2017. The changes involve the lifting of subsidies on a variety of things like electricity and water in exchange for monthly cash payments to citizens. To protect the lower income classes and reduce the financial burden on the treasury, the government has had to look for ways to close the income gap.

When Rouhani presented his budget to parliament on Dec. 10, he pointed out that poverty eradication would be one of his main objectives. One of the tools to achieve this goal was to ensure that the financial resources directly paid out to most Iranian citizens were utilized effectively. In fact, government officials calculated that a continuation of monthly cash payments in the amount of 455,000 rials (about $12.50) per person would only be feasible if the recipients were halved. The budget draft included an allocation of 230 trillion rials ($6.9 billion) to cash handouts, enough for payments to only 42.1 million citizens in the next Iranian year. As of November 2017, 76.3 million Iranians (out of a population of 81 million) were receiving cash handouts and the government was suggesting to cut down the number to 42.1 million next year. For years, the administration had tried and failed to exclude the upper income classes. The administration's plan in the new approach was to concentrate on the lower income classes (workers, civil servants, single-parent households, people registered with the various state welfare organizations). Those who felt wrongly excluded could appeal.

During the parliamentary deliberations, one of the reasons the majority of lawmakers rejected the draft budget was the plan to cut cash handouts.

It is not clear whether the parliamentarians were reacting to popular demands or whether they were convinced that cash handouts would be positive for the Iranian economy. The sad fact about populist politics is that the cash handouts may be one of the few tangible deliverables lawmakers may be able to show their constituents when they start their re-election campaigns at the end of 2019.