Iran's Parliament Approves Budget Outline Amid Warnings Of More Inflation

Iran’s parliament approved the broad outline of the budget on Sunday with a significant number voting against the bill that would raise taxes and cut subsidies.

With 174 in favor and 76 against, the bill proposed for the Iranian year starting March 21 will go through further examination in the budget committee tasked with reconciling differences and improving details.

The major issue expected to impact the population is the elimination of an indirect subsidy the government pays to make imports of essential foods and medicines cheaper amid high inflation for the past three years. Importers of essential goods receive US dollars at roughly one-seventh of the free market rate.

The scheme was launched as Donald Trump’s administration prepared to leave the Obama-era nuclear agreement (JCPOA), throwing Iran’s economy off the hinge by threatening sanctions. As the national currency began to fall in early 2018, the government fixed the rate for US dollars at 42,000 rials for importers of essential goods. The rial kept falling to the current level of around 280,000 to the dollar.

The government spent at least $10 billion dollars a year to finance the subsidy and when President Ebrahim Raisi came to office last August his administration began signaling that it would stop the subsidy.

As talks to restore the nuclear agreement and lift US sanctions dragged on in 2021, Iran’s economic crisis worsened to the point that financing the subsidy apparently became a problem.

In the meantime, annual inflation reached almost 50 percent despite the subsidy. Many now fear that lifting it would further fuel price rises for the very commodities that ordinary people need most.

Many lawmakers in the Sunday session opposed the move, but it seems the die is cast. However, opponents fear that removing the subsidy will especially fuel inflation in food prices, which have already topped general inflation. In recent months the cost for food increased between 60-70 percent compared with last year.

Politicians inside the regime and pundits fear that people will not tolerate any further price increases, and that can lead to unrest and threaten the regime. Even if US sanctions are lifted in the next few months, it would take a long time to bring inflation down. Salaries have woefully lagged behind inflation and workers from all sectors are demanding substantially higher wages. Salaries must be at least doubled to save the middle class from poverty.

A typical worker gets around $120 to $200 a month, while rents and other daily necessities have risen with the fall of the national currency, keeping pace with the value of the US dollar. Mehdi Asgari, a lawmaker warned during debate that “Ten million families have fallen below the poverty line” and stopping the subsidy will bring about a shock to many who would not be able to afford even “bread and cheese.”

At the same time the budget bill proposes to raise taxes for generating 62 percent more revenues. Lawmakers warned that this would stifle whatever production is left in the country.

President Ebrahim Raisi who attended Sunday’s parliament session said, “It is not possible that we would eliminate the preferred exchange rate without finding a way to ensure people’s livelihood.”

The government has been promising cash handouts to lower classes to help them cope, but the amounts mentioned are a few dollars a month.

Asgari, the lawmaker who opposed eliminating the subsidy, gave a “serious warning” to the president, saying that people cannot afford “such a high inflation.”