Cutting Cash Subsidies To Affect 24 Million Iranians Before End of March

The Iranian government is continuing to cut off cash subsidies as the economic crunch resulting from U.S. sanctions become increasingly daunting.

Based on estimates published by Mehr news agency and Eghtesad Online news website, some 24 million Iranians will no longer receive cash subsidies by the end of the current Iranian year on 20 March 2020.

Officials have said that they have already cut off the subsidies that were meant to reach 1,100,000 Iranians, Mehr news agency reported on 19 October.

The economic news website Eghtesad Online further explained that the payment of cash subsidies to 700,000 Iranians were cut off last month and on Friday the names of another 400,000 individuals the government has categorized as those who do not need the cash subsidies.

Payment of cash subsidies started in Iran under the populist President Mahmoud Ahmadinejad who came to power in 2005 and was in office until 2013. Under his "targeted subsidies scheme" every Iranian received 450,000 rials (Roughly 45 dollars at the time, and around 12 dollars at the current rate of exchange approved by the government since 2018).

Although the amount may look insignificant, yet for poor families living in villages or slum areas in big cities, this is the whole or a major part of their monthly income.

The government has divided the population in 10 tiers in terms of their income and is planning to gradually omit those in the top tiers from the list of those who receive the cash subsidies in their accounts every month.

Both president Ahmadinejad and his successor President Hassan Rouhani have been frequently criticized by economists for wasting the country's financial resources and unfair distribution of subsidies.

The critics say people in higher tiers may not need the subsidies as they are well off with their usual income. The government appears to have listened to this group of critics. Other critics argue that the subsidies are not distributed fairly as people in the lower tiers actually ned to receive more in order to make ends meet.

A third group of critics argue that payment of cash subsidies will inevitably lead to higher inflation as a result of injecting cash into the market.

There are serious criticism in Iran also about the other forms of subsidies, for instance the subsidy on fuel. Many argue that in the current system, those who spend more, in other words the rich, benefit more from the subsidies than those who have no cars.

Recently, in another sign of the increasingly daunting economic crunch, a closed door session of the Iranian Parliament Majles discussed increasing the price of fuel and omitting the subsidies in a bid to make sure that only those who consume more will be paying more.

In an unprecedented event at the Iranian Parliament (Majles), Deputy Commander of revolutionary guards (IRGC) Ali Fadavi spoke on Monday October 7 during a closed-door session on fuel and energy subsidies. Oddly enough, Iranian news agencies did not mention the presence of a cabinet minister in the session debating a sensitive economic and political issue. This might indicate security concerns about how the Iranian society might react to increasing prices.

The Majles is still undecided about the subsidy on fuel but the cutting of cash subsidies is going ahead with an obvious resolve on the part of the government.

The government has said that people will receive a text message before their cash subsidy is cut off, and they can text back within 48 hours their argument and evidence if they believe they should continue to receive the subsidies. Subsequently, the officials may or may not re-consider their decision.

The budget law for the current year has determined that the government should cut of the subsidies of those who do not need it based on criteria such as their location, the value of the property in which they live, the value of their vehicles, their job title and so on, which requires an annoying invasion of people's privacy by the government. At the time being, the income tiers are simply based on individuals' declared income which is not necessarily an accurate yardstick, the critics argue.

The U.S, sanctions that have been imposed on Iran's economy after the U.S. withdrawal from the nuclear deal, have adversely affected the state of the country's economy. In particular, the sanctions on Iran's oil export and international banking have made it difficult for the government to control the ongoing economic crisis in the country, while they appear to have made life difficult for many Iranians as a result of high prices, rising inflation and high unemployment figures.