Iran's Next Year Budget Bill Presented to the Parliament: General Revenues Rise 6.5%

EghtesadOnline: President Hassan Rouhani presented the budget bill for the fiscal 2018-19 to the parliament on Sunday, a document he called a blueprint for generating employment, eliminating poverty and promoting equality.

News ID: ۷۴۴۵۵۶

11 December 2017

The total amount of general revenues in the budget bill stands at 4.24 quadrillion rials, 6.5% more compared to the budget law for the current year. Revenues exclusive to ministries and governmental institutes are projected to constitute 5.68 quadrillion rials of the overall general revenues.

Each dollar was exchanged for 42,100 rials in Tehran's forex market as of Sunday.

Government companies, banks and for-profit organizations, which had an 8-quadrillion-rial budget this year will get 8.13 quadrillion rials to finance their operations next year, Financial Tribune reported.

The research arm of the Iranian Parliament expects the government's general revenues to stand at 3.25 quadrillion rials in the upcoming fiscal year. This is while "inevitable" spending costs amounted to 2.8 quadrillion rials in the current year, IRNA cited the think tank's latest report as showing, adding that the above figures indicate that the government will have no more than 450 trillion rials at its disposal to make budgetary decisions, such as increasing the wages of civil servants and pensioners, settle its debts and spend on development projects.

The Majlis Research Center's report made it clear that if the government cannot cut its spending, it will have to fund its affairs by raising taxes, increasing fuel prices, issuing bonds or devaluating the rial.

> Stronger Dollar, Higher Oil Price

According to legislator Ezzatollah Yousefian, the government has projected a stronger dollar and a higher oil price in the 2018-19 budget bill. It set the greenback’s exchange rate at 35,000 rials, up from last year’s 33,000 rials, and still far lower than the 42,100 rial/dollar in Tehran’s markets on Sunday.

OPEC’s third largest crude oil exporter is assuming an average oil price of $55 a barrel, up from the current $50.

"With the $55 crude and 35,000 rials per dollar, the administration expects 1,000 trillion rials in revenues from oil exports," said Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission.

“The central feature of the upcoming year's spending bill is that the number of cash subsidy receivers should be cut by 40% to reduce the government’s payment to 230 trillion rials,” he was quoted as saying by ILNA.

According to a member of Majlis Planning and Budget Commission, citing the recent National Population and Housing Census, nearly 76 million or 95.21% of Iranians receive the monthly grant of cash subsidies.

Noting that more than 600,000 people have been added to the cash subsidy list over the first half of the current year (March 21-Sept. 22), Gholamali Jafarzadeh Imenabadi recently said the government has to pay 480 trillion rials as per the Subsidy Reform Plan in the current fiscal (March 2017-18).

As part of the Subsidy Reform Plan implemented in 2010, the previous administration removed subsidies on food and energy, and instead paid 455,000 rials to all Iranians on a monthly basis.

The government of President Hassan Rouhani has retained the plan, albeit reluctantly. After all, an overnight cancellation of the scheme, as many experts have argued, could translate into political suicide as the recipients, mostly ordinary citizens from low income population, have grown accustomed to the monthly stipend over the years.

Nonetheless, the Rouhani government has tried to restrict the number of cash subsidy recipients.

According to Government Spokesman Mohammad Baqer Nobakht, a total of 4,853,386 people were removed from the list of cash subsidy recipients by January 20, 2017.

Earlier, Pour-Ebrahimi said the Iranian Parliament is determined to work in conjunction with the government to remove top three high-income deciles of Iranian households from the list of cash subsidy recipients in the budget law of the next fiscal year

"Had the monthly grant of cash subsidies to these deciles been discontinued two years ago, 120 trillion rials would have been added to government revenues and development budget each year," he said.

The Energy Ministry has been required to charge subscribers 200 rials per cubic meter of water, which is a heavily-subsidized commodity and consumers pay only one-third of its real price in Iran. This comes in addition to water tariffs.

> Taxes: Backbone of Next Year's Budget

Tax revenues would be the backbone of next year’s budget, said Pour-Ebrahimi.

Echoing his remarks, Kamel Taqavinejad, the chairman of Iran National Tax Administration, told IRNA that the bill has predicted 1,050 trillion rials in tax and 230 trillion rials in duties for the next year.

"Together with customs duties, the government’s tax revenues will amount to around 1,450 trillion rials," he said.

The Central Bank of Iran's latest report shows although tax revenues were estimated to hover around 593.5 trillion rials in the first half of this year, they only reached 431.2 trillion, registering a 0.4% decline year-on-year.

The government’s tax revenues consist of its returns from direct and indirect taxation. Direct taxes include three groups of “tax on legal entities”, “income tax” and “wealth tax”. Overall, direct tax revenues stood at 231.9 trillion rials in H1, registering a decline of 5.1% YOY. Indirect taxes, including “tax on imports” and “tax on goods and services”, reached 199.3 trillion rials, indicating a 5.6% rise YOY.

Iran’s budget deficit came in wider than expected in H1 to reach 181.1 trillion rials. The shortfall for the period was higher than forecast and amounted to 163.8 trillion rials. The government’s revenues during the period, including tax proceeds, amounted to 567.8 trillion rials, registering a 3.7% decline YOY.

Revenues associated with the sales of oil and petroleum products reached 446.6 trillion rials during the period, indicating an 82.2% rise compared with the same period of last year, but less than the projected 580.4 trillion rials.

The CBI report also showed government spending hit a whopping 1,074.9 trillion rials during the period under review, posting a rise of 13% YOY.

To cover the widening deficit, the government has been issuing bonds. H1 data show 253.3 trillion rials worth of bonds were issued during the period, 7.7% less than the corresponding period of the year before.

The government only spent 78.2 trillion rials on development projects, not only 36% less than the similar period of last year but also much lower than the projected 363.7 trillion rials.

As per the upcoming year's budget bill, the share of the National Development Fund of Iran, a sovereign wealth fund that receives part of the country’s oil revenues, will rise by 2% to reach 32%. Knowledge-based companies of private and cooperative sectors will receive $200 million from NDFI resources.

Members of the special commissions of the parliament will have 15 days to put forward proposals and amendments to the budget bill to Majlis Joint Commission. The commission will have one month to bring the budget bill to the open session of the parliament.

The parliament-approved budget needs the final endorsement of the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.

“We hope to have the budget law before February 1, 2018 (the first day of the 10-Day Dawn Festivities, marking the anniversary of the 1979 Islamic Revolution),” the president said in an address to the parliament on Sunday.