SCI Report: Spending Inequality Widens Between Rich and Poor

EghtesadOnline: Figures released by the Statistical Center of Iran show the spending gap between the richest and the poorest strata widened further in the last Iranian year (March 2018-19).

News ID: ۷۴۸۶۵۹

08 October 2019

Households in the top income decile spent 14.45 times as much as those in the bottom decile.

In other words, 10 million high-income individuals in the country spent 14.45 times more than the 10 million low-income people.

Households in the top 20% and top 40% of the income distribution spectrum spent 8.36 and 4.41 times as much as those in the corresponding group of low-income people, respectively, Financial Tribune reported.

Notably, these spending gaps have increased compared with the year before (March 2017-18) and constitute the biggest spending inequality registered since the fiscal 2011-12.

SCI data indicate that three trends could be discerned in the comparative study of spending inequalities over the past 18 years since the year ending March 2002.

Between the years ending March 2002 and 2008, the spending gap between the top decile of the income distribution and the bottom decile grew from 16.43 to 17.59—the highest level posted in 18 years. A downward trend started in the fiscal 2008-09 till 2013-14 (from 15.79 to 10.68).

The implementation of welfare measures such as Targeted Subsidies Law, which authorized the reduction of subsidies on food and energy, and allowed the payment of 455,000 rials ($4) to each and every Iranian on a monthly basis could have contributed to the shrinkage of spending inequality during those years.

The spending gap between the richest and the poorest resumed its upward movement since the year ending March 2015 up until last year from 12.33 to 14.45. What’s interesting is that the taming inflation of the years between March 2015 and 2018 did not buck this trend.

Spending inequality between households in the top and bottom 20% and 40% of the income distribution spectrum followed almost the same trajectory.

The spending gap between the top 20% of the income distribution and the bottom 20% grew from 9.61 to 10.04 between the years 2001-07. However, the widest and narrowest spending gaps posted during 18 years were in the fiscal 2006-07 and 2013-14, with 10.04 and 6.57 respectively.

The spending gap resumed its upward movement from the year ending March 2015 until the year ending March 20, 2018, from 7.26 to 8.36.

The spending disparity between households in the top and bottom 40% of the income distribution has been the widest (5.09) in the year ending 2007 and narrowest (3.71) in the year leading to March 2014.

In another report, SCI surveyed the spending of income deciles as a fraction of total expenditure of households.

The distribution of household expenditure was even more disproportionate last year, with the richest 10% of Iranian households representing 32.5% and the poorest 10% accounting for 2.25% of all expenditures.

The share of richest 10% of households from the total gross expenditure stood at 31.3% and that of the poorest was 2.29% in the year ending March 2018.

The year ending March 2008 saw the most disproportionate share of spending between the richest and the poorest in 18 years: the poorest income decile accounted for as little as 1.92% of total spending of Iranian households.

In the year ending March 2013, the richest 10% constituted 28.94% of total expenditure of country’s households, the lowest proportion in 18 years.

Impact of Inflation on Different Income Deciles

The latest SCI report on inflation felt by different income deciles show the average annual inflation gap among income deciles stood at 2.3% in the sixth Iranian month (Aug. 23-Sept. 22), indicating 0.6% decline compared with the previous month’s 2.9%.

The inflation gap of “food, beverages and tobacco” group among income deciles increased by 0.3 percentage point whereas that of “non-food and services” decreased by one percentage point month-on-month.

The average goods and services Consumer Price Index in the 12-month period ending Sept. 22 increased by 42.6% for the first decile (those with the lowest income) while it grew by 44.9% for the 10th decile (those with the highest income).

The second, seventh and eighth deciles saw their 12-month average inflation rates grow by 43.7% compared with last year’s corresponding period.

The annual inflation rate for the third decile increased by 43.6% in the same month, the fourth decile 43.5%, the fifth decile 43.4%, the sixth decile 43.1% and the ninth decile 43.9%.

The highest overall CPI (using the Iranian year to March 2017 as the base year) stood at 184.9 for the 10th decile and the lowest calculated was 179.7 for the first decile.

The year-on-year inflation rates increased by 34.7% for the first decile during the month under review, 35.6% for second, 35.7% for third and fourth deciles, 35.8% for fifth, 35.5% for sixth and seventh ,35.3% for eighth, 34.7% for ninth and 33.8% for the 10th decile.

Income deciles are groupings that result from grouping either all households or all persons in the population in the ascending order according to income, and then dividing the population into 10 groups, each comprising approximately 10% of the estimated population.

Removing High-Income Deciles From Cash Subsidy List

Recently, 200,000 high-income households were eliminated from the list of cash subsidy receivers.

The deletion process was executed based on information gathered from various governmental bodies on individuals’ economic conditions, including ownership of assets such as real estate or cars, holding a job or having a source of income or their submitted tax returns.

The Ministry of Cooperatives, Labor and Social Welfare plans to identify households that fall within the top three high-income deciles to eliminate them from the list of cash subsidy receivers in cooperation with the Information and Communication Technologies Ministry and the Plan and Budget Organization of Iran.

"Given the economic pressures faced by low- and middle-income families, the measure will be carried out cautiously in order to reduce the margin of error in selecting households who don’t need the government’s cash subsidies," Minister of Cooperatives, Labor and Social Welfare Mohammad Shariatmadari was quoted as saying by ILNA recently.

Noting that each income decile roughly includes eight million people, the minister said, households whose spending exceeds a specified threshold that will be set according to the findings of the Central Bank of Iran will be removed from the list of monthly cash subsidy receivers, ILNA reported.