MRC Urges New Revenues to Plug Budget Holes

EghtesadOnline: The research arm of the Majlis in a new assessment of next year's proposed budget, says government revenues predicted for fiscal 2019-20 are unlikely to materialize.

News ID: ۷۸۴۴۷۴

12 January 2019

The Majlis Research Center warns that if MPs approve the budget bill in its current form and shape, "problems in the functioning of executive agencies, people's livelihoods and fiscal discipline would be inevitable."

In order to give a better picture of the budgetary constraints next year, the MRC pores over some of the key figures related to revenues as forecast in the budget bill.

The “general resources” of the budget is 4,077 trillion rials ($97 billion according to the official parity rate against the US dollar and $37.7 billion based on the open market rate), shows a 5% increase compared to the budget for the present fiscal that ends in March and a 25% increase compared to the forecast of the actual performance of the government in the current year (against what it had hoped for), according to Financial Tribune.

The think tank draws attention to the fact that if the government falls short of meeting its revenue target, the first casualty of the deficit would be “development projects”. In that the government will shun the key projects to be able to pay for other essentials (like wages of government workers and retirees).

Revenue in the 2019-20 budget – predicated at 2,086 trillion rials – have shrunk 3% compared to the current year's budget, comprising tax income and profit from government-owned companies and accounts for 51% of the of the budget resources.

Earnings from oil exports (predicted at 1,480 trillion rials) are 38% over and above the current year's approved figure and account for 36% of the budget resources.

Government borrowing – which includes both bond issuance and divesting shares of government-owned  firms – accounts for 12% of the budget resources (at 510 trillion rials) and has dropped 19% compared to the outgoing year.

Tax Revenues

Governments have launched an initiative in recent years to reduce dependence on oil revenues to meet targets enshrined in the 'Resistance Economy' proposed by the Leader Ayatollah Seyyed Ali Khamenei. An important component of the vision is to significantly raise income from taxes.

According to MRC, in the 2019-20 budget bill the government has predicted 1,536 trillion rials in tax income – up 8% compared to this year's budget.

With regard to inflationary pressures expected in the coming year (34% in 2019 by the IMF), and the conspicuous downturn in the economy, the MRC's preliminary prediction is that the government is likely to be 69 trillion rials  shy in tax revenues and will miss the mark.

Oil Revenues

The government expects to earn 1,425 trillion rials in oil revenues next year. Should that not be the case, it has permission to tap into the special oil wealth fund, the National Development Fund of Iran. However, as MRC points out, the NDFI may not be able to plug the hole due to insufficient funds.

Another gray spot is that the government has, ironically, increased its dependence on oil by 3% compared to the current year taking it to 35%.

After evaluating possible oil price scenarios for the coming year and the discounts Iran could offer its customers due to the new US sanctions, it is taken for granted that oil receipts will also take a hit.

Solutions

Among solutions to help plug the government's chronic deficit spending , the MRC reiterates its earlier proposal that oil revenues be excluded from the government budget and count  as "deficit".

It then suggests that oil revenues go the Central Bank of Iran and the bank allocate them on a monthly basis to the government for basic expenditures. This, it says, will help enhance CBI's long-sought goal of independence.

Another measure is about taxation. Noting that the volume of tax exemption in the country amounts to a massive 1,500 trillion rials, MRC suggests an overhaul of such unwanted practices that benefit a selected few.

Another factor is the massive energy subsidies paid by the government (some say it is larger than the general revenue of the budget). The think tank suggests that the profligate energy consumer pay a levy and recalls that almost 50% of gas is consumed by two-fifths of the most well-to-do population.

Calculating income tax based on salary brackets (top earners should pay more), taxing interest on some bank deposits, introducing capital gain tax and cracking down on tax evasion are other ways for increasing government revenues, according to the MRC.