Subsidies in Iran

The government described the subsidy plan as the "biggest surgery" to the nation's economy in half a century and "one of the most important undertakings in Iran's recent economic history".

[citation needed] The stated goal of the subsidy reform is "to rejuvenate Iran's economy, increase productivity, give it a new footing and bring it out of the slump it has been in for so long".

[18][19] The reform plan will also save money for the Iranian people because it will end a multibillion-dollar-a-year contraband (17% percent of fuel production in Iran is smuggled abroad daily).

[24] Overall, implementation of the plan will increase productivity, efficiency, competitiveness of Iran's economy, economic growth, oil exports and per capita income (all other things being equal).

[28][29] According to the Vice President for Parliamentary Affairs, Iran's subsidy reforms would save 20 percent of the country's budget.

[8] To that end, in 2009, forms were distributed asking Iranians to report income, assets and property but the question remains on how the government will verify this information gathered by self-reporting.

[citation needed] The administration has categorized the people into three income brackets; namely lower, middle, and higher for the implementation of the subsidy reform plan.

In September 2010, Iran's Statistics Bureau announced that implementation was delayed by one month because they were still collecting information regarding the financial situation of households and opening bank accounts for them.

[40] The government took control of deciding how much the prices should rise in a year, as long as the subsidy cuts on gasoline and other refined products, natural gas, electricity, water, food (sugar, rice, cooking oil and bread), health and education are between $10 and 20 billion dollars annually.

[51] Starting in April 2012, Iran's consumers have been hit with a wave of rising prices that has now touched laundry detergent and food items such as cooking oil, rice, eggs and dairy products.

[67][68] As of October 2011, consumption of liquefied petroleum gas, gasoline, kerosene, and diesel has cut between 4 and 19%, despite the fact that more than 1 million cars have been added to Iran's fleet.

[72] Experts believe that following the launch of the subsidies reform plan, the electricity industry will undergo significant changes and will become more appealing to private investors.

[1] During the second phase, starting in June 2012, half of the funds from energy and food subsidies will be re-allocated to the people and the remaining 50% will go to the industrial sector.

If approved by the Parliament, the government will pay an extra cash handout of 280,000 rials/month to 80% of the general population (i.e. people earning less than $2000/month, which is a comfortable income level in Iran).

[citation needed] In July 2012, it was announced that implementation of the second phase was suspended awaiting further adjustments by the government and because of raising inflation (around 22% as of April 2012).

[77] According to earlier critics, even if half of $20 billion is passed as part of the compensation to the poorer 50% of the Iranian society, it will amount to $25 per eligible person per month; "no way near enough to make up for such inflation rates".

[79] Ahmad Tavakkoli, a parliamentarian, accused the government of “violating the law” and “mis-implementing” the plan because it earned 290,000bn rials ($23.6bn) from the cut in subsidies in the first 14 months of its implementation but paid people $36.7bn of compensation in return (he says).

[66] It has also been reported that while the subsidy reform plan needs further adaptation and fine-tuning, citizens must separate the questions of public policy from the issues of government legitimacy.

[citation needed] The Economist Intelligence Unit has also praised Iran's subsidies reform plan for its positive effect on the economy in 2011.

[43] According to the World Bank:[citation needed] A revision to the system of subsidies and cash transfers to better balance reimbursements and fiscal accounts has been looked upon favorably by outside analysts.

Iran has made important efforts to reform its income support system away from subsidies and toward better targeted social safety nets, and this has brought down the pace of prices.

In October 2012, 179 of 240 members of parliament voted in favor of pausing the subsidy reform, because of high inflation (exacerbated by the sanctions against Iran).

Those cash handouts "discouraged people to work in rural areas" the government has also argued,[90] although this claim is not supported by an Economic Research Forum study that found no evidence of labor supply reductions, but did find increases in hours worked among service sector workers, possibly due to business expansions made possible by the increased cash.