Iran Economy NewsIran: Hidden Subsidies a Deception To Plunder the People?

Iran: Hidden Subsidies a Deception To Plunder the People?


Statistics indicate that Iran’s government headed by Ebrahim Raisi has decided once again to loot the people’s pockets by eliminating the hidden subsidies, to compensate for the government’s budget deficit.

It has been a little over a decade since the announcement of what has been called ‘targeted subsidies’ in Iran. It was in the winter of 2008 that Mahmoud Ahmadinejad’s government introduced the law on targeted subsidies to the then parliament.

Finally, after many disputes among Iranian officials, the law of the ‘targeted subsidies’ was approved in December 2010.

At that time, it was announced that energy carriers, water, and bread would be offered at a new rate, the price of free gasoline increased to 700 Tomans and the price of CNG gas to 300 Tomans per cubic meter.

The price of diesel was announced at 350 tomans per liter. According to the law passed at the time, 16 items of goods and services were subject to the abolition of subsidies and were supplied at international prices.

At that time, it was decided that half of the revenue from targeted subsidies, which amounted to 1 trillion tomans ($816 million), would be allocated to citizens in cash to combat inflation.

In the first year of subsidy payment, i.e., in 2010, it was decided to pay 45,500 tomans ($36) per month to about 68 million people in the country.

After two years from that date and in the budget of 2012, it was decided that due to the increase in the price of the dollar to 1226 Tomans, the surplus income from the difference between the dollar rate in the foreign exchange reserve fund with the National Development Fund or the government treasury account should be saved separately. And part of it in the amount of 2 trillion tomans ($1.6 billion) to be allocated to compensate the budget deficit in that year.

In the meantime, however, Ahmadinejad’s government refused to allocate a share to the manufacturing sector, making the targeted subsidies ineffective.

The targeting of subsidies, especially in the energy carriers’ sector, was done under the pretext of reducing the consumption of energy carriers in the country, but after a short time after the removal of subsidies from the energy carriers’ sector, the consumption of these carriers returned to the previous level.

In 2012, Ahmadinejad’s government was forced to raise the price of foreign exchange in the open market to cover the lack of funds to pay subsidies, and this was the beginning of a process that has continued to this day.

Ahmad Tavakoli former MP announced at the time that the government had deliberately increased the price of the currency so that they could pay the difference in cash to the people. This, however, was an inflationary move and had an impact in the months and years that followed.

Ahmadinejad’s government handed over the job to Hassan Rouhani’s government. Before taking the helm of the government, Rouhani promised the lower deciles of the society rich incomes.

But a year after these words of Rouhani, the second phase of targeted subsidies began in April 2014.

As many as 91.2 percent of Iranians applied for cash subsidies in April 2014, but it turned out that between 10 and 15 percent withdrew their applications for subsidies.

It turned out that 22 million families, out of a population of over 70 million at the time, had applied for cash subsidies.

Quota gasoline at this time increased from 400 tomans to 700 tomans and free gasoline from 700 tomans to 1000 tomans.

Also, the quota diesel price increased from 150 tomans per liter to 250 tomans and free diesel from 350 tomans to 500 tomans.

In the second term of Rouhani’s government and in November 2019, the price of quota gasoline increased from 1000 Tomans to 1500 Tomans and free gasoline to 3000 Tomans.

However, the Rouhani government’s promise to pay a living subsidy in addition to the previous 45,500 Tomans subsidy was never fulfilled, and so far, the amount of the subsidy has remained at the same figure as in 2010.

Now, less than three months after the inauguration of Ebrahim Raisi, he and his affiliates are seeking to pave the way for what is called the elimination of hidden subsidies.

They spoke of the need to eliminate hidden subsidies and ‘hold a referendum to eliminate cash subsidies’ and offer ‘quasi-subsidies’ instead of cash subsidies.

For example, Hadi Ghavami, the Deputy Minister of Economy of the Raisi government, cleared the path for this and announced the number of hidden subsidies as 140 trillion Tomans ($5 billion), and added that one day of hidden subsidies per person is equivalent to one month of cash subsidies and the total is 1.35 billion tomans per month.

In another artificial calculation, the number of hidden subsidies is estimated at 170 trillion tomans ($6.1 billion).

These figures, however, are practically impossible to calculate based on the number of hidden subsidies as opposed to cash subsidies because they are a function of different criteria and different base prices.

However, what is now counted as a hidden subsidy in Raisi’s government is the difference between the border price (Customs) of goods and the domestic price of those goods.

With such preparations, and without considering the per capita income of Iranian households and indexing the price of energy carriers with the FOB rate of the Persian Gulf, Raisi’s government, like its predecessors, seeks to eliminate hidden subsidies under the pretext of targeted subsidies.

At present, there is a daily increase of 300 trillion tomans ($11 billion) of liquidity in the Iranian economy, which the regime’s economists see as the result of incorrect implementation of targeted subsidies and non-elimination of hidden subsidies.

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