Decline of Iranian Household Welfare

The Open Data Iran database is an innovation project aimed at gathering data related to Iran in one place and presenting it in easily accessible formats. Radio Farda, in collaboration with this entity, publishes a series of articles. Welfare expenditures, including budgets for supporting vulnerable groups and social security, have always accounted for a significant portion of government public budgets. But how much do welfare expenditures contribute to the Iranian government's budget and economy? At first glance, the answer seems clear. Given the state-owned nature of the economy and the government's reliance on abundant oil revenues, it is expected that a large part of the government's budget would be allocated to welfare expenditures. We have often heard that the Iranian economy is described as a subsidized and supportive economy. In this note, we have examined budget laws to answer the question of how much welfare expenditures contributed to the government's public budget from 2008 to 2016 and what changes occurred. Additionally, per capita welfare expenditures have been calculated at constant prices, with significant changes observed before and after 2010. It is essential to note that this analysis is limited to the figures mentioned in budget laws, which have consistently diverged from the actual performance of governments over time. However, due to the lack of publication of details related to expenditure headings in budget audit reports, it has not been possible to examine the actual performance of the government. The share of welfare expenditures from the public budget and the Iranian economy As shown in Chart 1, the share of welfare expenditures from the public budget increased from nearly 12% to over 20% between 2008 and 2016, growing by more than eight percentage points. During this time, the figure for welfare expenditures in the budget also rose from over 10 trillion tomans to more than 62 trillion tomans. On the other hand, the share of welfare expenditures from Iran's Gross Domestic Product (GDP) also increased from less than 3% to over 5% during the same period. This upward trend could have occurred for various reasons. However, examining other parameters such as the growth rate of welfare expenditures compared to inflation, and the trend of changes in per capita welfare expenditures at constant prices, indicates that this increase in share does not necessarily reflect a continuous increase in household welfare. The trend of changes in per capita welfare expenditures at constant prices If we deflate welfare expenditures using 2011 as the base year, we will obtain a more accurate picture of the situation. The per capita welfare budget for each Iranian in 2008, at 2011 constant prices, was nearly 223,000 tomans. This figure rose to over 314,000 tomans in 2016. The trend appears to be increasing again. However, a closer look reveals that the per capita budget in 2010, influenced by the implementation of the Targeted Subsidy Plan, reached over 340,000 tomans (at 2011 constant prices) and has shown a declining trend in most years since then. In other words, the per capita welfare budget in Iran in 2016 was higher than in 2008 but lower than in 2010. This can also be observed using Chart 2, which compares the growth trend of the welfare budget at current prices with annual inflation and the growth trend of per capita welfare budget with annual economic growth. In the years examined in this note, the growth rate of the welfare budget was only higher than the inflation rate in one year. The growth rate of the per capita welfare budget at constant prices has also experienced negative growth in years where economic growth was not positive. The Targeted Subsidy Plan and its welfare budget The increase in per capita budget in 2010 might suggest that the implementation of the Targeted Subsidy Plan led to an increase in the per capita welfare budget. However, part of the plan that could have contributed to increasing the welfare budget was never actually implemented. According to Article 7 of the Targeted Subsidy Law, the government was supposed to allocate a maximum of 50% of the revenues from the implementation of the plan each year to two areas: a) cash payments to households, b) implementing a comprehensive social security system and expanding social welfare. However, reviewing budget audit reports from past years shows that the government has always allocated more than 50% of the revenues from the implementation of the plan to executing this article, and the share of social welfare from these payments has always been zero or very minimal. Conclusion Although the welfare expenditures allocated by the Iranian government have accounted for a larger share of the public budget over time, this increase has not been reflected in a continuous increase in per capita budget due to rising inflation and low or negative economic growth from 2008 to 2016. The per capita welfare budget in Iran has been declining since 2010, and even with positive growth in 2016, it remains lower than in 2010. It can be said that although the Targeted Subsidy Plan was implemented with the aim of increasing the welfare of Iranian households, due to non-compliance with its legal provisions and exacerbating economic fluctuations in subsequent years, it has not succeeded in achieving this goal.