Iran's 50% Tax Increase Plan; Raisi's Government Replaces Dollar with Euro

The full text of the first section of the 1403 budget bill was published in Iranian media on Wednesday, December 1. The text discusses a plan to increase taxes by 50% and eliminate the dollar. This bill, delivered to the Islamic Consultative Assembly by the government on Tuesday, November 30, has faced criticism. ISNA reported that 'foreign currency resources and expenditures are written based on the euro' and added: 'It seems the government intends to replace the dollar with the euro.' This issue drew criticism from Abdolnaser Hemmati, former governor of the Central Bank of the Islamic Republic, who wrote on his page on the 'X' network: 'Do you expect this to break the back of the US dollar?!' He stated: 'This is not the way to dollarization. The prerequisite for dollarization is correct economic and international policymaking to strengthen the competitiveness of the national economy, not symbolic actions.' Meanwhile, the website 'Tejarat News' reported that 'the first section of the budget bill carries strange numbers.' According to this website, the bill states that 'tax revenues will reach 1,122 trillion tomans, a 50% increase compared to this year.' Mohammad Taghi Fayyazi, an economic expert and budget analyst, told Tejarat News that 'such capacity does not exist in the economy' and added: 'Iran's long-term economic growth rate has been recorded at about 1%, and in recent years it has been around 3 to 4%.' He explained that 'a significant portion of this modest growth has been due to oil sales, and without oil, the growth rate might have reached a maximum of 2 to 3%. Moreover, market conditions do not even reflect this growth, and production has not seen much boom.' According to Fayyazi, 'increasing taxes will definitely increase pressure on the country's economy, both in the production sector and in household consumption.' In this context, 'Ninety Economic' reported that Iman Fadaei, head of the tax group at the Ministry of Economy, said on Friday: 'We fear sending tax bills to the parliament will become ineffective due to exemptions added.' He added: 'Tax exemptions should not be given aimlessly, as they have had no impact on the volume of investment in the production sector.' Meanwhile, Tejarat News reported that oil revenues in the next year's budget are estimated to be 16% lower than this year. Mohammad Taghi Fayyazi told this website: 'Regarding oil revenues in recent years, either oil has not been sold due to sanctions, or if it has been sold, the currency generated from it has not entered the country.' He added: 'Monthly reports from the Planning Organization also show that only about 50% of the figures predicted in the budget have been realized. Therefore, it can be expected that the majority of the resources anticipated in the budget from oil sales will not be achievable.' This economic expert pointed out that 'there is a risk that, given the US elections and the fragile state of the Iranian economy, current pathways for Iran's oil exports may close, and physical oil exports may also decrease.' According to him, 'the government will have to resort to the Central Bank as in previous years, leading to an increase in the monetary base and inflation.' Another point in the next year's budget bill is the government's projected income of 60 trillion tomans from the privatization of state-owned companies. Previously, the Islamic Republic government announced the implementation of a plan known as 'productive-making,' which has faced widespread criticism from opposing economists and labor and professional organizations in Iran. They point to the sale of factories and industrial and agricultural units to the private sector in past decades, which led to their bankruptcy and closure, resulting in layoffs, and argue that continuing this policy under Ebrahim Raisi's government will yield no different results. Additionally, according to the next year's budget bill, the sale of debt securities is projected to increase by 36.1% compared to last year, reaching 254 trillion tomans. Tejarat News quoted Mohammad Taghi Fayyazi as saying: 'The sanctions remain in place, and oil revenues do not cover the budget deficit, so the government has to issue bonds. However, since bond issuance has continued for years and the maturity of previous bonds is likely to be around the resources specified for bond sales, the government will inevitably have to issue new bonds to repay previous debts.' He pointed out that as a result, 'debt securities have somewhat lost their role as a budget balancer, and the government has to issue new bonds to repay its previous debts.' According to the proposed budget bill, an 18% increase in the salaries of government employees and a 20% increase in the pensions of military and civil retirees have been included. This is while inflation was over 45% just in Mehr of this year. In this context, ILNA reported last week that the household livelihood basket in Tehran has reached 25 million tomans. This is while Mohammad Bagheri-Benabi, a member of the Economic Commission of the Islamic Consultative Assembly, announced last summer that 'the poverty line in Tehran has reached 30 million tomans.' Furthermore, in Khordad of this year, the Research Center of the Parliament reported a worsening of poverty over the past decade, stating that 'poverty' no longer only applies to 'low-income households.' According to this center, the middle class has become so weakened that with 'a cost shock' such as a sharp increase in rent or the costs of an illness, they fall below the poverty line. The worsening livelihoods of the majority of people has led to increased protests from workers, nurses, retirees, and teachers in recent years. Hossein Raghfar, an economist, cited the root of protests in recent years as 'the inability of households to meet basic needs.' The proposed budget bill for 1403 includes a provision of 134 trillion tomans for 'strengthening defense capabilities.' The bill emphasizes that 'if this amount is not allocated,' the National Oil Company is obliged to allocate 'the monthly difference equivalent to that' in crude oil or gas condensate to legal entities introduced by the General Staff of the Armed Forces.