Who Pays the Cost of Iran's Budgetary Opacity?

One of the criteria for the efficiency of a country's budget is its transparency. Otherwise, the realization of budget goals is questionable. The consequences of a lack of budget transparency include an imbalance and an increased likelihood of budget deficits, which in turn lead to many negative outcomes such as increased liquidity and rampant inflation experienced in daily life. According to the budget transparency report by 'Global Open Data', Iran ranks 67th among 94 countries, which is below the median. This organization considers six components for evaluating and globally comparing the budget transparency of countries, which are fundamentally based on the existence or absence of documents and access to them. According to this report, the transparency of the Iranian government budget is 45%. Reports from Iranian oversight institutions also confirm the lack of transparency and legal violations in budget implementation. For example, Adel Azar, the head of the Court of Audit, pointed out that in the budget review for the year 2017, 6,800 legal violations were identified, and 4,944 violations in the form of 1,800 cases were referred to the prosecutor's office from the auditing stage. This government official also states: 'While the budget provisions in 2015 were adhered to 33%, this figure decreased to 20% in 2016.' Adel Azar also mentions: 'In 2015, the government did not comply with 55% of the budget provisions, and this issue increased to 65% in 2016.' The unprecedented budget deficit in Iran and the outlook for 2019, however, the scope of violations and lawbreaking is much broader than what the Court of Audit speaks of. This includes tax evasion and exemptions, as well as the use of the public budget as a rent by religious and political institutions. The lack of budget transparency is a product of the lack of transparency in economic institutions. According to tax officials, in Iran, there is about 40% exemption and 30% tax evasion. For example, Yaqoub Mazraei, the director of tax affairs in West Azerbaijan, states: 'In Iran, according to the laws, nearly 40% of the economy is exempt from paying taxes.' Part of the tax evasion is related to the opaque and informal sector of the Iranian economy, and another part is related to many religious and political rent-seeking institutions that participate in rent-seeking, both named and unnamed. Tax exemptions are often specific to institutions that are directly overseen by the leader. One of the problems in Iran's economy regarding taxes is the inefficiency in tax collection, evasion, and exemptions, but this is not the only issue. There is an agreement among government officials that multiple rent-seeking institutions benefit from the government budget without being transparent, accountable, and having a positive yield. The depletion of resources is one of the reasons for the budget deficit, the government's massive debt, and ultimately the inefficiency of resources. In support of this, Eshaq Jahangiri, the first vice president, states: 'The government budget has become the sacrificial meat, and anyone with a research center, university, or job uses the government budget. Some, with the influence they had in the presidency, the planning and budget organization, or the parliament in the past, have now become a part of the national budget, so that their budget, if it was initially one billion, has increased to five billion and currently up to 20 billion, while they were not supposed to receive a budget from the government.' The consequences of the lack of economic and budgetary transparency are that the Iranian economy, in a sense, is a clerical economy and has a dual nature. The clerical part of this economy benefits from privilege, power rent, and the support of military and religious institutions, considers itself above the law, and is neither transparent nor accountable, while the other part, which is the state bureaucracy, suffers from management corruption and, due to its inefficiency, is unable to supervise. The existence of these two parts in governance is the source of dual legitimacy in the administrative system and duality in management centers in executive organizations. This duality reflects in the money, credit, and capital markets and even in the tax system, exacerbating chaos and lack of transparency. One of the consequences of the lack of transparency is budgetary indiscipline and its deficit, and the meaning of the budget deficit in the current economic conditions of Iran is borrowing from the central bank and, consequently, an uncontrolled increase in liquidity. Such a trend leads to economic imbalance between the real and monetary sectors, part of which is manifested as inflation in daily life. Furthermore, with the budget deficit, the government cannot complete and finalize construction projects. Insufficient economic growth and the stabilization of unemployment at the current high level are also among the other consequences of the budget deficit. With the continuation of the deficit and the government's inability to manage it, we will witness rampant inflation and a decrease in the value of the national currency. The government, during the boom of windfall oil revenues, could cover its inefficiency and lack of budget transparency by utilizing them and transferring it to the future. However, now, with the decrease in oil revenues, utilizing this tool seems difficult. Economic growth in Iran is government-centered, so how the government budget is managed plays a role in it, but the fundamental problem with the government budget is that, according to officials, a significant portion of it is in the hands of rent-seeking institutions and not the government. A small portion of the budget is spent on construction and development activities, and there are loopholes in this budget that waste its resources. Therefore, one cannot hope that the government budget will become transparent and provide a basis for sustainable economic growth.