Why Rouhani won’t Halt Costly Cash Handouts

Various attempts by the Rouhani administration to reduce the number of cash handout recipients have failed due to disunity among key political power centers on how to approach this issue.

The idea that is being discussed in the parliament’s research center as part of the Five-Year Plan is to discontinue cash payments at the end of the second year of the plan (theoretically as of March 20, 2019) and then to introduce a new approach to be drafted in new legislation titled “Energy Management Law.” It is not clear what the new law would entail, but it would be advantageous for the Iranian economy — if the current cash handouts are replaced with a more nuanced and targeted approach to redistribution of oil wealth.

Incidentally, despite two waves of increases in fuel prices, the rial devaluation in 2012 means that the actual prices of various fuels are cheaper today than they were when the subsidy reforms were launched in December 2010.

It is understandable that the Rouhani administration is hesitant about further increasing fuel prices, especially as such a move would have an inflationary impact and also undermine the economic position of lower-income classes. Yet at the same time, populist politicians such as Expediency Council Secretary Mohsen Rezaei believe that the government should more than double the monthly cash handout amount — a move that would have further inflationary effects without closing the income gap.

Ahmadinejad has even been quoted as proposing an increase in the monthly cash handout to 2.5 million rials ($79) per person — more than five times the current amount.

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