Why Iran's Parliament Rejected Raisi’s Budget Bill
The Iranian parliament has rejected the outlines of next year’s budget bill, a symbolic move as the administration has no way to balance the estimated deficit.
The Iranian parliament has rejected the outlines of next year’s budget bill, a symbolic move as the administration has no way to balance the estimated deficit.
The bill, submitted by President Ebrahim Raisi's administration last week was rejected as 127 lawmakers out of the 236 present voted against it on Tuesday, pointing out several fundamental issues including a huge deficit.
This is the first year that the government is mandated to present its budget bill in two parts: One for the expected revenues and the other detailing spendings. The government now has a seven-day window to implement revisions in the first section of the budget bill before re-submitting it for parliamentary consideration.
Lawmaker Ahmad Rastineh argued that the parliament rejected the bill due to a misinterpretation of the new regulation, suggesting that MPs were looking for data that is supposed to be submitted in the second part. “We voted on the first part of the bill, which is on the revenues. The expenditure section will be presented to the parliament after the approval of the first part and the determination on the budget's revenue ceiling.”
The main problem with the bill was the unrealistic figures that the government had projected for its revenues. Despite repeated claims by the administration about its “realistic” numbers, opponents of the bill found discrepancies in several parts of the document. The parliament’s budget committee issued a report earlier in the week, pointing out 13 problems with the bill. However, it finally cleared it for a vote in a full session, which ended poorly for the bill.
Despite the government’s claim that its budget is balanced, there are several estimates for the deficit, with Iran Chamber of Commerce, Industries, Mines and Agriculture putting it at about 4.5 quadrillion rials or about $9 billion, even the government's over-optimistic projections. Economic website EcoIran cited a report by the parliament’s research center as saying that “the real budget deficit” will be about $22 billion.
In previous years the real deficit has been close to half of the budget. Apparently, the administration’s assessment is that in the next Iranian year (which starts on March 21), it will sell 1,350,000 barrels of oil per day at a price of €65 per barrel. This means around $32 billion annually. However, Iran is selling its oil at much lower prices due to US sanctions, at about $40 to $45 per barrel, which comes out about $22 billion per year.
The exchange rate of the Euro to the rial is considered to be 310,000 rials in the bill. Accordingly, oil and gas revenue for the next year will reach 582.7 trillion tomans (5.8 quadrillion rials or $11.6 billion), which is a 3.5% decrease compared to the current year's budget law. Additionally, tax revenues have increased from 7.4 quadrillion rials in the current year's budget law to 11.2 quadrillion rials (about $2.4 billion) in the next year’s budget.
Iran is offering substantial price reductions to its principal oil customer, China, with details kept secret. Iran has been supplying its oil to Chinese independent and small refineries, known as teapots, with payment delays extending up to three months. Reports from Reuters and Bloomberg indicate that Chinese teapots are securing Iranian oil at a discounted rate, with savings amounting to at least $10-12 per barrel. Iran's approach extends beyond offering price discounts to final oil purchasers; it involves allocating undisclosed portions of its profits to intermediaries and tanker companies involved in these diversionary oil export operations. As a result, the actual revenue realized by Iran may be closer to $40 per barrel, a substantial difference from the international price of about $70.
A point that was highlighted by Iran’s media as the final blow for the rejection of the bill was a lack of fund allocation for a long overdue rise in pensioners’ salaries. Proponents of the bill said that the government had earmarked about $1 billion for the adjustment. In recent years, retirees have held regular protest rallies to demand pension increases in par with rising prices of essential foods. They say the current payments are not in line with decrees by the Supreme Labor Council, which had stipulated a 38-percent increase in the minimum wage.
Another issue with Raisi’s budget was the estimated revenues from tax rises. According to lawmaker Mohammad Bagheri, the most significant increase in budget resources is attributed to tax and customs revenues, showing a 40% growth, while the budget's dependency on oil revenues has decreased by 24 percent. He said unions and producers are already under economic pressure and the rise in taxes will further strain businesses. Last month, Entekhab news website in Tehran reported that according to the budget bill, even monthly incomes of 100 to 140 million rials ($200 to $280) will be subject to a 10 percent tax.
Hossein-Ali Haji-Deligani, another lawmaker, said that considering the inflation rate in the country, the new budget bill remains practically the same as the current one. Last year, the parliament approved the outlines of the budget bill without considering its unrealistic assumptions.
Deligani said during the Tuesday session that “we will not have any budget increase next year, and this lack of budget increase will lead to the halt of the country's economic growth.” He added that “Increasing taxes will lead to a halt in production, resulting in reduced wages, unemployment, and hardships.”
The government claims that the growth rate will be 8 percent next year, but no one takes it seriously. In January, the World Bank projected Iran to have a 1.9-percent GDP growth, but the figure, even if true, comes on the back of economic retrenchment since 2019.
All in all, the rejection of the bill is more of a political gesture by lawmakers before the March parliamentary elections. There is no possibility for the government to balance the budget. Abbas Abdi, a reformist commentator, suggested that “The outlines of the budget bill were rejected in the open session to convey to the government that the parliament has a say.”
“Where and when this corruption happened is not important to us. What matters is that such a thing should not happen in the Islamic Republic, whatever you want to call it, embezzlement, wasting public funds, or illegal possession,” Ghani Nazari-Khanghah, a member of the parliament’s economic committee, told moderate conservative Asr-e Iran news website Tuesday.
"Why do they pay so much for importing tea if there is no money? It is a tragedy that so much money is allocated to [import] tea when tea is not an essential commodity," he said, adding that he is always told there is no money when he asks for a budget for things such as the removal of dangerous road curves in his constituency. "Obviously, there is a strong group with influence in the government behind the allocation of so much foreign currency."
Debsh Tea company sold $1.4 billion of the more than $3.3 billion cheap foreign currency allocated by the government at much higher rates in the black market between 2019 and 2022. This substantial amount of foreign currency was designated for importing tea and tea factory machinery.
As of now, the government and the judiciary have not provided the public with significant information about the case, such as the individuals responsible for the corruption. Not any notable arrests have been made except for the CEO of the company, Akbar Rahimi. There are serious allegations that the government is shielding the culprits.
Chief Justice Gholam-Hossein Mohseni-Ejei has affirmed that the current administration, led by President Ebrahim Raisi, allocated the majority of the funds to the company.
In response to reports indicating thousands of schools in need of urgent repairs, renovation, or replacement nationwide, lawmaker Mohammad Vahidi asserted that the embezzled funds could have aided in constructing "at least 100 thousand classrooms." He emphasized, “If this money had been allocated to education, we would not have any rundown schools.”
Heshmatollah Falahatpisheh, a former conservative lawmaker and the chairman of the parliament’s National Security and Foreign Policy, describes the case as one of the biggest corruption cases in the country, mainly happened under the watch of the Raisi administration.
Meanwhile, Iranian tea farmers and factories frequently voice their grievances, expressing a lack of government support to enhance and boost domestic tea production. Domestic production of around 30,000 tons of dried tea leaves only meets about one-third of the country’s total needs with the rest being imported from India, Sri Lanka and other countries.
Tea cultivation in Iran boasts a rich history of over 100 years. The majority of the country’s tea plantations, spanning over 32,000 hectares, are situated across the mountain slopes of Gilan Province, particularly in the city of Lahijan, which is also home to some of the largest tea processing factories.
Farshid Mohebbi, the chairman of the Northern Tea Farmers’ Union, alleges that major importers like Debsh Tea wield influence over policymakers' decisions regarding import tariffs, ultimately impacting domestic producers. Mohebbi emphasizes the need for accountability, saying that government entities such as the Minister of Agriculture, the Central Bank, the Customs Organization, and supervisory bodies should be held responsible for the allocation of substantial foreign currency to the company and its corruption.
“To promote domestic tea production, the tea tariff in countries such as Turkey sometimes reaches 150%. However, they reduced the import tariff from 20% to 5% in Iran,” he said.
Tea import tariffs were reduced in 2019, with authorities claiming it was to offset the increase in the cost of imported tea and stabilize prices after the allocation of cheap import dollars to tea imports ceased.
Debsh has also been accused by the head of the State General Inspection Organization of exporting lower-quality Iranian tea, importing it again mixed with inexpensive Kenyan tea and selling it at a significantly higher price as good-quality imported tea.
The surprising turn of events occurred just one day after the parliament's Budget Committee had given its approval to the very same bill.
This isn't the first time that President Raisi has finds himself in such a predicament, which would undoubtedly be a source of annoyance and humiliation for any of his predecessors. Raisi has encountered similar challenges twice before with budget bills, and he has developed a strategy to navigate through such impasses.
It is highly likely that Raisi will take his grievances to Supreme Leader Ali Khamenei, trying to prove to him that "others" do not let him do his job. This isn't unfamiliar territory for Raisi, as he has resorted to this tactic in the past. Khamenei may either address the matter personally or refer it to the heads of the three branches of government, a three-member council in which Raisi wields considerable influence, potentially enabling him to dictate terms to his political rival, Parliament Speaker Mohammad Bagher Ghalibaf.
However, Raisi's challenges extend beyond the confines of the parliament (Majles). In addition to the members of the Majles who believe that opposing Raisi will help them win favor with disgruntled voters in the upcoming March elections, Ghalibaf stands to gain from Raisi's weakness and lack of popularity. There are also influential clerics in Qom, the Grand Ayatollahs, who feel the need to demonstrate both their understanding of the people's problems and their power to keep the President in check.
Raisi's ultimate trump card is the golden signature or a phone call from Khamenei to Ghalibaf, ensuring the bill's approval with minor adjustments. After all, it's Khamenei's budget, and Raisi serves as his front.
A report carried by Khabar Online website on Tuesday revealed that Raisi faces significant challenges in Qom rather than Tehran. Prominent clerics like Ayatollah Hossein Mazaheri, a source of emulation in the Iranian clerical hierarchy, have publicly criticized the Raisi Administration's economic performance. Mazaheri pointedly conveyed his concerns, stating, "The people are facing serious economic hardships. Society is grappling with financial problems, causing some to turn away from religion and ethics." He further emphasized that Iran has not experienced a worse economic situation in the past century. While Mazaheri's office later stated that his remarks were not intended for media publication, he did not retract his statements, maintaining their validity.
According to the report, the Raisi Administration has faced more criticism from top clerics than any previous government. Raisi himself disclosed that every time he presents an economic report to Khamenei, the Leader teasingly asks him, "What's the situation on the ground?" This has led some observers to speculate that Raisi and his cabinet may operate in a realm where their fabricated statistics are treated as factual.
Khamenei has called upon the Raisi Administration to address the country's economic challenges at least twice in recent months, as reported by Khabar Online. Moreover, similar statements have been echoed by numerous other clerics, emphasizing the widespread dissatisfaction with the economic status quo.
Ayatollah Nouri Hamadani has also criticized Raisi’s inability to prevent the devaluation of the Iranian currency. However, some observers argue that Raisi's performance is just one facet of the problem. Issues such as inflation and currency devaluation are also linked to the failure of Iran's foreign policy, which is under Khamenei's absolute control and beyond the influence of an individual such as Raisi.
Certain influential clerics, such as Ayatollah Naser Makarem Shirazi, have criticized the Iranian state TV for overlooking the Raisi Administration's economic weaknesses. Conversely, Iranian media frequently censure state television for supporting the government despite its shortcomings. Some grand ayatollahs have also chastised state television for failing to broadcast their criticisms of the government.
These criticisms have provided non-clerical presidential candidates with hope that Khamenei may reconsider his support for Raisi and open the door for individuals like Tourism Minister Ezzatollah Zarghami and Majles Speaker Ghalibaf, who have already begun garnering support for their potential candidacies in the 2025 presidential elections.
While Iran boasts no shortage of candidates for prominent positions, the critical question is whether Khamenei, who has consistently minimized the influence of individuals within his inner circle, will ever permit new faces to enter the political arena.