IRAN: Economic reforms usher in a de facto basic income

by Yannick Vanderborght | Nov 9, 2010 | News

A report by Hamid Tabatabai

The concept of a Basic or Citizen’s Income is virtually unknown in Iran. In nearly three years of discussion and debate over the government’s new economic reforms, there has been no mention of it at all in political, academic or media circles. And yet, the country has just launched a nationwide cash transfer programme that has the hallmarks of a Basic Income in disguise. Some 60.5 million Iranians, or 81 percent of the population, have just had the first payment of 810,000 rials (about US$80) per person deposited in their bank accounts. The payments will be made every two months, involve no means testing, and are unconditional. They are also likely to double in amount over the next few years as implementation proceeds. The remaining 19 percent of the population opted out of the programme voluntarily, mainly because they do not need the money.

Remarkable as this is, the novelty does not end there. The tens of billions of dollars involved each year will not come from oil exports, or from government coffers. The transfers will be financed entirely through the higher prices the nation will henceforth pay for a variety of basic goods and services — mainly fuel products — that have been massively subsidised for decades. (Until now petrol has cost US$0.10 a litre and diesel fuel under $0.02. The same applies to natural gas, electricity and water charges, and bread.) Such subsidies have benefited the well-off far more than those with modest incomes (70 percent going to 30 percent of the population) and resulted in wasteful consumption of energy and foodstuffs, inadequate investment in new technology, and environmental pollution, not to mention smuggling to neighbouring countries. In order to put an end to this inefficient and unfair system, the “Targeting Subsidies Law” of earlier this year mandates the gradual phase-out, over five years, of nearly all implicit and explicit price subsidies, to be replaced with regular cash transfers to households and various economic and social sectors. The scale of price increases are not yet known (as of mid-November 2010) but they are likely to be huge, in some cases severalfold. Official announcement is expected towards the end of November with new prices coming into effect immediately.

Interestingly enough, the universality and uniformity of cash grants came about without anybody really pushing for them or even wanting them, either from the government side that put forward the original plan, or from those opposed to the plan in the parliament who wanted it modified, if not scrapped. The intention was firmly to target the cash transfers on the less well-off sections of the population, the haggling being over whether the beneficiaries should be the lowest two, or five or seven deciles of the population on the income scale. The idea was also to pay more to those with lower incomes, in the interests of social justice. If in the end it was decided to pay the same amount to everyone who bothered to register, it was only because a massive exercise in means-tested targeting (over 17 million household questionnaires were filled out and analysed) turned into a fiasco as public protests mounted over the results. The principle of equal payment to all forced its way in because it just made sense under the circumstances. There could hardly be a more dramatic vindication of Philippe Van Parijs’s characterisation of Basic Income as a “simple and powerful idea”.

To be sure, Iran’s ‘cash subsidy’ (that’s the official designation) falls short of a fully-fledged Basic Income grant as commonly understood. The entitlements of all household members go to the head of the household alone, not to individual members, even if adult. There is no word on the duration of the programme, although it should in principle continue as long as Iran is able to produce oil for its domestic consumption. Means-tested targeting has not been abandoned altogether and may be resurrected if the government decides at some point that it can do a better job of targeting than its last attempt. The rights-based underpinnings of the Basic Income have no place in the current Iranian discourse on cash grants. The payments are not regarded as ‘income’ to which the citizens are entitled by right, but as another type of subsidy to compensate for the loss of price subsidies (though whether this makes any practical difference is an interesting question). Neither do they come anywhere close to a decent subsistence income (the US$200 of a family of five per month is about two-thirds of the monthly minimum wage). They also exclude more than two million Afghan and Iraqi refugees who have been living in Iran for years, sometimes decades, and will now have to bear the full brunt of price hikes. And last but not least, once price rises go into effect in the days ahead, and if inflation gets out of hand due to mismanagement, there is genuine fear that the whole edifice might come crashing down.

On the other hand, it might be argued that the hardest obstacles towards a national Basic Income have already been overcome. The programme is enshrined in law. The payments are universal (except for those rich enough to forfeit their right by simply not signing up). Funding is assured and looks destined to continue in the medium term. And if the reforms succeed even partially in achieving their stated objectives of rationalising consumption patterns, boosting investment and efficiency, redistributing incomes in favour of the have-nots and reducing poverty, their future should be fairly secure. The continuation of the programme will also allow its shortcomings to be identified and put right, particularly if this enormously important shift in social policy is subjected to rigorous, comprehensive and continuing impact evaluation as it unfolds and progresses in the months and years ahead.

The replacement of price subsidies by a cash transfer system of unprecedented scope and scale has placed Iran in the forefront of all countries in advancing towards a nationwide Basic Income. The fact that such a transition takes place first in a developing, Middle Eastern, Islamic state, not in a developed country in Northern Europe as many had presumed, underlines the relevance of the concept of Basic Income for a broad range of countries. The specificities of the Iranian experience should of course not be ignored. It is in large part the combined availability of domestic fuel resources and an exceptionally distorted pricing policy that has made it possible, indeed almost inevitable, for a de facto Basic Income to emerge as part of the solution. But the model may still have some relevance for other countries, in particular mineral producing nations. There may also be scope in some countries with large subsidy bills to explore the feasibility and wisdom of rerouting subsidies to fund a Basic Income, without additional taxation. Iran’s experience may hold some lessons of wider applicability, if they are properly drawn and are convincing.

For more on the subject, see Hamid Tabatabai, “The ‘Basic Income’ road to reforming Iran’s subsidy system”, in Basic Income Studies, forthcoming, or contact hamtab@gmail.com.