Iran's Basic Income Grant: A Game Changer or a Political Maneuver?

1. THE PROSPECTS OF A BASIC INCOME GRANT FOR IRAN Hamid Tabatabai BIEN 2010 – Sao Paulo – 1 July 2010

2. Purpose To discuss the following question and answer: • Q: Is Iran going to be BIEN’s utopia? Is this developing, Middle Eastern, Islamic state on the threshold of becoming the first country in the world to provide a basic income grant (BIG) to all its citizens? • A: Only time will tell, but the main ingredients are coming together one by one, almost by default and largely unnoticed.

3. Iran: Some Basic Information • Population: 72 million; two-thirds urban • Per capita income: US$3,500 • Significant inequality and poverty • Oil export revenues: $70 billion ($1,000 per capita) • Social protection system: Hybrid of public, semi-public and private programmes providing wide range of assistance to many but missing many too • Cash transfers: Exist under various guises • Of overwhelming importance: Price subsidies

4. Price Subsidies • Subsidised items: Fuel products, some food items, electricity and water • Gasoline: 10 US cents a litre; diesel just 2 cents; ... • Annual subsidy bill: $100 billion (mostly on energy) • Subsidy system as inefficient, costly, unfair • Wasteful consumption, pollution, smuggling to neighbouring countries, etc. • Rapidly rising bill • 70% going to richest 30% of the population

5. Reforming System of Subsidies • Centrepiece of Economic Reform Plan (June 2008) • Replacing price subsidies with direct cash transfers (CT) to people, econ. sectors, social security system • Gov’t rush to go ahead but two main concerns: • Gov’t dishing out billions in cash before elections • Fear of runaway inflation, social unrest • Gov’t submits bill to parliament, which puts it on hold for a year • Targeting Subsidies Law passed in January 2010

6. Coverage: Targeting that Wasn’t • Targeting “deciles”: Bottom 7? Only 2? ... Maybe 5 as compromise? Back to 7? But ... • Identifying targeted population: Application form asking about household (HH) demographics, education, income, car & house ownership, bank loans, etc.! • Response rate: 65% of HHs (end 2008), 85% (now) • HH (mis)classification proving monumental headache, causing widespread discontent • Targeting abandoned (for now!): Entitlement to cash transfers to be universal • But government plea to the well-off: Please abstain!

7. Transfer Amount • No official announcement yet but ballpark figures • Subsidy bill (x ½) / pop.: US$60/person/month • Initially, likely to be around $20-25/person/month • Same amount for all, possibly with extra for those in rural / deprived regions • Well below poverty line • At completion, approaching monthly minimum wage ($300) for a 5-member HH

8. Implementation Modalities • Single application per household still required (not clear what for?) • Transfers through bank account of head of household • Payment deposited every other month • Unconditional • Consideration of household income legally required, but finessed • Start: September 2010 • Duration: Five years

9. Prospects of a BIG for Iran (1) On the face of it excellent, almost there, … On the upside: • No new funding required • Affordability: 2-4% versus 30% GDP • Universal entitlement (with voluntary non-participation) • Equal transfer amount (possibly higher for more deprived) • Unconditional • Regular and in principle continuing

10. Prospects of a BIG for Iran (2) But difficulties lie ahead too … On the downside: • No recognition or acknowledgement of BIG • Payment to household head, not individual members • Long-term sustainability uncertain (oil prices, war, ...) • No impact evaluations planned • Politics of advocacy: Karrubi precedent; refugees • Limited relevance for other countries

11. Thank you