Concerns Over Iran’s Budget and Inflation

“You can’t govern when people are struggling to make a living,” Pezeshkian remarked during a public session. “I’m being asked to raise wages, but where is the money supposed to come from?”

The budget presented in parliament suggests a 20% increase in public sector salaries, alongside income tax exemptions aimed at alleviating the impact of high inflation, which remains notably severe.

Pezeshkian admitted that this wage rise might not fully correspond to inflationary pressures, but he emphasized that the government was trying to address this by raising the tax-exempt income threshold.

According to reports, the proposal allows salaried workers earning up to 400 million rials monthly (approximately $282) to be exempt from income tax. Those earning between 400 million and 930 million rials (around $282-655) would face a 10% tax rate.

The primary aim of the budget, Pezeshkian noted, is to extinguish “the fires of inflation” and prevent fiscal deficits that lead to money printing. He mentioned that current spending has only increased by 2%, while non-essential funding has been trimmed, and a shift towards “outcomes-based budgeting” is underway, which requires departments to outline funded services.

Parliament Speaker Mohammad Bagher Ghalibaf expressed the need for further refinement in wage assumptions within the budget, cautioning that household finances were at stake. “The significance of the budget is evident to everyone… it represents the lifeblood of our people,” he stated, referring to the proposed 20% wage increase as problematic and in need of correction.

• Iran’s economy shrinks despite modest oil growth due to inflation and depreciation of the rial

• Iranian workers and consumers will have to bear the cost of budget deficit, experts warn

Lawmakers warn that currency depreciation and subsidy policies risk raising prices

Several lawmakers seized the debate as an opportunity to criticize the absence of a plausible strategy to stabilize the currency and curb inflation.

Lawmaker Mohsen Zanganeh claimed Pezeshkian’s advisors suggested that the exchange rate might escalate in line with inflation, forecasting an increase of around 40% by the end of the following year.

“Mr. Pezeshkian, your economic team has admitted it can’t manage inflation or control the exchange rate and is simply asking for vouchers,” Zanganeh asserted.

Jabbar Kouchakinejad, vice chairman of the parliamentary budget committee, stated that officials seemed hesitant to rein in exchange rate fluctuations and implied that the government might be using foreign currency sales to address the budget gap.

“The government doesn’t appear willing to regulate and stabilize the exchange rate,” Kuchakinejad told ILNA, expressing concern over the rapid rise in prices.

Pezeshkian countered that fluctuations in the foreign exchange market directly affect household budgets, noting the government’s intention to enhance targeted support, including programs offering consumer vouchers.

The president remarked that the government had allocated roughly $6 billion on gasoline imports this year and plans to reserve about $8 billion in foreign currency subsidies for essential goods next year, while many items are already priced at market levels.

He also highlighted energy subsidies as a major distortion, arguing that increased consumption unfairly concentrates state support among wealthier households. He referred to the subsidy system as inequitable.

Recently, Iran implemented a three-tier gasoline pricing structure, keeping subsidized rates while introducing higher tiers to mitigate subsidy costs and discourage overuse of fuel quotas. This reform was presented as a gradual adjustment following previous price hikes that sparked unrest.

These budget discussions are taking place amid ongoing issues of inflation, sanctions, and fiscal constraints, with officials suggesting limited flexibility. However, the government insists it is focusing on protecting low-income families through tax exemptions and targeted assistance.

This comes as the rial hit a record low of 1.42 million rials to the dollar, with the central bank reporting point-to-point inflation exceeding 50%. The economy has contracted, despite a slight uptick in oil production and sales.