Kalaberg with gasoline money Livelihood support or repeating an expensive experience?

With the increase in the inflation rate, the government is seeking to increase the number of kalaberg to support the family's livelihood in some way. One of the ways to increase the amount of this support is to use the income obtained from the change in the price of gasoline. Now the question is whether the government should spend this income on infrastructure reconstruction?

Economic Group - Mehdi Safai: The recent announcement by the government spokesperson about allocating the revenue from the increase in gasoline prices to Kalaberg has once again returned an old question to the Iranian economy: Can increasing the price of a public good and then returning part of its resources to households be a sustainable policy to support livelihoods?

Fatemeh Mohajerani, the spokesperson of the government, recently announced that the number of Kalaberg will increase and "the amount obtained from the increase in the price of gasoline" will be spent on Kalaberg. At the same time, he said that this number is not high and the goal is to support low-income groups.

The principle of supporting low-income households, especially in inflationary conditions, is not disputed; The main issue is the source of this support and its side effects. The experience of 2018 shows that the promise of allocating income from the increase in fuel prices to people's livelihood has a history, and at that point, the government defended its plan with exactly the same logic.

The experience of 2018; When the gasoline revenue was supposed to go back to the people

In November 2018, after the increase in the price of gasoline, Mohammad Bagher Nobakht, then head of the Program and Budget Organization, announced that about 29 to 30 thousand billion tomans of income will be created from the increase in the price of gasoline, and these resources will be allocated to about 18 to 19 million households, equivalent to more than 60 million people. Nobakht emphasized that the payment of "subsistence aid" will be made from the sources of the increase in gasoline prices.

This promise in practice led to the payment of the support package. According to the reports published at the same time, nearly 60 million people were paid in the form of 17.7 million households and about 2420 billion Tomans were allocated to the households in the first stage. At the same time, the same initial implementation was accompanied by protests and ambiguities about the recipients and non-receipt of some households.

Shouldn't the government keep some of the resources for itself?

An important budget question arises here. If all the additional revenue from the increase in the price of gasoline is spent on goods from beginning to end, the government will not have this resource to strengthen its financial position or provide necessary investments.

Of course, this does not mean that the government should use the income from the increase in the price of gasoline in the public budget without any purpose. On the contrary, if the price of a subsidized product is to increase, the allocation of the resulting resources should be transparent and traceable.

But under normal conditions, Iran's economy has faced problems such as energy imbalance, worn out infrastructure, limited investment and resource deficit. After the war, the issue of reconstruction has become more important. Some reports indicate that more than two thousand points of the electricity infrastructure have been hit and need to be repaired. Also, 230 million cubic meters of gas production capacity was lost during the war.

In such a situation, the allocation of public resources is not limited only to "Kalaberg". A part of the resources can be dedicated to the reconstruction of infrastructures whose disruption will increase the cost of living in the future; From electricity and gas network to transportation and production infrastructure.

For example, if a reduction in gas production capacity leads to energy shortages for industries or households, the economic cost is not just the cost of repairing a facility. Reduction in production, limitation of industrial activity, increase in the need for import or alternative fuel and decrease in economic income can also be created in the future; Therefore, infrastructure reconstruction in some cases is a livelihood policy with a medium-term effect.

Kalaberg is not the only option to support people

Another issue is that supporting low-income households should not necessarily be done through a general increase in fuel prices and then returning part of its income.

One option is to design more targeted support for the lower deciles; In such a way that the government's limited resources reach the households that suffer the most from the inflation of food and essential expenses.

Another option is to support public transportation. If part of the pressure from rising gasoline prices is transferred to households through transportation costs, expanding and making public transportation cheaper can directly target this pressure transmission channel.

Supporting drivers and businesses whose fuel consumption is a significant part of their costs can also be designed in a targeted manner; Because an increase in the price of gasoline does not have the same effect on a carless household as a taxi driver, courier or commuter.

In addition to these cases, the government can allocate part of the resources to reduce energy consumption, modernize the transport fleet, optimize engine houses and reduce energy waste. This type of payment can reduce the cost of fuel and energy in the following periods, as opposed to paying only for consumption.

The experience of 2018 is a warning, not a definitive verdict

Comparing today's policy with 2018 should not be a simple conclusion that, because in the past the promise of paying gasoline sources to the people was raised, today's policy will definitely fail. The conditions of the economy, prices, budget structure and the way policies are implemented are not the same as in 2018.

But the experience of 2019 has clarified an important point: transferring part of the income from the increase in fuel prices to the household is not enough to neutralize all the effects of the price increase. At that time, the government announced that the sources of the increase in gasoline prices would return to the people, and at the same time, the officials spoke of the limited inflationary effect; However, later data showed that groups such as transportation experienced price jumps.

From this point of view, today's issue is more than just "to give a brochure or not", it goes back to the design of a comprehensive package. If the gasoline price increase is done to improve consumption and reduce the pressure on energy resources, the resulting resources must have three functions at the same time: maintaining the purchasing power of vulnerable groups, preventing the strong transfer of shocks to the price of other goods, and strengthening the infrastructure on which production capacity and the future prosperity of the economy depend.

A clear response to the challenges of allocating revenue from rising gasoline prices to the public will determine whether the new policy is merely a short-term transfer of resources or part of a sustainable program for energy price reform, social protection, and economic restructuring. The experience of 2018 shows that simply announcing the return of gasoline income to the people is not enough to evaluate the success of such a policy; What is important is its final effect on household purchasing power, inflation and the government's financial capacity for investment and reconstruction.