Iranian lawmakers approved the general outlines of the budget bill for the upcoming fiscal year (starting March 21), with 171 votes in favor, 69 against, and 6 abstentions out of 246 members present.
The generalities of the 1405 (2026-2027) budget bill had previously been rejected by parliament on December 29.
The administration of President Masoud Pezeshkian withdrew the original proposal following criticism over stagnant public sector wages and significant tax hikes, subsequently resubmitting it with amendments.
Reforms were applied across key areas of livelihoods, food credit vouchers, taxation, and salaries.
Notable changes include increasing salary raises from a flat 20% to a range of 20% to 43%, and reducing the Value Added Tax (VAT) back to 10% from the proposed 12%.
The revised budget was approved by a parliamentary commission on January 4 before receiving the full assembly's backing today. Following this approval, the bill will now be referred to specialized committees for a detailed review of its specifics.
Potential Shortfalls and Risks
In recent days, economic experts have warned about potential revenue shortfalls and the risk of a widening budget deficit. While the Pezeshkian administration claimed the budget was drafted with an austerity approach to prevent a deficit, the low wage increases relative to inflation and the unexpected tax burden faced sharp criticism from lawmakers, economists, and the public.
Ongoing economic struggles and the continued devaluation of the rial have already strained the Pezeshkian government, with markets and streets in several cities, including Tehran, witnessing protests and strikes over the past week.
To mitigate social tensions, the government recently implemented a 15-point plan. The most significant aspect of this plan is the official elimination of the preferential exchange rate (subsidized currency for essential imports) for all items except wheat and medicine, replaced by the distribution of food credit vouchers to all Iranian citizens for the purchase of essential goods, such as dairy and meat.
Initially, this 10-million-rial credit was intended for about 80 million of Iran's 88 million people; however, following criticism of the selection criteria and implementation mechanisms, it was mandated that the credit be granted to all citizens.
The government has also pledged to adjust the value of these coupons in line with inflation and rising commodity prices.
