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Iran’s 1404 Budget Proposal: Fuel Price Hikes, Defense Spending Boost, and Increased Taxation Amid Economic Strain

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The Iranian government, led by Masoud Pezeshkian, has submitted its budget proposal for the Persian year 1404 (March 2025- March 2026). The proposal emphasizes increased defense spending, controversial plans to reform fuel subsidies, and continued reliance on funds from the National Development Fund (NDF). The budget has stirred debate across the country, as it reflects the administration’s focus on sectors that many argue do not address the pressing needs of the population. 

 

Key Focus on Defense and Security

Pezeshkian’s budget proposal, presented to the regime’s Parliament on October 22, emphasized the government’s commitment to increasing its military proficiencies, stating, “Given the regional conditions, we have ensured that strengthening the defensive power is a priority.”  

The latest budget plan reveals that Iran’s clerical regime continues to prioritize military spending over economic needs, with 51% of government revenue from oil and gas exports allocated to the armed forces. According to the plan, this allocation amounts to 561 trillion tomans, over four times the previous year’s budget for defense. Additionally, the government’s share of oil and gas revenue is set at 37.5%. In comparison, another 28% will be borrowed from the National Development Fund, effectively giving the government control over 65.5% of these revenues. This increase highlights the regime’s ongoing emphasis on military expansion, even as economic hardship, inflation, and public dissatisfaction grow. 

In this year’s budget, Pezeshkian has prioritized defense spending, particularly focusing on the regime’s repressive forces, including the IRGC. This decision further shatters any remaining illusions about him or his government being reformist. Pezeshkian’s approach to external policy—promoting conflict and exporting crises beyond Iran’s borders—along with his financial support for the regime’s oppressive and war-mongering forces, clearly mirrors Khamenei’s agenda.  

The defense budget also allocates substantial funds to internal security forces, which are responsible for suppressing the Iranian people. This alignment with Khamenei’s strategy has become unmistakably clear. Since Pezeshkian assumed office, the regime has executed over 342 people in Iran, underscoring his commitment to the same repressive policies. 

Rising Concerns Over Fuel Prices

A major point of contention is the proposed reform of the fuel subsidy system. Pezeshkian noted that the cost of producing gasoline, excluding crude oil prices, is approximately 8,000 tomans per liter, and the expense of imported gasoline reaches between 30,000 and 40,000 tomans per liter. He emphasized, “If this trend continues, we will need to import gasoline worth 130 trillion tomans next year.” 

The government’s plan, which hints at potential price hikes, has raised concerns among the public. Increasing fuel prices have historically led to social unrest, most notably during the widespread protests in November 2019 when sudden fuel price increases sparked nationwide demonstrations that were met with a brutal crackdown. Despite these concerns, the government has maintained that any adjustments would be aimed at controlling “imbalances” and not necessarily lead to an immediate increase in fuel costs. Pezeshkian had previously vowed, “I will not raise fuel prices without the consent of the people,” a promise that appears increasingly at risk. 

The National Development Fund: A Lifeline Under Strain

One of the most controversial aspects of the budget is the continued reliance on the National Development Fund to cover fiscal deficits. The NDF, initially set up to support long-term investments and reduce the country’s reliance on oil revenues, has been tapped regularly by successive governments to manage shortfalls. In the latest session, Pezeshkian admitted that “due to budgetary constraints, we had to discuss with the Supreme Leader for permission to draw from the fund.” This move follows a pattern where the government has increasingly dipped into the fund to cover essential expenditures, including the payment of debts to wheat farmers. 

Despite the NDF’s intention to stimulate economic growth through private sector support, various administrations have used over 101 billion dollars of its assets for immediate fiscal needs, with critics citing this practice as a sign of economic mismanagement. 

Deepening Economic Disparities

The proposed budget, amounting to 6,400 trillion tomans, also includes provisions that claim to address economic justice. Pezeshkian stated, “The government has tried to prioritize equity, ensuring that if a policy would increase inequality, it would be revised or removed.” However, experts argue that increasing energy prices, particularly fuel, tends to exacerbate inequality. High inflation, compounded by the costs of imports and sanctions, has already strained household budgets across Iran, and further price hikes could lead to severe social repercussions. 

Despite claims of “justice,” the administration’s decision to increase defense budgets while attempting to raise fuel costs reflects a continuation of the regime’s longstanding focus on regional ambitions and military readiness over economic stability and welfare. The government’s reliance on the NDF funds and limited economic reform reveals an economy under immense pressure, struggling to meet domestic needs while maintaining its regional and strategic pursuits. 

The Pezeshkian administration’s 1404 budget plan reveals a significant reliance on taxation, with tax revenue expected to rise by 39% compared to the previous year, reaching 1,700 thousand billion tomans (17 quadrillion tomans). This surge highlights a strategy to fill budgetary gaps by increasing the financial burden on regular citizens. 

However, this tax burden disproportionately falls on ordinary citizens and private enterprises, while powerful state-affiliated entities—such as businesses and cartels controlled by the IRGC and those under the Supreme Leader’s influence—systematically evade taxes. Instead of cutting wasteful spending on foreign military interventions, missile programs, and other costly projects that serve its interests, the regime is turning to aggressive taxation as a quick fix for its financial woes. This policy risks burdening small businesses and reducing consumer spending, further strangling an economy already crippled by corruption, and mismanagement.