Chilean President Jose Antonio Kast (C) arrives by car at the Metropolitan Cathedral to attend aass and a ‘Prayer for the People of Chile and the New Government’ in Santiago on Sunday. Photo by Allen Diaz/EPA
Chilean President José Antonio Kast announced a package of more than 40 measures aimed at breaking the country’s economic stagnation and restoring stronger growth.
In a nationally televised address Wednesday night, Kast outlined reforms centered on five main goals: improving Chile’s tax competitiveness, strengthening formal employment, simplifying regulations, increasing legal and regulatory certainty, and restraining public spending.
“We are going to break with a state that spends more than it has. We are going to break the bureaucracy that paralyzes and suffocates investment. We are going to break everything that is bad to rebuild everything that is good,” Kast said.
He added Chile must return to robust growth and job creation, arguing that while the average corporate tax rate among countries in the Organization for Economic Co-operation and Development fell to 22% from 31% since 2000, Chile’s rose to 27% from 15% during the same period, while national growth has remained below 2%.
By 2030, the government aims to reduce unemployment to 6.5%, lift annual economic growth to about 4% and restore structural fiscal balance, Kast said. The unemployment rate was 8.3% as of February, and the economy grow by 2.5% last year.
The centerpiece of the reform package is a proposed cut in the corporate tax rate to 23% from 27% –a measure that has drawn the strongest criticism.
“This bill is not an ideological agenda,” Kast said. “It is a concrete response to real emergencies.”
“I know there will be voices saying this project benefits those who have the most. That objection does not withstand the data,” he added.
Economists have raised concerns about the fiscal impact of the proposal. Claudio Agostini, an academic at Adolfo Ibáñez University, told Radio Cooperativa that the package appears inconsistent with Chile’s fiscal reality.
“Given the fiscal situation, where spending must converge with revenue, most of the measures significantly reduce tax collection,” Agostini said. “At a first macroeconomic glance, it raises concern because this package tends to increase the fiscal deficit rather than reduce it.”
Former Deputy Finance Minister Alejandro Micco, now a professor on the Faculty of Economics and Business at University of Chile, questioned the likely effect on investment.
“Global evidence shows the impact of these kinds of measures on activity and investment is limited. Therefore, we could face a future revenue problem,” Micco said.
The government said it will submit the full bill to Congress on Monday for debate and approval. Analysts expect difficult negotiations because opposition lawmakers argue several measures disproportionately benefit large corporations.
Opposition lawmaker Francisca Bello said the administration is attempting to push through a disguised tax reform that benefits higher-income groups.
Sen. Daniela Cicardini, of the Socialist Party of Chile, told La Nación that the government is presenting the proposal as a growth plan when it is “a gift for Chile’s richest 1%.”
Political analyst Tomás Duval, an assistant professor at the Autonomous University of Chile, told Radio Bio Bio that reform would require extensive negotiation because the government lacks the congressional majorities needed to pass it in either chamber.
