09/03/23

SOUTH AMERICA: Chile lawmakers reject government’s tax reform bill.

As published on macaubusiness.com, Thursday 9 March, 2023.

Chile’s lawmakers on Wednesday rejected a tax bill presented by the government of President Gabriel Boric, seen as the pillar of the leftist leader’s ambitious social reform program.

Boric’s government wanted to dedicate an extra 3.6 percent of GDP to finance an expansion to the social security system, with greater spending on health, education and pensions.

“We think this is bad news for the country,” said Economy Minister Mario Marcel.

Lawmakers in Chile’s lower house narrowly defeated the bill with 73 votes against, 71 in favor and three abstentions.

The project proposed a restructuring of the income tax, tax breaks, and a new mining royalty.

The government will now have to wait another year before presenting a new initiative.

“What we saw in this vote is that ideology prevailed over pragmatism, ideology prevailed over dialogue,” said Marcel.

The project was mostly rejected by the right-wing opposition but the government was also hampered by the absence of three left-wing lawmakers during the vote who could have tipped the scales the other way.

Boric’s plan had garnered praise from the Organization for Economic Co-operation and Development (OECD), which said in its last report on Chile that the country “needs reforms to boost productivity, social protection and tax revenues.”

The report said Chile’s tax revenue of only 21 percent of GDP was insufficient to meet spending needs.

It said Boric’s reforms would have helped increase tax revenue to something closer to the averages in Latin America and OECD countries, 28 and 34 percent respectively.