Boric's tax proposal: One more try

CHILE - In Brief 02 Aug 2023 by Robert Funk

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Recognizing that he lacks the political support to get a major tax reform through the Senate, President Gabriel Boric announced on Tuesday, August 1, a "Fiscal Pact". The first question is, in what way is this a pact, rather than just another tax proposal? With whom did the government pact? Judging by the response, it does not seem like much was agreed with the opposition. In fact, Boric’s announcement included an admonition to opposition deputies who had earlier rejected the government’s tax reform (“And you know who you are”, he said.). Rather, with its emphasis on economic stimulus, the government simply appears to have taken on some of the opposition’s views, and Minister Marcel has spent a lot of time consulting with the private sector. The plan promises to implement anti evasion measures, increased fiscal transparency, and an undetermined hike in income and corporate taxes. This would be accompanied by 38 pro-growth policies aimed at providing incentives or streamlining investment and productivity. Boric also promises to implement measures to reduce informality in the economy. The Fiscal Pact seems stronger and more specific on the spending side, with the president repeating promises made in June’s state of the union speech: increasing the basic universal pension, with a cost of 1.2% of GDP, as well as spending on health (0.9% of GDP) and security and policing (0.3% of GDP). The plan includes the extra 6% in pension contributions, which will continue to be a contentious issue.  In fact, the opposition reacted with a predictable lack of enthusiasm. Coming on the wake of a huge scandal involving the illegal financing of government-friendly non-profit foundations, t...