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OECD defends Chilean government’s tax reform

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The tax reform in Chilipillar of the president’s government program Gabriel Boricis an “ambitious” but “feasible” plan, estimated the OECD when presenting a report with projections about the country.

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Through this reform that seeks to collect 3.6% of GDP, the chilean government wants to finance the implementation of its social protection program, to expand coverage in health, education and pensions.

READ ALSO: Boric raises alarms about social unrest around the world

The most recent report of the Organization for Economic Co-operation and Development (OECD) states that “Chile needs reforms to increase productivity, social protection and tax revenues, and face short-term challenges such as high inflation”.

Last year, the chilean economy grew by 11.9%, in a spectacular recovery after the worst moment of the pandemic. But by 2022, the OECD forecasts that Chile’s growth will slow to 1.9%, 0.5% above the projection made by the same organization last June.

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For 2023, the organization estimates a drop in GDP of 0.5%.

The purchasing power of Chileans has been reduced in the last year due to the vertiginous increase in annual inflation, the highest in 30 years (14.1%) and the slowdown in world growth, among other aspects, explained the organization.

In this scenario, the agency considers that increasing public revenue through a “comprehensive” tax reform is an “ambitious but feasible” plan.

Tax revenues of only 21% of GDP are insufficient to meet growing social demandswhile preserving the necessary public investment in infrastructure, education and health”, says the OECD.

The tax reform “goes in the right direction and would bring tax collection closer to the average for Latin America and the OECD, which amounts to 28% and 34%respectively,” the agency added.

Boric’s government presented last July 1 a tax reform which includes the establishment of a royalty for mining activity and a wealth taxwith the expectation of raising the equivalent of 4.1% of GDP.

But a series of modifications entered in Congress last week will imply a reduction of 0.5 percentage points in the collection estimate.

“Chile is taking important steps to strengthen its tax revenues and close gaps in social protection”affirmed the Secretary General of the OECD, Mathias Cormann, in the study presented in Santiago.

According to the OECD, Chile has one of the most comprehensive social protection systems in Latin America, but the pandemic highlighted gaps in coverage, especially for informal workers (equivalent to 25% of the workforce).

Source: Gestion

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