Chilean government will present tax reform in first semester

The government of new Chilean President Gabriel Boric will send its bill for a broad tax reform focused on people, natural resources and green taxes during the first half of the year, new finance minister Mario Marcel said in his first interview in office.

The respected former president of the Central Bank will have among his challenges to promote the promised tax modification, which will seek to increase collection by five points of the Gross Domestic Product (GDP) in four years.

In an interview with Reuters hours after being sworn in, the head of Public Finance said that his intention is to open a broad dialogue and arrange a “tax pact” that can last over time to avoid so much variability between one administration and another.

“This with the idea that on the basis of that we can build a tax reform project that we are going to send to Congress in any case within the first semester.”, he assured.

In addition, he explained that the modification could be separated into different packages “so that those things that are in a position to advance faster in Congress we can give them the space and give ourselves the time for the things that require more discussion”.

Marcel also revealed that the reform will be more focused on the taxation of people, natural resources and green taxes since with the adjustment of the corporate tax in 2014 “the truth is that there is no longer much room to increase the tax burden of companies without having an effect on competitiveness”.

The financial markets celebrated the election of the former president of the Central Bank as a sign of moderation in the pace of the reforms promised by Boric, who proposes profound changes to the free market system that has marked Chile in recent decades.

Regarding the application of a new mining royalty in the world’s largest producer of copper and the second largest producer of lithium, Marcel said that he will present indications to the project that is already being discussed in Congress, since it is not practical to start from scratch.

Regarding economic projections, Marcel said that he still does not have his own update but he was satisfied with the range estimated by the Central Bank in December, when he projected GDP growth between 1.5% and 2.5%.

“It seems reasonable for an economy that has to make a certain adjustment to reduce the inflationary pressures that have manifested themselves in recent months.”, he indicated, explaining that this will imply that internal demand must “slow down significantly”.

Marcel said that he is trying to move quickly on the definitions of the new government to reduce the current uncertainty and said that he was committed to following a path of fiscal consolidation for the coming years.

He explained that, although the current conflict in Ukraine has almost no direct effects on the local economy, the impact it has brought on fuel or grain prices is a factor to keep an eye on.

“Without a doubt, it is a worrying situation, but fortunately, the Chilean economy is a little further away from the conflict and also has mechanisms to absorb this type of ‘shocks’, which have proven to be effective in other circumstances.”, he pointed.

Marcel also explained that a program of “Recovery” more focused on certain sectors that have lagged behind in the recovery that the economy has had.

“There are service sectors and groups of workers, especially women, who have not yet recovered their pre-pandemic situation”, he stated.