LatinFinance - May/June 2015 - 26
CHILE
ECONOMY
After business confidence took a knock from sweeping tax
reforms, Chile's long-term success hinges on how the government
deploys its new revenues. By Phil Thornton
Dented hopes
ichelle Bachelet's
resounding victory in last year's Chilean
presidential elections appeared nothing
less than a mandate for an ambitious program of economic and political reforms.
President Bachelet's platform was all
about fostering inclusive growth and reducing inequality. Her agenda called for
important reforms in areas from education
to productivity and energy. All would be
funded by tax hikes.
But a year on, progress in implementing
the agenda appears to have stalled. Many
major programs have been put on hold in
favor of smaller one-off reforms.
Chile's slumping economy is largely
to blame. Since voters went to the polls
in December 2013, prices of industrial
commodities such as copper, which is a
huge contributor to Chile's economy, have
slumped.
Economic growth slowed from 4.3% in
2013 to 1.8% last year, according to the IMF,
which expects only a modest recovery to
2.7% this year and 3.3% in 2016. Growth
rates of above 5% are a fond memory.
The slower pace of economic expansion
means lower tax receipts at a time when
the government wants to spend more. This
slowdown may sap support for a change to
the tax system, which had been planned
to increase state revenues by 3% of GDP by
2018 through a combination of introducing
higher levies and closing loopholes. The
tax reform is already being implemented
26 L ATINFINA NCE.COM - May/June 2015
Source: Gobierno de Chile
M
BUILDING STRENTH: Infrastructure
advances under Michelle Bachelet's
administration have drawn praise, but
economic growth is slowing
slowly, and is set to increase fiscal revenues
by 0.5% of GDP this year, rising to 1% in
2016, 1.5% in 2017, and 3% in 2018.
Economists appear divided on whether
the reforms will benefit Chile, in both the
short- and long-term. Jorge Morgenstern,
senior economist for Chile at HSBC, says
higher taxes are slated to come over a
period when the government is committed to eliminating the fiscal deficit. "The
reforms will obviously raise tax collection,
which implies a consolidation of the fiscal
accounts," he says. "That goal would imply
a fiscal consolidation that may prove to be
too contractionary for the prevailing economic environment. It may not be time to
tighten fiscal policy."
Morgenstern says the government's
estimate of raising revenues to 1% of GDP by
cracking down on tax evasion and loop-
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LatinFinance - May/June 2015
Table of Contents for the Digital Edition of LatinFinance - May/June 2015
Contents
LatinFinance - May/June 2015 - Cover1
LatinFinance - May/June 2015 - Cover2
LatinFinance - May/June 2015 - Contents
LatinFinance - May/June 2015 - 2
LatinFinance - May/June 2015 - 3
LatinFinance - May/June 2015 - 4
LatinFinance - May/June 2015 - 5
LatinFinance - May/June 2015 - 6
LatinFinance - May/June 2015 - 7
LatinFinance - May/June 2015 - 8
LatinFinance - May/June 2015 - 9
LatinFinance - May/June 2015 - 10
LatinFinance - May/June 2015 - 11
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LatinFinance - May/June 2015 - 13
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LatinFinance - May/June 2015 - 15
LatinFinance - May/June 2015 - 16
LatinFinance - May/June 2015 - 17
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LatinFinance - May/June 2015 - 48
LatinFinance - May/June 2015 - Cover3
LatinFinance - May/June 2015 - Cover4
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