The secretary general of the Organization for Economic Cooperation and Development (OECD), Mathias Cormann (r), and the Chilean Minister of Finance, Mario Marcel (l), at the presentation of a new economic study on Chile, Santiago.ELVIS GONZALEZ (EFE)
The Chilean Congress is discussing these days the tax reform with which the Government of Gabriel Boric intends to finance half of a program focused on the advancement of social rights.
The initiative seeks to raise 4.1% of GDP in four years, about 12,000 million dollars.
In the run-up to its vote in the Finance Committee of the Chamber of Deputies set for next week, the Administration received a boost from the Organization for Economic Cooperation and Development (OECD).
Mathias Cormann, secretary general of the organization, traveled this Friday from New York to Santiago for two and a half hours -they were going to be five, but the flight was delayed- to say that the increase in public revenue from the reform is "ambitious, but feasible”.
Cormann supported the plan of the Boric Administration in the framework of the launch of
the Economic Survey of Chile 2022
in the Pereira Palace, located in the center of the capital.
The report celebrates the economic recovery of the South American country after the pandemic thanks to “exceptionally strong policy support”, but it gives an account of the complex scenario that lies ahead in the short term.
A slowdown in growth: 1.9% by 2022 -half a percentage point above the estimate in June-, but recession in 2023, with a 0.5% drop in GDP.
Also an inflation that has increased to 14.1% in August - its highest rise in three decades, surpassed only by Venezuela and Argentina - and whose projection exceeds the Central Bank's goal until the beginning of 2024.
To this panorama we must add other findings of the report such as stagnant productivity, informal employment that affects more than a quarter of the population, high income inequality and a fiscal rule that has failed to curb the increase in public debt.
"Tax revenues of only 21% of GDP are insufficient to meet growing social demands, while preserving the necessary public investment in infrastructure, education and health," the report says.
Asked about this issue at a press point, Cormann maintained that the general tax collection of the Government of Chile "is very low, not only according to OECD standards, it is also very low for Latin America," adding that "a percentage surprisingly low” actually pays income tax (20%), allowing for “significant room to move.”
“Increasing public revenue by 4 points of GDP, as the authorities plan, is ambitious but it is feasible through a comprehensive tax reform,” she pointed out.
Isabell Koske, deputy director of the Economic Department of the OECD, one of the authors of the report and who presented it to various authorities, assured this newspaper that the most relevant thing is to consider the incentives for companies to strengthen the formalization of employment "In the reforms that are now planned on the social protection system, it is important to take into account that companies have incentives to formalize because the costs are very high, especially for low-wage workers.
This incredibly reduces the incentives for companies to create formal jobs,” she noted.
In the field of sustainability, the report highlights that Chile is making "significant progress" in terms of sustainable energy, with renewable sources that currently represent 47% of electricity generation, due to the fact that solar and wind energy have gained importance".
The South American country has "a very high potential" in renewable energy generation, "far exceeding internal needs," the document highlights.
inflation control
Among the recommendations made by the OECD are maintaining a restrictive monetary policy to ensure the return of inflation to the target, ensuring that part of future pension contributions are saved and invested in capital markets, reducing regulatory barriers and spending more in research and innovation to strengthen productivity and competition, among others.
The Minister of Finance, Mario Marcel, who spoke at the event also on his return from New York, assured that of the 19 recommendations of the body, the Boric Government is already working on 14.
The minister stressed that the report "is particularly useful" to analyze the tax reform not only as a question of taxes, but also with the destination of the collection that these taxes are going to generate.
Marcel recognized that the political economy of the process "is challenging" because, according to the trajectory of public policies, people, particularly from the middle sectors, "have the right to distrust how far those benefits will reach them."
That is why he believes that it is important for this sector to see how they are being fully incorporated into the social protection systems and as this happens, "the discussion will be easier" to broaden the taxpayer base.
Regarding the next step once the tax reform was voted in the Finance Commission, the minister maintained that “with the incorporated indications, it will already have some important adjustments, collecting many of the observations and suggestions that have been made to us in the process. legislative, and in all the other instances in which we have been discussing this matter”.
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