Chilean President Gabriel Boric at a commemorative event for International Women's Day in La Moneda, Santiago. PABLO VERA (AFP)
The Chamber of Deputies has rejected this Wednesday the tax reform of the Government of Gabriel Boric.
The Executive needed 78 votes to overcome the first legislative hurdle, but it only got 71 supports, while the rejections reached 73 and the abstentions to three.
This failure is a hard blow for the leftist Administration, because the tax reform represents a fundamental pillar to finance the program with which Boric took office in March 2022. The reform aims to collect 3.6% of the Gross Domestic Product (GDP) in four years, that is, about 10,000 million dollars, but with this result the initiative cannot be presented again for another year in the Lower House.
The path the government will take is not clear.
Although the project could be re-entered through the Senate, where it does not have a majority, the Minister of Finance, Mario Marcel, has ruled it out this afternoon.
“The idea that there is a tax reform was rejected, that the resources generated by this tax reform would finance the increase in the Universal Guaranteed Pension (PGU), the reduction of hospital lists, the increase in resources for health primary, that a care system be created or developed.
Along with that, every single component of the project was rejected,” lamented Marcel.
It was a fact that the right was going to reject the reform en bloc.
In recent days the opposition had hardened its tone against the proposal.
So much so that the head of the deputies of the Independent Democratic Union (UDI), Guillermo Ramírez, assured that the tax reform projects such as the pensions "could not be worse."
The Treasury and the General Secretariat of the Presidency, which handles relations with Congress, seemed confident that at least the first legislative process would be easily passed.
The Government planned to have a handful of votes from the Green Ecologist Party (PEV), the Christian Democracy (DC) and the People's Party, which ultimately did not happen.
“It is bad news for those who have wanted or declare they want to establish a new political center, because they have been subsumed in the vote of the political right”, Marcel maintained.
“Today we have a problem,” said Deputy Diego Ibáñez, from Convergencia Social, one of the formations that make up Boric's Broad Front, “how are we going to finance the social rights that citizens demand?
We ask the right to be empathetic, ”he added.
The objectives of the reform are to increase both collection and progressivity through a new fiscal pact.
The project is structured in four large areas: measures against tax evasion and avoidance;
modernization of tax procedures;
modifications in tax bases or rates —tax on high net worth—;
and benefits and incentives for taxpayers.
The Government had divided the project precisely to facilitate the agreements and the one that has been rejected today was the first one that was voted on in the room.
During the eight months of negotiation, the wealth tax was one of the points that caused the greatest rejection in the opposition and the business sector.
The reform establishes a tax on assets that exceed 6,000 UTA (4.9 million dollars) for residents or domiciled in Chile.
Detractors consider that this modification, popularly called
the tax on the super-rich,
could affect investment and savings.
The harsh defeat that Boric's tax reform has suffered today occurs only a few days before the Boric government completes its first year in office on March 11 and amid strong pressure for a change of Cabinet, which would take place in the following days.
The Chilean president, before the vote, stressed the importance of the tax reform to finance the pensions, with which the Executive seeks to take charge of the "tremendous inequalities that have harmed, in particular, women throughout the history".
In the run-up to the vote, which began on Tuesday, Marcel explained that the resources were going to be used, among other things, to increase the Universal Guaranteed Pension, reduce waiting lists in hospitals, increase funds for the regions and the municipalities.
"Tax collection in Chile is significantly below that of countries that are more developed than ours today, but also below the tax burden that those countries had when they had a per capita income like Chile's," said the socialist.
Originally, the bill was intended to collect 4.1% of GDP, but after months of negotiation in congress and the inclusion of some 40 indications proposed by parliamentarians, it was reduced to 3.6%.
It was expected that, if approved, the collection for 2023 would be 0.6% of GDP, for 2023 1.4%, and 2.7% for the third year of government.
According to Marcel, the decrease in collection would be offset by the measures contemplated in the project to achieve greater investment, less interest expense and greater growth.
One of the great criticisms of the opposition, together with aspects of the content of the reform, refers to the moment.
The Government itself cut its GDP growth projections a few weeks ago for this year (-0.7%), 2024 (2.9%) and 2025 (2.9%).
The estimates for 2026 and 2027 are 2.8% and 2.4%, respectively.
Former President Sebastián Piñera criticized the bill over the weekend: "Attempting to increase taxes by that magnitude, in the midst of a stagnant economy, with a growth crisis, which is not capable of creating jobs, is a mistake."
According to the ex-president, both the tax reform bill and the pension reform bill have "garrafal" errors.
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