Chile’s Finance Minister Says New Tax Reform Proposal Is ‘On Track’

Shery Ahn and Carolina Gonzalez
·3 min read

(Bloomberg) -- Chile’s government will send its latest tax reform proposal to the Senate within three weeks and retains the option of insisting in congress next March as a backup plan, the nation’s finance minister said in an interview.

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The administration has a stronger strategy this time, as the plan not only focuses on taxation, but also areas including spending priorities, fostering growth and creating fiscal efficiencies, Mario Marcel, 63, said on Tuesday. The government’s initial legislation was rejected by the lower house in March.

“We have enough input to put together a proposal,” Marcel said in an interview on the sidelines of the annual Chile Day investors event in New York City. “We’re still on track. Probably in two, three weeks we will have a proposal to present to the country and especially to political actors, and then we will see how we evolve from there.”

The Cambridge University-trained economist is guiding one of Latin America’s richest nations through a period of sputtering growth and high, yet receding inflation. Marcel is also the government’s main representative before international investors and the face of the administration’s renewed push for a tax reform aimed at financing ambitious social spending plans.

Chile President Gabriel Boric said in a speech on June 1 that his government will present a new tax reform bill to the Senate at the end of July.

Earlier this month, Marcel said that the CPC, one of Chile’s most influential business associations, was willing to talk about tax reform. Still, days later, that institution said it was opposed to increased levies.

The government’s strategy “should be appealing to different actors, different political parties,” Marcel said. “We hope that they have the ability to realize that, with this approach, everyone has something to gain.”

Monetary Easing

Chile is expected to start easing monetary policy in the near-term as public spending stays in check and interest rates remain at an over two-decade high. Economic activity stalled on the month in April after falling the two prior readings, according to the most recent central bank data.

Marcel, who is a former central bank governor, said Chile started raising its interest rate earlier than most countries. “Therefore, it is likely that they can turn around the monetary policy earlier than other countries as well, given that the economy has undergone a very substantial adjustment.”

Last week, Chile’s central bank held borrowing costs unchanged in an unexpected split decision, with two board members voting for a rate reduction of 50 basis points.

The next day, the central bank cut its inflation forecasts for this year and next. Both the dovish rate decision and lowered cost-of-living forecasts prompted swap rates to plunge as investors mulled odds of an aggressive easing cycle.

“The economy is currently prepared to move toward an easing of monetary policy,” Marcel said, without specifying how fast he thinks the bank could cut rates. “The central bank signaled that might start as early as next month.”

--With assistance from Zijia Song.

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