Five keys to reading the program of Chile’s leftist presidential candidate Gabriel Boric

RIO DE JANEIRO, BRAZIL – This is an extensive document – 227 pages – that begins with an explanation of the process that has been carried out since September for its elaboration, which, according to the authors, has involved more than 33,000 people and 13,000 proposals.

This first chapter includes a ranking of the issues most frequently mentioned in the citizen conversations (pensions, public health, public education, and climate change) and a map of Chile with specific proposals for each region.

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PART TWO

The second part is a chapter promising 53 specific actions “for a new Chile,” ranging from tax reform to a level playing field for men’s and women’s soccer. They are each summarized in a few sentences.

Interestingly, the first of these is to abolish the current AFP pension system and guarantee a minimum pension of 250,000 pesos (US$307) for everyone over 65, including the 2.2 million current pensioners.

This is followed by an increase in the minimum wage to 500,000, a reduction in the daily working hours to 40 hours, the cancellation of debt in education, the reparation of the historical debt of teachers, and the creation of a unified health system.

It also proposes free public transportation. In the economic sphere, there are proposals such as the repeal of the current fishing law, the creation of a national lithium company and the installation of 500 MW of non-conventional plants for self-generation of renewable energy.

The measure targeting professional soccer is noteworthy: members, partners and fans will be the main actors in the management of their sports teams through a Chilean model of professional soccer governance.

PART THREE

A third part defines the axes that run through the program. Here you will find the opinion of Boric’s campaign team on what they mean by feminism, just ecological transition, decentralization and ensuring decent work.

PART FOUR

In the main body of the document, the program is divided into 3 main chapters, which are explained in detail:

Chapter 1: Addressing the consequences of the health emergency and economic recovery.

Chapter 2: Moving toward a society that focuses on sustainability of life, care for people and communities; and

Chapter 3: Deepening and advancing the process of change.

The program team also wanted to address certain controversial issues in this document, such as the revision of trade agreements, “Under our government, Chile will not unilaterally change any trade agreement, but we will seek to update aspects related to the investment chapters, especially those related to performance requirements, to ensure that new foreign investments create linkages with the local productive fabric.”

PART FIVE

Program Costs. This version of the program does not rank the hundreds of measures in terms of cost, but provides details on tax reform, in terms of a detailed list of items that will bring in 8% of GDP.

Starting on page 161, you will find more detailed information about the tax reform, which retains the 8 items of GDP collection that candidate Boric mentioned in the election campaign, adding that it will be implemented over a period of 6 to 8 years.

This is a reform with an extensive list of measures, which are detailed below.

1. A new income tax system that provides for a higher contribution for those who earn a monthly income of more than 4,500,000 pesos (US$5,500).

They propose to “simplify the system by dissolving the income tax for large corporations and investment companies by separating the tax paid by a company from the tax payable by its shareholders when they withdraw profits.”

In addition, personal tax brackets and rates will be modified, increasing the tax burden for those earning more than 4,500,000 pesos per month.

SMEs will keep their current integrated regime and benefits, and the tax of the first category will not increase. Neither will the regime for foreign investors be changed, nor will the agreements to avoid international double taxation be revised.

Mechanisms will be created so that in the disintegrated system the maximum tax burden on distributed profits, i.e., taking into account corporate and personal taxes combined, will be approximately equal to the OECD median.

*They assume that the package of measures under this item will result in additional revenues of about 1% of GDP.

2. A reduction of tax exemptions, including the abolition of the presumptive income regime, the transfer of these taxpayers to the SME regime, and the abolition of the exemption for capital gains on equity market instruments.

Also, the limitation or elimination of the benefits for DFL-2 real estate, the reduction of the exemption amount for capital gains from real estate, and the elimination of the 10% substitute tax will result in taxation under the general regime.

In addition, the abolition of the allowances for real estate acquired before January 2004 and the abolition of the 10 UTA tax exemption on the sale of shares, among other measures, abolish the inheritance tax exemption for life insurance policies.

The list of these measures can be extended, including revising the deduction for interest payments on mortgage loans to concentrate the benefit on the middle class, eliminating the special VAT credit for construction companies, limiting the use of tax loss carryforwards, and eliminating the first-tier tax exemption for private investment funds (PIFs).

*The assumption is that these measures will produce an additional 1% of GDP.

3. A tax on the net wealth of high net worth individuals resident or domiciled in Chile is proposed. “Given the challenges involved in implementing such a tax, information requirements will be imposed on both taxpayers and third parties (notaries, conservators, stockbrokers, banks, financial institutions, etc.).”

This means a tax on retained earnings in companies whose taxation has not yet been completed (with the exception of SMEs) and the review of “unjustified exemptions in territorial contributions”.

In addition, the program envisions “perfecting” the property tax surcharge, increasing its rate and establishing new rules for the valuation of assets.

It also seeks to modify the inheritance and gift tax by aligning the values on which this tax is levied with a commercial value.

*The additional revenues are estimated at around 1.5% of GDP resulting from the package of measures under this item.

4. Gradually increase the CO2 tax from USD 5 to USD 40/tCO2 and extend its scope to various emission sources, and gradually increase the specific tax on fuels to an average of 7 UTM/m3 at the national level.

At this point, a statement is made on the elimination of exemptions for industry and transport. It is proposed to extend the scope of the tax to the first sale of motor vehicles and to introduce an ad valorem tax on plastic packaging and plastics contained in the main discarded plastic products on the market.

*These measures are estimated to generate an additional 1% of GDP.

5. levies on large-scale copper mining. “The mechanism will be price progressive: The higher the price of copper, and thus the higher the economic rent, the higher the effective burden will be. Given its simplicity and the reduction of evasion and avoidance opportunities, the royalty will have an ad valorem or sales tax component.”

In addition, the program provides that “another component relates to operational or financial profitability, which will allow us to generate additional revenue from lower cost fields.”

*They estimate that the additional revenue from the introduction of the royalty would average about 1% of GDP.