Friday, April 27th 2012 - 11:24 UTC

Piñera announces tax reform to fund an education overhaul that threatens his government

Chile's government on Thursday proposed a sweeping tax reform that raises levies on companies to help fund an education overhaul, as it seeks to quell social protests ahead of local elections seen as a litmus test for the 2013 presidential race.

The Chilean president wants to avoid another year of disruptions and protests

Conservative President Sebastian Piñera said his tax reform bill, which still needs congressional approval, would raise the income tax rate for companies to 20%, lower stamp duty on credit and increase the annual tax take by 700 million to 1 billion dollars.

The bill, to be presented to Congress on Monday, also seeks to eliminate tax distortions, incorporate green taxes on polluting goods and includes a variable tax rate mechanism to cushion consumers from oil price swings.

“We're going to ask for an additional effort from companies by increasing their income tax rate from 17% to 20%” Piñera said in a national televised address.

“Additionally, a series of tax exemptions or distortions that have been reducing the tax take and aren't justified will be corrected or eliminated.”

Chile was hit in 2011 by a surge of protests demanding better and free education, stricter environmental regulation and greater economic equality, helping yank down Piñera's approval rating to a meagre 29% in March according to pollster Adimark -- making him the most unpopular leader since General Augusto Pinochet's dictatorship ended in 1990.

”We inherited a poor financing system for higher education ... Tax reform will allow us to finance (education reform) in a serious and sustainable way,“ Piñera added. ”One hundred percent of the additional revenue collected by this reform will be destined to finance educational reform.”

Piñera has said large companies have to make a greater contribution to a more equitable tax system that will seek to foster the growth of smaller and medium-sized companies.

Investor-friendly Chile's corporate tax rate would still remain well below Latin America's average rate of 25.06 percent in 2011, according to a report by consultancy KPMG.

While Chile's economy grew 6 percent last year, it was rated the most economically unequal country of the 34-member state Organization for Economic Cooperation and Development, or OECD.
 

Published in: Politics, Latin America.
Tags: Chile, education reform, Sebastián Piñera, students.

4 comments Feed

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1 The Chilean perspective (#) Apr 28th, 2012 - 03:07 pm Report abuse
The evolution of the Chilean economy is a slow and long term project. The government is doing all it can to generate a more equitable society, whilst at the same time keeping the fiscal discipline necessary to maintain long term growth, as well as direct local and foreign investment. The challenges facing this man are huge, he could easily just give in to populism and ruin the future of the country. Fortunately he is a true believer and he is focused on the mission. He is not alone, the probable opposition candidate Mr. Andres Velasco from the socialist party is probably more austere and a bigger fiscal conservative than Piñera. He was the Minister of Finance during the last administration and did a good job ( he doesn't have a socialist bone in his body). This is a win win situation and ensures the future stability of the system. For those that want all the problems fixed yesterday I say be patient. We'll get there sooner rather than later.
2 Max (#) Apr 28th, 2012 - 05:42 pm Report abuse
The private education means that is a social caste system.
3 Guzz (#) Apr 29th, 2012 - 06:51 am Report abuse
@1 I see you are preparing your excuses already. Bachelet is about to wipe the floor with all other candidates and although I admit she isn't a radical socialist, she is still a socialist. You try to convince people that is you allow private companies to prosper, you automatically are a [neo]liberalist. Well, I got news for you, the only ideology that doesn't give place for privatization is communist, not socialism. And Bachelet IS a socialist, even more “to the left” than the swedish and the other european socialdemocrats.
4 Windrider (#) Apr 29th, 2012 - 01:39 pm Report abuse
Ahh, yes. Good ole trusty tax 'reform', (translation: tax INCREASE). Of course people won't mind if we target the corporations (admittedly the right target), but they will simply pass it on to consumers with yet higher prices and aggressively increase their tax strategies to minimize the damage. NEVER intended for either stability or the ostensible benefits promised. Typical, predictable and likely disastrous. Don't you love it? Come on, Pinera, get real.

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