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Goldman Sachs On Presidential Election Runoff Result

CHILE
  • Mr. Boric will face a challenging macro outlook: high inflation, a restrictive monetary policy stance, and a soft fiscal and debt picture in need of consolidation. On the positive side, the new administration is expected to continue to benefit from high copper prices and a still strong global growth environment. Mr. Boric will also assume office in an environment of high expectations, increasing social demands, and significant political/social polarization. Meeting these expectations and the increasing demands in a fiscally responsible way, while preserving the appropriate incentives for investment and growth will be challenging.
  • To meet the additional spending plans, Mr. Boric proposed a tax reform to boost revenue by 5% of GDP (8% of GDP in eight years) through a combination of higher income taxes (0.2% of GDP), eliminating tax exemptions (0.8% of GDP), wealth and inheritance taxes (1.3% of GDP), new green taxes (0.3% of GDP), mining taxes and copper royalties (0.8% of GDP) and gains in tax compliance though better enforcement (1.6% of GDP).
  • During the runoff presidential campaign, in an attempt to attract voters at the center of the political spectrum, Mr. Boric moderated his stance and acknowledged that a gradual implementation of his big-State plan is necessary as “all permanent expenses must be financed with additional permanent revenues.”
  • Given the left-leaning composition of the Constitutional Convention and the presidential election outcome, the Constitution is likely to validate a larger and more interventionist state and the broadening of the social safety net.
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