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HSBC Say Reform Focus Moves Now To Fiscal, Pensions

CHILE
  • According to HSBC, following the 19 December referendum on a new constitution, Chile will move on from the higher levels of uncertainty that have been in place since social unrest erupted across the country in mid-2019. They would expect this to allow for a more productive discussion of other pending reforms.
  • The government expects to send a new tax reform proposal to Congress in March 2024, a year after the defeat of its previous attempt. To get support from the opposition, the government has offered more pro-growth proposals (lower corporate taxes and faster approvals of investment projects, among them), as well as an increase in tax compliance.
  • Authorities identify a need to raise spending by 2.7% of GDP, most of it in a more generous universal pension scheme and higher spending on healthcare, and now see a 0.6ppt of GDP gap to be filled with higher taxes. HSBC forecast a 2.3% of GDP fiscal deficit in 2023, improving to 2.0% in 2024 and 1.5% in 2025. HSBC note their forecasts are subject to the outcome of reform discussions.
  • On pensions, there is agreement on the need to raise contributions by 6ppt, but the debate on how this will be used continues. The government’s proposal is for 2ppt to go to the individual contribution, 3ppt to a solidarity pillar of the system, and 1ppt to a specific fund to foster employment of women. The opposition maintains that all additional contributions should go to individual accounts (El Mercurio, 18 Dec).
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