I Like Chile

By Global Tax Weekly

Chile is one of those pleasingly unconventional countries. For a start, it must be the most bizarrely shaped nation on the world atlas. Resembling a fully uncoiled snake, it spans almost 2,500km of South America’s Pacific coastline, yet is only 170km wide on average. But Chile is far more than just a strip of dry desert wedged between the Andes and the ocean. While countries like Brazil and Colombia bathe in the limelight with their membership of the BRICS and CIVETS clubs of top emerging economies, Chile has quietly got on with the business of growing its trade and economy. The country has been fully democratic for over 20 years, and sound economic and fiscal policies have given it the highest sovereign debt rating in the region. Chile has 22 trade agreements covering 60 countries, and exports now account for one-third of GDP. It also sits at the Trans-Pacific Partnership negotiating table with the US and other key Pacific Rim economies. And I bet you didn’t know that Chile was the first South American nation to join the OECD, the club of rich nations? (You can keep your BRICS and CIVETS, Brazil and Colombia!). However, as you might have guessed, having built Chile up, I’m going to give it a little reality check. While most countries have cut corporate taxes over the last decade or so, Chile is going to raise corporate tax. The rationale behind the move is a noble one: President Michelle Bachelet wants to reduce inequality and improve access to education and health care. However, perhaps this isn’t the right way to go about it. Chile has already been criticized by the IMF, of all institutions, for confusing companies with its tax reform plans. And like two magnets set to the same polarity, investors tend to be repelled from legislative confusion. The tax reforms are intended to raise additional revenue equivalent to 3 percent of the economy – that’s a fair whack of money. I read recently that Chile has more than USD20bn stashed in a sovereign wealth fund, equal to about 5 percent of GDP. Maybe it’s time to raid the piggy bank, instead of taxpayers.

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