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CHILE
Governing coalition tested by tax bill accord
Benjamin Witte-Lebhar
7/25/2014
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Changes to the tax reform coordinated with rightist legislators compromising other reforms promised by Bachelet.

Recent wrangling over tax reform has put a sudden damper on Michelle Bachelet’s red-hot return to power and offered an early glimpse of what may prove to be the biggest political challenge of her presidency: transforming her broad electoral alliance — the New Majority (Nueva Mayoría) — into a viable governing coalition.

Upon taking office in March, the center-left leader put her proverbial pedal to the metal as she raced to make good on a campaign pledge to carry out “50 measures in 100 days.” By June 18, the self-imposed deadline, Bachelet had ticked off all but a few of those items – 91 percent, by her own calculations – mostly in the form of legislative proposals. Among other things, the new government has submitted bills to revamp the tax code, overhaul the education system, create several new ministries (including a long-promised Ministry of Indigenous Affairs) and introduce a public option to complement Chile’s otherwise privatized system of pensions.

Bachelet, who previously served as president from 2006-2010, has also made trips to the United States, Argentina and Brazil, responded to not one but two natural disasters – an 8.0-magnitude earthquake in northern Chile followed less than two weeks later by a devastating firestorm in the historic port city of Valparaíso – and decided once and for all to bury the highly controversial HidroAysén project, a multi-billion-dollar hydroelectric complex slated for two of Chilean Patagonia’s largest and most pristine rivers.

“Politics needs to get its prestige back, and you do that by honoring the commitments you have made. It is really important to recover people’s trust in our democratic institutions,” Bachelet, 62, told the Spanish daily El País last June.

Empowering the right?
More recently, however, the government’s soaring start has run into some serious political turbulence — largely of its own making. On July 8, Finance Minister Alberto Arenas provoked a flood of intra-coalition complaints when he announced a series of changes to Bachelet’s high-profile tax reform proposal.

One of the so-called “pillars” of Bachelet’s policy agenda, the legislation was designed to boost government coffers to the tune of US$8.2 billion annually and thus provide the funds needed to finance the sweeping education reforms she also hopes to implement. The bill made its way through the lower house of Congress in May but still needs approval from the Senate.

The bill originally proposed a radical shift in the country’s corporate tax structure whereby large companies, rather than pay taxes only on the profits they withdraw, would be obligated to pay a percentage on their overall earnings.
 
In its updated form, the legislation allows corporations to choose: they can either stick with the old system, but pay a higher percentage on their declared profits, or start paying taxes on total income, but with certain deductions allowed. Also missing from the watered down version of the bill are a series of new powers the government had hoped to give the Servicio de Impuestos Internos, Chile’s tax collection agency, as a way to crack down on tax evasion.

The changes are the result of an agreement with members of the Senate’s five-person Finance Committee, which is headed by Sen. Ricardo Lagos Weber, a cabinet official during Bachelet’s first term. The committee also contains members of the opposition Alianza coalition, which pushed for concessions on behalf of its business community constituents, but does not include representatives from the New Majority’s left-wing flank.

Lagos Weber and Arenas defended the deal they struck with the right-wing Alianza and insist that the “heart” of the reform — namely an increase in corporate taxes and the elimination of an institutionalized tax loophole known as the Fondo de Utilidades Tributarias (FUT) — is still intact. “We’ve reached an historic agreement,” Arenas told reporters. “We’ve managed to move forward on the most complex and profound tax reform in the last 30 years.”

A number of Bachelet’s New Majority allies, however, are up in arms, accusing the government of unnecessarily kowtowing to pressure from the right and from business interests, and of consciously excluding left groups such as the Communist Party (PC) from the decision making process. They also complain that the tax deal empowers the Alianza, which took a mayor political hit in last year’s presidential and congressional elections, and sets a disappointing precedent regarding Bachelet’s other reform proposals, particularly her education bill, which the right will no doubt want to water down as well.

“Things will be done differently”
Perhaps the biggest problem, the deal’s New Majority critics warn, is that it raises serious questions about the viability of the coalition itself. Until recently, Chile’s center-left called itself the Concertación. The four-party grouping, forged in the waning days of the Augusto Pinochet dictatorship (1973-90), won four straight presidencies (1990-2010) before finally succumbing to the Alianza in the 2010 election. As an opposition group it fared poorly and was eclipsed — at least in terms of popularity — by student protestors and other social movements that became increasingly active during the Sebastián Piñera presidency (2010-2014).

With that in mind, Bachelet opted during her reelection campaign to expand the Concertación leftwards and incorporate the PC and other progressive but previously marginalized factions. Those groups agreed to back her candidacy in hopes she would make good on promises to pursue deep structural reforms, particularly to Chile’s education system, which has been widely criticized for being both inconsistent, as far as quality is concerned, and in some cases prohibitively expensive, most notably at the university level.

Bachelet tried to cement those new relationships further still by giving the PC its first cabinet minister since 1973, when Pinochet toppled Chile’s then left-aligned president, Salvador Allende (1970-1973), naming Claudia Pascual Grau, a communist leader, as minister of the Servicio Nacional de la Mujer (SERNAM), the Ministry of Women, and Víctor Osorio of the Citizen Left (IC) party as head of the National Heritage Ministry. Observers have reason to wonder, however, just how much power and influence Bachelet and other old-guard concertacionistas are really willing to concede to their new coalition partners. Perhaps not much, judging by the government’s handling of the tax reform bill.

For now at least, the PC and IC are still willing to give Bachelet the benefit of the doubt. But as her government prepares for its next big policy push, it may want to tread a bit more carefully. Patience may be a virtue, but it also tends to have an expiration date. “There are ways in which we’ve been harmed by this,” Guillermo Teillier, the PC’s party president, said following a meeting on July 14 with Minister Arenas. “The understanding we have with the minister is that from here on out, things will be done differently.”
—Latinamerica Press.


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In 100 days in office, Bachelet has fulfilled more than 90 percent of her promises. (Photo: Benjamin Witte-Lebhar)
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