Luis Felipe Lagos M. Economist, consultant
Luis Felipe Lagos
There are candidates and advisers who misinform on various issues, leaving the population confused and, in some cases, deceived.
An example is pensions. The candidacies of the center-left and extreme left have endorsed the discourse that Chile does not have a pension system because, according to them, there is no collective fund dedicated to solidarity. The candidate Provoste, who supposedly should be more moderate as she represents the center-left, has gone so far as to say that individual capitalization was not created to provide pensions, but to finance large companies.
By the way, Chile does have a mixed pension system, where solidarity is manifested in basic pensions and the solidarity pension contribution for those who have insufficient savings. These pensions have recently grown by 50% and a new legislative initiative extends coverage to 80% of the population, and increases the pension to the poverty line: $ 177,000. Solidarity is financed with general taxes, which is more efficient and progressive than doing it with a labor tax (contributions), as they propose in a financially unsustainable distribution system.
In a savings and capitalization system, the funds must be invested to maximize their profitability, given a level of risk. Thus, the system has allowed the Treasury, infrastructure, mortgage credit and companies to develop the capital and financial markets. Due to its effects on savings and investment, employment, productivity and financial deepening, the pension system has contributed 0.4 percentage points to the average growth of 1982-2012 (Corbo and Schmidt-Hebbel 2003, and Acuña 2013). The individual capitalization has not only granted pensions, but has also contributed to the strengthening of the economy and well-being of the population.
The candidates repeat that the pension system has failed; low pensions are attributed to the administrators. This is not said to be due to low savings; the null control of the payment of contributions; pension gaps; the low contribution rate and increased life expectancy.
Withdrawals of pension savings are supported, ensuring that a change in the system will allow the granting of higher pensions. They do not take charge of the decrease in funds of about US $ 67,000 million, including a fourth withdrawal, which cannot be recovered; unless they “grab” the accumulated funds left in the accounts.
They propose a monopoly state entity to administer accounts and manage investments; they affirm that the property rights of the accumulated savings in a notional account (only one record) will be respected. Nothing is said about the possible incentives for the political use of these funds. Nor is it recognized that the funds can be expropriated by allocating the investments of the collective fund to finance government debt or other local companies, sacrificing their return by preventing the international diversification of investments.
To finance the higher expenses in pensions, health, education, housing, an increase in taxation between 5% -8.5% of GDP is considered. This, in a virtually stagnant economy, with trend growth, according to our estimate, of 1.5% -1.7%, and without clarifying how growth is strengthening, leads us to an unsustainable fiscal situation.
In short, candidacies that misinform and disappoint.