Is Chile's tax burden high or low?  Treasury defends its figures against the onslaught of private

The social dialogues of the tax reform, convened by the Treasury and that already exceed 30 hearings, had taken place without major controversies. But yesterday the trend was different.

This, because the Treasury chose to become part of the debate that economists and business organizations have promoted regarding the gap in tax collection that Chile has with respect to the OECD.

Why does it matter? Because the diagnosis of the portfolio is that the distance in collection between Chile and developed countries rises to about eight points of GDP if contributions to social security are considered, while economists and unions in the hearings have disagreed with that criterion. , proposing that the gap is smaller, oscillating between five and two points of the Product.

Former Minister Manuel Marfán spoke about the possible problems that the disintegration of double taxation treaties will bring.

After the presentation made yesterday by the Manufacturing Development Society (Sofofa), which estimated the distance at 3.8 percentage points when correcting for income level and social security, the Treasury Tax Policy co-coordinator, Nicolás Bohme, took the word.

In a slow but emphatic tone, the economist defended the criterion of incorporating social security as part of the tax gap, in line with the OECD definition of “tax”, in which there are two elements that prevail: making a payment to the State and have a redistributive component.

“Contributions to social security, which work from contributions to the State, are considered within the tax burden,” he said.

As the pension system in Chile and part of the health system are private, he emphasized, these contributions do not have any redistributive component nor is it a payment to the State. Thus, when adding private contributions to social security, which are not taxes but are mandatory, the gap stands at eight points of GDP “from the taxpayer’s point of view”.

“These two comparisons are appropriate from the point of view of public policy and an eventual increase in taxpayer obligations, there is this space of eight points of GDP,” he said.

“Making a comparison of tax burdens that subtract social security does not make much sense, because in other countries the components of social security have an important redistributive component and, therefore, are part of the tax burden,” he concluded.

Fernando Barros, Gonzalo Sanhueza and Rodrigo Mujica represented Sofofa.

Sofia’s response

The comment received a response from the economist Gonzalo Sanhueza, who attended on behalf of the industrial union together with Fernando Barros and Rodrigo Mujica, pointing out that the OECD criterion is “correct”, but that this would imply that the higher contribution should also be considered in the pension reform. like a tax.

The former Minister of Finance, Rodrigo Valdés, also addressed this debate earlier yesterday in the dialogues, pointing out that pension contributions should be considered in the collection figures.

“We cheat ourselves when we remove all social security from the discussion, because social security is central to the redistributive issue in the world. It’s like making a discussion with only half the field”, she emphasized, adding that adding everything that is social security and individual AFP accounts“even so the gap is large” with the OECD.

The numbers on the table

On Tuesday, April 26, the executive director of Horizontal, Juan José Obach, pointed out at the beginning of the dialogues that the most representative thing is to discount social security contributions, which leads to tax collection amounting to 19.6%. of GDP, 5.6 percentage points below the OECD average.

A day later, LyD’s senior economist, Macarena García, stated that although the OECD calculates the gap in tax revenue between Chile and the average of its members at 12.5 points of GDP, when discounting social security contributions and correct for the level of wealth, the distance is reduced to 2.9 points.

A day later, it was the turn of the Confederation of Production and Commerce (CPC), whose director of Public Policies, Javier Irarrázaval, stated that the gap would be less than two points of GDP if the data is controlled for informality, dependency rate, GDP per capita and mandatory contributions.

“Given that the tax gap with the OECD is much smaller, the tax reform should not focus only on increasing taxes, but also on simplifying the tax system, offering stability, legal certainty and tax competitiveness in the country,” said Irarrázaval.

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