Chile joins global debate on imposing a tax on the super-rich

RIO DE JANEIRO, BRAZIL – Chile, the country with the third-largest number of billionaires in Latin America, joins the global debate on the tax on the super-rich, with an initiative being discussed in Parliament to tax, promptly, large fortunes and to address the economic crisis of the pandemic.

As in the rest of the world, the health crisis intensified the socioeconomic differences in Chile: while in 2020, around 2.3 million people went from middle class to vulnerable according to the World Bank, the eight largest fortunes in the country grew by 73%, according to figures from Forbes magazine.

In this context, the bill being discussed in Chile seeks to levy a one-time tax of 2.5% of wealth on the holders of assets equivalent to a value of US$22 million more, in order to finance an emergency basic income and mitigate the high fiscal costs left by the health crisis.

“There is no democratic discourse that can sustain this level of contrast and inequity in the appropriation of wealth, even less so in the context of the pandemic,” said opposition deputy Camila Vallejo, author of the bill.

“SOCIAL JUSTICE TAX”

The tax on the super-rich, also called “social justice tax”, has recently been recommended by various organizations such as the United Nations (UN) or the International Monetary Fund (IMF) as a tool to confront the current economic crisis and reduce the great inequalities in the region.

For Matías Cociña, researcher at the United Nations Development Program (UNDP) in Chile, in societies as unequal as those in Latin America, the ability to apply taxes at the top of the distribution is “very relevant”.

“In a context in which the elites are strongly questioned, that these individuals make an additional contribution to the post-pandemic economic recovery process could reduce this perception of distance,” the academic told Efe.

In Chile, the country with the highest per capita income in South America, the top 1% of households with the highest income account for more than a quarter of the total wealth. In comparison, the poorest 50% of families have only 2.1%, according to data from the Economic Commission for Latin America and the Caribbean (ECLAC).

Its Gini index, which measures inequality with 0 being a perfect distribution of income and 1 being a completely unequal distribution, is 0.44, according to the latest 2017 measurement.

Also, tax collection contributes little to reducing differences. According to the Organization for Economic Cooperation and Development (OECD), taxation in Chile only reduces the Gini index by 2.5%, compared to the average of the countries that make up the organization (10%).

LOW TAX COLLECTION

On the other hand, some experts point out that imposing a tax of this nature stimulates capital flight to places where this tax does not exist, in addition to discouraging investment.

“This initiative is not the most efficient tool, and there are several studies indicating that countries that have implemented a similar measure had additional revenue of less than 1% of GDP,” Gonzalo Polanco, director of the Center for Tax Studies of the Faculty of Economics and Business of the University of Chile, told Efe.

According to a private think tank Desarrollo y Libertad report, the tax on the super-rich is a “bad idea” because it is not aimed at “boosting the recovery of productive activity”.

DEEPENING THE DEBATE

In parallel to the initiative being debated in Parliament, which would affect a total of only 1,406 taxpayers according to the Internal Revenue Service (SII), more and more voices raise the need to reduce tax exemptions and improve the Chilean tax system in the long term.

The sociologist at the University of Chile and researcher at Fundación Sol, Benjamín Sáez, told Efe that this tax discussion is part of a broader and long-term debate on “how these people who accumulate a lot of resources can redistribute them more equitably,” allowing for “greater social peace”.

Although the need for the largest fortunes to contribute more is a global consensus, in Chile, “the political importance of taxes has been little understood,” in the opinion of Francisco Saffie, a lawyer and one of the authors of the general anti-avoidance rule.

Also, the document “ignores how capital, patrimony and wealth are found in the world today,” explained Saffie, since in its wording it considers taxing natural persons, “who are not necessarily the owners of the vehicles in which their patrimony is found.”

Recently, Argentina and Bolivia have introduced a wealth tax, attempting to offset Covid-19 spending.

Source: efe/dw/beb