Chile’s Senate Narrowly Passes President Kast’s Economic Overhaul
Chile · Economics
Key Facts
—Corporate Tax Cut The reform phases down the corporate income rate from 27% to 23% over four years, seeking to align Chile with the OECD average and attract investment.
—Tax Stability The bill grants up to 20-year tax invariability for large-scale investments, a key sweetener for foreign capital.
—One-Vote Margin Key articles passed by a razor-thin 26-23 vote with one abstention, underscoring deep political polarization and signaling potential future legal and legislative challenges.
—Fiscal Cost The package carries an estimated annual cost of about $1.8 billion for the corporate tax cut alone, raising concerns over Chile’s fiscal sustainability.
—Economic Urgency The reform arrives as Chile’s economy contracts for five straight months and unemployment hits 9.4%, the highest level since 2021.
In a razor-thin vote stretching into the early hours of July 16, 2026, Chile’s Senate approved the core articles of President José Antonio Kast’s flagship Kast economic reform, greenlighting sweeping corporate tax cuts and long-term investment guarantees by a margin of just one vote.
The Decisive Overnight Vote
Chile’s Senate passed the bulk of the “National Reconstruction and Economic and Social Development” bill during a marathon session that lasted more than twelve hours into Thursday, July 16. The general approval was secured with 26 votes in favor, 23 against, and one abstention—exactly the minimum threshold required to advance the legislation.
Hours later, the Senate’s article-by-article votes proved even tighter. Key provisions, including the headline corporate tax reduction and the tax-stability regime, were approved by a 26-23 vote with one abstention.
This narrow margin allowed the officialism, composed of right-wing and far-right parties, to push through the package and send it to a final legislative stage.
Inside the Reform: Taxes and Guarantees
The centerpiece of the plan slashes the corporate income tax rate from 27% to 23% in phases: 25.5% in 2027, 24% in 2028, and 23% from 2029 onward. This costs an estimated US$1.8 billion annually.
The government argues the cut targets roughly 150,000 firms that generate more than half of formal employment and roughly 90% of Chilean investment.
For big investors, the bill introduces a tax-stability regime granting up to 20 years of tax invariability for investments of US$350 million or more. The reform also temporarily exempts new home sales from VAT and lowers the tax on donations while injecting 400 billion Chilean pesos into a reconstruction fund for wildfire-affected regions.
Political Math and Polarization
President Kast’s coalition does not control an outright majority in Congress. The administration entered the decisive Senate session with only 26 confirmed votes from the officialism, exactly the minimum needed to pass the legislation.
Opposition deputy Daniela Serrano (PC) noted the reform was approved by a narrow margin in the Senate, just like in the House.
Critics from left-wing parties attacked the package as benefiting the “super-rich” and warned it risks public finances. The long-term tax-stability guarantees have been flagged as a flashpoint facing possible constitutional challenges.
Given Chile’s polarized environment, analysts note the fragile majority raises doubts about the durability of the law should the political balance shift.
Why This Matters for Investors and Residents
The reform marks one of Latin America’s most aggressive pro-business pivots, lowering effective tax rates for corporations and locking in fiscal rules for up to two decades. However, our reporting has shown that the package’s razor-thin approval margin and the legal questions surrounding its tax-stability guarantees signal that its implementation may face prolonged legislative and judicial battles, tempering the immediate investor optimism. The tax-stability clause, originally conceived as a 25-year guarantee for investments over $50 million, was scaled back during negotiations to a 20-year term for investments of $350 million or more, a shift that critics say narrows its protective scope considerably. For foreign investors, the stability regime offers a hedge against future tax changes, while the elimination of the 10% tax on profits from publicly traded share sales reinforces market liquidity.
The peso reportedly appreciated 0.7% after favorable electoral outcomes for Kast’s camp, and local stocks and bonds have seen positive sentiment.
For residents, the bill brings a payroll tax credit targeting 235,000 small and medium-sized enterprises and roughly 4 million workers. It also introduces a “right to financial forgetfulness,” wiping prescribed debts from credit records after five years.
However, the opposition warns that heavy fiscal costs could eventually strain public services unless the projected GDP growth of 4% per year materializes.
What Comes Next
Following Senate approval of the majority of articles, the bill was dispatched to a final vote, the last legislative hurdle before it can be enacted into law. The government has framed the reform as “indispensable” to reverse an economy in contraction for five consecutive months and reduce unemployment from its 9.4% peak.
The IMF has stated the package could boost growth but cautioned that tax cuts will likely weigh on public finances without compensatory measures. Chile’s Autonomous Fiscal Council (CFA) also warned of risks to fiscal targets.
With the vote decided by a single senator, the reform’s implementation will face intense scrutiny from both markets and the courts.
More: Chile news in English, every day from The Rio Times.
Frequently Asked Questions
What is in Chile’s new economic reform?
The reform cuts corporate income tax from 27% to 23% over four years, grants up to 20 years of tax stability for large investments, offers a temporary VAT exemption on new home sales, and introduces a payroll tax credit for formal employment.
How close was the Senate vote on Kast’s economic bill?
Extremely close. The general text passed 26-23 with one abstention, and key articles like tax reductions passed 26-23 with one abstention—exactly the minimum majority required, with only officialist right-wing and far-right parties supporting the measure.
Why are markets reacting to Kast’s reform?
Investors view the corporate tax cut and long-term tax-stability regime as business-friendly measures that improve Chile’s competitiveness. Positive market sentiment was reflected in a 0.7% appreciation of the Chilean peso following favorable electoral results for Kast’s coalition.
Sources: France 24: Chile’s Senate OKs business-friendly economic reforms, Bloomberg: Chile Senate Hands Kast a Win on Key Economic Reform Bill, The Rio Times: Chile Senate Gives General Approval to Kast’s Reconstruction Bill, El País: Kast’s economic reform enters its decisive stage in the Senate, France 24 (Spanish): El Senado chileno aprueba la megarreforma económica de Kast, Ground News: Kast’s economic reform passes in the Senate by the minimum number of votes
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