Chile Can Fund Education Without Raising Taxes, Larrain Says
August 12, 2011, 6:15 AM EDTBy Randall Woods and Matt Craze
(Updates with congressional statement in fifth paragraph, comment from Lan Airlines CEO in ninth paragraph.)
Aug. 11 (Bloomberg) -- Chile’s growing economy will generate enough tax revenue to overhaul an education system that has been the subject of nationwide protests over the past two months, Finance Minister Felipe Larrain said.
Increasing tax rates isn’t necessary to fund the government’s education and social programs, he said today at a Santiago seminar in response to calls from lawmakers including pro-government Senator Lily Perez to raise corporate taxes.
“I have clearly stated that we don’t require tax increases to finance our reforms,” Larrain told reporters today at the seminar. “People have asked for a tax increase because some of them didn’t believe this government would be able to boost the economy. When economies grow, tax revenues increase.”
President Sebastian Pinera has proposed the creation of a $4 billion fund as part of a package of education reforms after hundreds of thousands of students staged street marches to push for higher-quality, lower-cost schooling. Larrain called for “honest dialogue” rather than violent protests to achieve the improvements needed to meet people’s increased demands.
Leaders from both houses of Congress called for dialogue to end demonstrations that continued in the nation’s capital today, the Senate said in a statement on its website.
Increasing Subsidies
Pinera said that the government plans to boost student subsidies and scholarships and ease loan terms without giving in to demands to fully eliminate the cost of higher education.
“Nothing in life is free,” the billionaire investor- turned-politician said in a speech televised by TVN.
Violence from the protests is a concern to business leaders, Enrique Cueto, chief executive officer of Santiago- based Lan Airlines SA, told reporters today. Cueto said he wouldn’t rule out tax changes.
“There are social issues that are overdue,” he said at the conference after Larrain spoke. “We as business leaders believe the country must resolve its problems.”
While violence generates obstacles to economic development, the government’s goals of accelerating Chile’s entry into the developed world remain intact, Larrain said.
The economy is well positioned to withstand global turbulence and probably will grow 6.6 percent this year before decelerating as expected, the minister said, adding that the country remains a net creditor.
Fiscal spending in Chile will reach 22.5 percent of gross domestic product this year and the government has room to expand spending in the second half, Larrain said. The fiscal surplus will be 1.3 percent of GDP this year, Larrain said.
‘Responsible Budget’
“Our social programs will be financed as part of a responsible budget that won’t include tax increases,” he said. “Imbalances in public finances always end up hurting those who have less as well as the middle class. The weak always end up paying the price for bad public policy through inflation and unemployment.”
Inflation slowed to 0.1 percent in July from 0.2 percent in June, while the unemployment rate declined to 7.2 percent in the three months through June from 8.5 percent in the same period last year.
Larrain also announced the creation of a fiscal advisory committee to improve transparency and forecasting.
Made up of five external experts, the committee will help the government establish variables used to develop budgets such as copper price estimates and forecasts for potential growth rates, he said.
“Make no mistake: we will keep the Chilean economy firmly on course,” he said. “Fiscal discipline is non-negotiable.”
--With assistance from Eduardo Thomson in Santiago. Editors: James Attwood, Harry Maurer
To contact the reporters on this story: Randy Woods in Santiago at rwoods13@bloomberg.net; Matthew Craze in Santiago at mcraze@bloomberg.net
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net
