Chilean Municipal Tax Exemption Threatens Progressive Redistribution Efforts

Economists generally agree that a progressive tax system, where wealthier individuals contribute more, is desirable for stability and progress. Countries like England and Germany achieve greater equality primarily through state redistribution, as measured by the Gini coefficient before and after taxes and public spending. In 2022, Chile's pre-tax Gini was 0.49, slightly better than Germany's 0.50 and England's 0.52. However, after redistribution, Germany's Gini dropped to 0.31 and England's to 0.37, while Chile's only fell to 0.45, indicating significantly weaker redistributive power in Chile's state actions. This disparity is attributed to factors like social security systems, where Chile historically relied heavily on individual savings for pensions, unlike more redistributive models. While Chile has made strides with programs like the PGU, challenges remain in areas like healthcare costs and housing subsidies, with a significant portion funded by the regressive VAT. A recent policy exempting individuals over 65 from property taxes, regardless of income, is criticized for undermining the state's redistributive capacity. This measure reduces the Municipal Common Fund by 4%, impacting poorer municipalities that rely on transfers from wealthier ones. Although a corporate tax reduction can potentially stimulate investment, this exemption for seniors, particularly those owning high-value primary residences, is seen as a step backward in progressive policy, especially when targeted relief could have been provided to those with low incomes.