Chile Starts Runnoff Vote as Bachelet Seeks Return to Power

Sunday, 15 Dec 2013 07:02 AM

 

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SANTIAGO, Chile — Chileans are voting in the second round of a presidential election that pits former President Michelle Bachelet, who has pledged higher taxes and spending, against ruling-alliance candidate Evelyn Matthei.

Bachelet, who was president from 2006 to 2010, won 47 percent in first-round voting Nov. 17 on a platform of raising corporate taxes to finance free education for all in the world’s largest copper producer. Matthei took 25 percent.

Bachelet is promising $15.1 billion in extra spending during her term in response to three years of protests over the quality of schooling and hospitals. Matthei says her rival’s plan would jeopardize 30 years of almost uninterrupted growth that has made Chile the wealthiest country in Latin America.

With the economy showing signs of slowing, Bachelet’s plan to fund social programs through higher taxes may fail, said Jorge Errazuriz, a partner at BTG Pactual in Chile.

“Bachelet will run into a problem if the economy doesn’t grow at current levels and copper, mining and private companies’ income fall,” he said in a telephone interview from Santiago. “In that case, her tax reform won’t be enough.”

Since 1983, Chile has averaged economic growth of 5.2 percent a year, raising income per capita to about $19,100, the highest in South America, according to the International Monetary Fund.

“Saying that increasing taxes will affect growth is an argument that has been used historically to scare the population,” Alvaro Elizalde, her spokesman, said by phone. “Bachelet was already president and she has always acted with seriousness and responsibility. Bachelet is characterized by her great fiscal prudence.”

Bachelet plans to raise the corporate tax rate to 25 percent from 20 percent and end a 30-year incentive to reinvest profits that she says is being used to avoid taxes.

The changes will bring Chile more into line with its counterparts in Latin American, where Colombia has a corporate tax rate of 25 percent, and Peru and Mexico have 30 percent. Five years ago, Chile had a tax rate of 17 percent, half Colombia’s 33 percent.

“The best tax reform you can do is to get the economy growing,” Finance Minister Felipe Larrain said in an interview Dec. 13. “If Michelle Bachelet wins, I hope that we have a moderate tax increase that is debated and gets a consensus beyond the coalition that supports her.”

Both Matthei and Bachelet are daughters of former air force officials. While Matthei’s father rose through the ranks after the 1973 coup that brought Augusto Pinochet to power to help lead the military junta, Bachelet’s father was imprisoned and tortured to death by the regime, according to a report by the state forensic medical service.

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