Chile Lower House Approves Wealth Tax to Finance Higher Pensions

(Bloomberg) -- Chile’s lower house of congress approved a bill that funds a government-backed plan for higher pensions after including a wealth tax the administration rejects, paving the way for a fresh bout of political tension.

Deputies unanimously passed the bill to finance President Sebastian Pinera’s universal pension proposal on Monday, sending it to the senate. While the government’s original plan eliminated or reduced tax exemptions, opposition lawmakers added a wealth tax of 1.5% for people with capital between $5 and $22 million, and of 2.5% for those above that range. 

The bill stands to open another rift between congress and Pinera as he rushes to advance the legislation before his term ends. Both lawmakers and economists have said the administration’s plan to cover the pension costs will fall short. Still, the government has said it will challenge the bill before the Constitutional Court, arguing tax matters are prerogative of the head of state. 

The proposal calls for a guaranteed monthly pension of 185,000 pesos ($222), benefiting Chileans at age 65 and up who aren’t in the richest 10% of the population. The cost will reach 0.95% of gross domestic product between 2028-2034 before averaging 0.92% in the 2040s, according to the Finance Ministry.

Pinera and congress previously clashed over bills allowing early pension withdrawals from the privately-managed funds, known as AFPs. More broadly, low retirement payments are a top source of social discontent in Chile, and have fueled nationwide protests in recent years.

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