Kast and Boric represent antagonistic projects. While the 35-year-old young left-wing deputy is socially liberal and defends “a The welfare state “European style in economics, his adversary Kast, a 55-year-old lawyer, defends the neoliberal economic model and he has an ultra-conservative vision in social matters, expressed in his opposition to abortion and equal marriage.
Kast proposes a tax cut for large companies and maintain the private pension system. Boric proposes a tax reform that includes greater burdens on the richest and the high incomes to collect an additional 5% of GDP, which would be used to expand the State’s participation in the provision of social security.
The leftist deputy is in favor of a new pension system to replace the one inherited from the dictatorship of Augusto Pinochet (1973-1990), a central issue in Chilean society that has been one of the main demands of social demonstrations in recent years due to the very low pensions they provide.
“The Kast model is more market-friendly”While Boric has “great distrust of the private sector,” Francisco Castañeda, an economist from the Business School of the Universidad Mayor, told AFP.
Facing the second round, both candidates have moderated their speech, especially in the economic sphere, integrating new advisers to their teams, in search of capturing the voters of the center.
In fact, well-known economists who accompanied the years of governments of the Concertación of center-left parties after the dictatorship, marked by great prosperity, added their support to Boric in this second round, including Ricardo French-Davis.
Initially Boric proposed a tax reform that would collect 8% of GDP and now aspires to 5%, while Kast gradually introduced his tax cut (from 27% to 17% of the tax on large companies).
After scoring a 5.8% drop in 2020 as a result of sanitary restrictions due to the pandemic, Chile will close 2021 with a GDP expansion of around 11.5%.
A large part of this recovery is due to the strong increase in private consumption after the state bonds delivered by the pandemic and the three early withdrawals of private pension funds (of up to 10% each time) approved by Congress in the face of strong popular pressure .
In addition, since the middle of the year, a large part of the economic activities were resumed after a successful anticovid vaccination campaign promoted by the Conservative government Sebastian Piñera, which managed to reach more than 90% of the target population until today.
As the world’s leading copper producer, Chile has also benefited from the international rise in the metal, hand in hand with Chinese demand.
“Today the economy is unbalanced in economic terms, overheated from a consumption shock,” explains economist Juan Ortiz, from the Diego Portales University Economic Context Observatory, to AFP.
Only withdrawals from the pension funds meant an injection of 50,000 million dollars, while the government allocated until December 3,000 million dollars a month to pay the Emergency Family Income (IFE) bonus.
By 2022, the Central Bank is expected to raise interest rates again to contain inflation, which will close this year at around 6%, double its target range. In addition, the delivery of the IFE will be stopped.
Whichever is “the candidate who becomes president next year, will have to take charge of a complex macroeconomic scenario, in which he will have to calibrate the withdrawal of the fiscal stimulus,” Ortiz added.
Aware of this scenario, Boric and Kast undertook to guarantee the consolidation of fiscal accounts, to contain public debt, which as of June 2021 reached 33.1% of GDP.
“There is a clear awareness that without fiscal discipline, the Chilean economy would have more difficult times than those projected for 2022,” says Castañeda.
The market is betting that consumption and copper will drive a growth of the Chilean economy between 2 and 3% next year.
A Kast win would be more valued by the market, but there is fear that his policies will generate protests. If Boric wins – who leads the polls, banned since December 4 – the economic uncertainty could be extended especially by his tax reform project, although there would be relative relief in the streets.
Source From: Ambito
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