With more ultra-rich in LA, Chile has less social mobility

Gabriel Boric faces a colossal challenge when trying to implement his social welfare agenda in Chile, with a bold progressive tax reform, to try to reverse the scenario in which the richest 1% of Chile concentrates 49.6% of all country’s wealth.

This index is the most shocking on the continent. In Brazil, the richest 1% hold 48.9% of national wealth in their bank accounts. With this, Chile consolidates itself as the country with the least social mobility, since the poorest will never have access to health, higher education or decent retirement, for example. A new Constitution would be fundamental to guarantee these rights as universal public services in the most privatized country in South America.

To eliminate the current social security system, transform the health system and raise taxes, Boric’s reform comes up against the need for changes in income tax for large companies, reduction of exemptions, green taxes (in favor of the environment), collection of royalties from large mining companies, measures against tax evasion and evasion, and a wealth tax.

To fund his plans, Boric has proposed tax reform “with gradualism and fiscal responsibility”, which aims to raise 5% of GDP during his term. The latter, known as the “super-rich tax”, would be levied on around 0.1% of the Chilean population. This “transformative” agenda, which will require greater tax collection, will face a series of obstacles, such as, for example, the lack of a majority in Congress, a limited budget and low economic growth.

Since Boric won the elections, it is already possible to see a flight of capital from its billionaires to other countries. Unable to become aware of the level of social turmoil that their country has experienced since 2019, as a reaction to the deepening of economic inequality, after thirty years of neoliberalism, these ultra-rich hide their earnings in foreign banks, avoiding investing in the economy, while it is not clear to where does the Boric government go.

Heirs of Pinochetism

According to ECLAC (Economic Commission for Latin America and the Caribbean) calculations, using data published by Forbes magazine, the combined wealth of the richest Chileans was equivalent to 16.1% of the country’s GDP (Gross Domestic Product). These calculations only consider the so-called “billionaires”, that is, those who have a net worth of at least US$ 1 billion.

Worldwide, there are 2,755 people who belong to this category. Latin America has 104 ultra-rich, of which nine are Chileans, according to the American magazine.

Are they:

Iris Fontbona and the Luksic Family: $23.3 billion

Julio Ponce Lerou: $4.1 billion

Horst Paulmann and family: $3.3 billion

Sebastián Piñera and family: $2.9 billion

Jean Salata: $2.4 billion

Roberto Angelini: $2 billion

Alvaro Saeih: $1.8 billion

Patricia Angelini: $1.6 billion

Luis Enrique Yarur: $1.3 billion

Among these ultra-wealthy Chileans, it is educational to look at the cases of Julio Ponce Lerou, former son-in-law of the dictator Augusto Pinochet, and Sebastián Piñera, the last ex-president. With the privatization of the company SQM (Soquimich), Lerou became the biggest shareholder of the giant that produces fertilizers, iodine and lithium for the world.

It was precisely in the 1970s and 1980s, during the regime of General Augusto Pinochet, that the social abyss widened further, with the introduction of an economic model of little regulation that allowed the emergence of large family fortunes. Chile was the guinea pig chosen by Chicago School economists to put neoliberalism into practice in all its splendor. No country on the continent has experienced such economic deregulation.

Pinochet privatized public companies, which became the property of a few families friendly to the government, repressed unions and reduced the social role of the state to a minimum.

Sebastián Piñera, chairman until March 11, 2022, is from the finance branch. He built his wealth as Chile became the darling of Wall Street, paying high dividends to foreign shareholders while poverty soared. Currently, his fortune is managed by a “blind trust”, which is being investigated by the Comptroller General of the Republic for possible conflicts of interest.

financial myopia

The proposal to tax these fortunes is strongly attacked by the stablishment economic and media, under the allegation that the rich will take their money to tax havens. The measure is also accused of discouraging investment and, therefore, will harm economic growth.

In most countries, a person’s income is taxed, not their wealth. Thus, financial assets, properties, land, yachts or any asset that forms part of the estate is not perceived by the Revenue. Financial assets would be the main target, although they are difficult to locate in funds invested in international financial markets. Tax havens would need to cease to exist.

In this way, it is necessary to decide how to tax wealth, if this capital is so fictitious and inaccessible. Some argue that the most effective would be to create a property tax. Others consider it feasible to monitor the flow of capital.

“With a wealth tax, you’re controlling social discontent a little bit,” argues Gutiérrez. “Although it is true that entrepreneurs will have a lower return, in the medium term there will be greater social stability, and their businesses will be able to grow.”

The flight of millionaires actually ended up happening in European countries that implemented this type of taxation. However, experts point out that this attitude is the result of myopia, or even blindness, of the rich.

Less orthodox economists like Pablo Gutiérrez, a researcher at the University of British Columbia (Canada), argue that, for people with a lot of wealth, it is better to keep it in a stable country, instead of seeking tax advantages in small countries with high fiscal risk.

In this way, he believes that it is better to “control social discontent”, with a lower financial return, but, in the medium term, guarantee greater social stability and, consequently, business growth.

With information from BBC News