Chile Ponders Education and Tax Reform

Seeking to address student demands for universal free education, Chilean President Sebastián Piñera introduced two reforms this past week. Presented April 26, the first reform proposes changes to the education system including increased financing, expanded access to scholarships, and blocking private banks from lending for educational fees. A concurrent tax code reform introduced on Monday defrays the cost of that reform, raising between $700 million and $1 billion. While presenting the bill, Piñera said: “Thanks to these measures, no young person in Chile will ever again be excluded from higher education due to lack of resources.” Though Piñera assured Chileans the reforms would provide “equal and quality education,” not all Chileans—particularly student protesters—seem convinced the reforms constitute sufficient change.

Piñera’s education reform increases investment in education at all levels, but gives particular weight to pre-school education, given concerns that educational inequality begins early. It also increases access to government scholarships for students most at need and prohibits private banks from education financing, replacing financial institutions with government lenders. Education Minister Harald Bayer said this change alone will decrease the interest rate on student loans from 6 to 2 percent. 

The education reforms will be funded through an overhaul of the tax code, which lowers income taxes between 10 and 15 percent for all taxpayers, but raises taxes on corporations and consumption. The tax changes entrench corporate tax increases enforced after the 2010 earthquake, permanently raising them from 17 to 20 percent. The bill proposes a “sin tax,” boosting taxes on alcohol and environmentally damaging products, but eliminates stamp taxes. It also applies a variable tax on gasoline to keep the consumer price reasonable. The legislation seeks to phase out tariffs with countries with which Chile does not have a free-trade agreement, reducing duties from 6 percent to zero percent by 2015. The bill also allows people to write off up to 50 percent of education costs on their tax returns. The president said the proposal would raise $2.5 billion in new taxes, but tax cuts bring the total gain to between $700 million and $1 billion.

In a blog for Chilean daily La Segunda, Chilean political analyst Cristina Bitar praised the reforms for fitting with Chile’s economic growth, raising the education budget, and bringing the country’s education standards more in line with the OECD levels. “Balancing growth and equality is the real challenge for today’s Chile. This reform moves in that direction and should be supported,” she writes. Chilean daily La Tercera describes the reforms as realistic, and commends the government for taking the initiative. 

But many Chileans are unhappy with the proposals. Students resumed protests on Friday, with student leader Gabriel Boric saying the reforms do not go far enough to promote free education for all. “What is being proposed here is basically changing the creditor from the banks to the state,” the Confech leader said. An analysis by economists at the Universidad de Chile called the amount raised through tax reform “absolutely insufficient,” saying it represents 10 percent of the $7 billion necessary to provide free public education. Mario Waissbluth, a Chilean academic and president of citizen education group Fundación Educación 2020 echoes those feelings in a blog for La Tercera. He wrote that the tax hike only raises the tax burden by 0.3 percent of GDP, bringing the country’s total tax burden to 20.3 percent of GDP—compared to 23 percent in Uruguay and 27 percent in the United States. He also criticizes the proposal allowing taxpayers to write off education expenses, saying it will only benefit 20 percent of Chileans—the wealthiest sector of the population—who pay income taxes. CIPER Chile published an analysis of the reforms, calling them “regressive” and saying income tax cuts for 20 percent of Chileans with sales tax hikes for everyone is “unjust.” 

The opposition Concertación coalition party also expressed reservations. Opposition leaders said they would take up debate of the reforms, but conditioned the vote on negotiation with the government. Senator Ximena Rincón, of the Concertación block, summed up her Christian Democrat Party’s position: “I think that President Sebastián Piñera missed the historic opportunity to truly face a structural reform to the tax system, a system that, in our country, is inefficient, unjust, inequitable, insufficient, and concentrates wealth.”

Learn More:

• Read about the tax and education reforms on the Presidency of Chile's website.
• Visit Confech's website for the latest statements from the student protesters.
• Watch an Al Jazeera panel discussion on the student protests, featuring Council of the Americas Vice President Eric Farnsworth.
• Read an analysis of the tax reforms from CIPER Chile. 
• Read a critique of the reforms by Chilean academic and President of Fundación Educación 2020 Mario Waissbluth.