Chile's economy is stuck. The government thinks the answer is a big dose of tax cuts and less red tape.
The bill, already approved by the Senate, would do a few things at once. Under the proposed legislation, the corporate tax rate for medium and large firms is set to drop from 27% to 23%, while companies that take on unskilled workers would pay roughly 20% via a subsidy. Additionally, the bill aims to eliminate the capital gains levy on small stock transactions. It also creates a fresh investment regime that delivers stronger legal protections and more tax predictability for domestic and foreign investors, and contains separate initiatives to accelerate investment‑permit approvals.
The hope is that all of this together jolts the economy back to life. The budget office forecasts 3.7% GDP growth in 2027 if the bill and related measures pass. Without it, growth would be 2.7% that year.
For 2028, the difference is smaller - 2.7% with the bill versus 2.2% without. But the near term looks weak either way. The government now expects just 1.8% growth in 2026, down from an earlier forecast of 2.1%.
Private economists surveyed by the central bank see even less: 1.3%.
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Not everyone buys the government's numbers. Álvaro Vivanco, an emerging-markets strategist at Wells Fargo Securities, put it bluntly: "Some of the short-term assumptions are too optimistic." He also said the country's "complex fiscal dynamics have been underappreciated."
Nathan Pincheira, the chief economist at Fynsa based in Santiago, agrees that the growth effects from the reform are probably smaller than projected. But he praised the policy direction. "If you make a significant effort to slow the rate of growth of debt, or even decrease it, it's much better received than if you reach that threshold due to chance," he said. "There is an effort and a recognition that this is a priority."
Samuel Carrasco, who serves as chief Chile economist at Credicorp Capital, wrote that the medium-term outlook "continues to be challenging" and that "substantial corrective measures will be required over the coming years to meet fiscal targets."
The numbers back up some of that caution. The government projects gross debt reaching 45.3% of GDP in 2029 without the bill, and 44.2% with it. Both are near the 45% threshold that the government regards as "prudent."
Credit rating agencies are watching. Moody's warned that past deviations have "begun to undermine the credibility of Chile's fiscal framework." S&P rates Chile at A, Fitch at A-, and Moody's at A2.
Finance Minister Jorge Quiroz says he is confident things are on track. "I see that we are well on track to meet this year's goals and according to plan, gradually putting public finances in order," he said.
For investors, the stakes are visible in Chile's bond market. The extra yield on Chile's dollar bonds over U.S. Treasuries - a measure of perceived risk - has declined by 18 basis points from the end of March, now sitting at 88 basis points. That is a sign of improving confidence, but it could reverse if the bill stalls or the projected growth numbers fall short.
The legislation now returns to the Chamber of Deputies, where approval is anticipated within a few weeks. If it becomes law, the real test will be whether the growth and debt targets actually show up. If they do not, certain analysts have cautioned that debt surpassing 45% of GDP might prompt a credit‑rating downgrade. That would make its bonds less attractive and could ripple into other emerging-market holdings in your portfolio.
The bottom line: Chile is making a big bet that cutting taxes and bureaucracy will jump-start an economy that has been running on empty. The direction makes sense to most economists. The question is whether the forecasted payoff is real - and whether the government can stick to its fiscal promises long enough to see it through.
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