March 12, 2018 / 2:08 PM / 3 months ago

Chile to implement austerity measures, simplify tax code

SANTIAGO (Reuters) - Chile’s new government is prioritizing belt-tightening measures after inheriting a larger-than-anticipated fiscal deficit from the prior administration, while fine-tuning plans to simplify the tax code, Finance Minister Felipe Larrain said on Monday.

FILE PHOTO - Chile's Finance Minister Felipe Larrain speaks during an interview with the media at the Annual Meeting of the Board of Governors of the Inter-American Development Bank (IDB) in Panama City March 17, 2013. REUTERS/Eduardo Grimaldo

Conservative President Sebastian Pinera took office for a second non-consecutive term on Sunday, calling for a return to “fiscal equilibrium” in order to combat economic “stagnation” in the top copper exporter.

“We’re in a period of tight budgets, with levels of public debt that have doubled, which means we must begin with austerity measures, followed by a reassigning of resources, in order to finance the president’s program,” Larrain told reporters as he entered the finance ministry for his first day on the job.

The finance ministry said in a statement that it had inherited a fiscal deficit of 2.1 percent of gross domestic product, wider than the 1.7 percent that the outgoing President Michelle Bachelet’s center-left government had previously estimated.

Chile’s Congress authorized an increase in public spending of 3.9 percent for this year, which Pinera has previously criticized as “high.”

“We’re not talking about mega-adjustments, we’re talking about austerity measures,” Larrain said.

Larrain, a Harvard-trained economist who previously served as Pinera’s finance minister between 2010 and 2014, also said he was preparing a plan to “perfect” Chile’s tax code.

“The goal here is to simplify the tax code and make it more user-friendly,” Larrain said.

The previous government passed a complex tax overhaul that raised corporate taxes but was blasted by the business community for creating a climate of uncertainty.

Larrain said the Pinera administration hopes to present the new tax program later this year.

Reporting by Antonio de la Jara, writing by Dave Sherwood, editing by Jonathan Oatis and Rosalba O'Brien

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