Chile - Politics, government, and taxation
Chile is divided into 13 administrative regions, each headed by an administrator ( intentente ) appointed by the central government. Each region is divided into 40 provinces, each being administered by a governor ( gobernador ) also appointed by the central government. The provinces are further divided into municipalities headed by appointed mayors ( alcaldes ).
Chile's system of government, with its separation of powers, was patterned after that of the United States. There are 3 branches to the government: executive, judicial, and legislative. It is a multiparty republic with a presidential system based on the 1980 constitution.
The Chilean Constitution of 1980 sets the format for the National Congress, composed of a Senate and a Chamber of Deputies. The Senate has 47 members (38 elected and 9 appointed) who serve 8-year terms. The Chamber of Deputies has 120 members who are directly elected for 4 years. The president is elected for a 6-year term without possibility for re-election. The constitution requires the president to be at least 45 years of age, meet the constitutional requirements for citizenship, and have been born on Chilean territory. The president is elected by an absolute majority of the valid votes cast.
The executive branch in Chile is composed of 16 ministries and 4 cabinet-level agencies: the Central Bank, the Production Development Corporation (Corfo), the National Women's Service, and the National Energy Commission. Each minister is appointed exclusively at the president's discretion.
During the brutal dictatorship of General Augusto Pinochet, which lasted from 1973 to 1990, political parties were severely repressed. After the return to a civilian democratic government, political parties began re-emerging and eventually consolidated into 2 major blocs, the center-right and the center-left. Historically, Chilean politics have been split 3 ways: the right, center, and left. The center-left is currently the governing coalition and includes the centrist Christian Democratic Party (PDC), the Radical parties, the moderate leftist Party for Democracy (PPD), and the Socialist Party (PS). The opposition center-right includes the National Renewal Party (RN) and the Independent Democratic Union Party (UDI). In addition to these parties, Chile has several small-scale leftist parties, including the Communist Party. While these parties are not represented in the Executive Branch or Congress, they do have elected representatives in some local governments.
The 2000 presidential election was a close race between Ricardo Lagos, representing the center-left, and Joaquin Lavin Infante, representing the center-right. Lavin's party platform, as a member of UDI, focused on promises of higher wages, larger pensions, and better economic and social performance. These promises were made in the wake of the largest recession Chile has experienced in years. Lagos's platform, as a member of the PPD, advocated stability, continuation of reform processes tied to economic liberalization , high levels of economic growth, and reduced unemployment.
The Coalition of Parties for Democracy (Concertacion) is an umbrella coalition that encompasses all political parties, from the powerful PDC to Lagos's PPD. One of the fundamental tenants of this bloc was to unite in support of a single presidential candidate. For the 2000 election, the Concertacion elected Lagos, making him the first avowedly leftist president since Salvador Allende, the socialist president who died during the coup (an internal takeover of a government) that put General Pinochet in power. Many older Chileans were concerned about Lagos's candidacy because they still remembered the very severe economic conditions that plagued the country under Allende. As the newly elected president, Lagos promised to maintain the same liberal-economic reform policies that have been adhered to since the overthrow of the Allende government. Although both the center-left and center-right support free-market liberal economies, the center-right tends to identify more with Pinochet and his neoliberal policies. The center-left understands and supports free-market policies but expresses ties to socialist ideology. In Chile, political identification remains closely tied to a person's socio-economic class.
The government's biggest impact on the economy is maintaining neoliberal economic policies that favor foreign investment and international trade. Regulation of the Chilean economy by the government is limited. The most heavily regulated areas of the economy are utilities, the banking sector, securities markets, and pension funds. The government is increasing the amount of foreign investment in the country by introducing rules that permit privatization of Chilean state-owned ports, water-treatment facilities, and private investment in the construction and operation of domestic infrastructure projects.
Chilean Decree Laws attempt to establish favorable investment climates for foreign investors by treating them nearly the same as Chilean investors. There are minimal administrative issues that need to be dealt with in order to pursue investment opportunities in Chile, and the highly stable democratic government helps boost investor confidence. With a well-developed legal system and government support of foreign investment, the economy thrives on the inflow of foreign capital. The government also promotes exports by offering non-market incentives to exporters. For example, paperwork requirements are made simpler for nontraditional exporters.
An 18 percent VAT is applied to all sales transactions and accounts, generating over 40 percent of total tax revenues. There is a tariff on almost all imports originating in countries that have not entered into a free trade agreement with Chile. In 1998 the tariff was 11 percent; it dropped to 9 percent in 2000 and will fall by 1 percent through the year 2003, at which time it will stabilize at 6 percent. Personal income taxes are applied only to individuals making more than US$6,000 per year. People earning over about US$75,000 are taxed at the highest rate of 45 percent. Businesses are taxed 15 percent on the profits they keep as earnings and 35 percent for those that they distribute. Businesses are given tax breaks for their donations to educational institutions. In 1999, 73 percent of total government revenues were derived from taxes. Tax evasion is not a serious problem in Chile.
Chile's economy is extremely open to free trade and the government rarely intervenes with protectionist measures. Chile's Foreign Investment Law and its tax structure are indicative of a country that is interested in attracting foreign investment. Chile has negotiated free trade agreements with various countries, including the United States, Canada, Mexico, Brazil, Paraguay, Uruguay, and Argentina.
The military played a significant role in the economy during the Pinochet dictatorship by enforcing a drastic 180 degree turn in the economy. They changed the Chilean economy from one that was heavily nationalized , domestically protected, and industrializing through import-substitution to one that favored free-market neoliberal policies. While the military no longer plays a direct role in the country's economic planning, the economic structure that was implemented under its rule is still followed currently and policymakers of the military government are still on the boards of the largest firms in the country.