In 2022, the Chilean government achieved a fiscal surplus of 1.1% of GDP. Meanwhile, spending decreased by 23.1% and public debt stabilized at 37.3%.
In 2022 the Chilean Central Government registered its best financial performance in the last ten years. Last year’s public finances ended with a fiscal surplus of 1,1% of GDP, its best performance since 2012 when the surplus was 0.6% of GDP, according to preliminary annual figures from the Budget Directorate (Dipres).
The Public Finance Report that supported the 2023 Budget expected the surplus for 2022 to be 1.6%. This fiscal performance was influenced by a 6.3% increase in tax revenue and a 23.1% decrease in public spending.
“These are very encouraging figures, showing a fiscal surplus in 2022, a significant decrease in spending and a growth in revenue. We are going to see a net public sector debt that remained constant,” said Finance Minister Mario Marcel.
Javiera Martínez, the Budget Director, said that public debt closed at 37.3% of GDP. She added, “This suggests that debt has stabilized, which was an important target for us this year.”
Marcel warned that the fiscal convergence seen in 2022 will not repeat in 2023. “There were a number of unique factors that improved tax revenue in 2022, so we have to be realistic about 2023. These effects will disappear, so we have to set fiscal targets that are attainable (...). Fiscal deficit targets were reduced, fiscal trends were improved, but that did not mean a sign reversal in the fiscal surplus for 2023. We have to be responsible and set realistic targets. But it will be a year of fiscal consolidation following the large imbalances we had in 2020 and 2021. Fiscal trends will be converging throughout these years to almost a zero balance by the end of the presidential term,” he said.
The Treasury estimated in October that the fiscal deficit for 2023 would be 2.7%, and the structural deficit would be 2.1% of GDP.
Increased taxation in Chile in 2022
The 6.3% growth in Chilean Central Government revenue was mainly due to higher taxes paid by taxpayers, with a real annual increase of 9.6% for the year ended December 31, 2022, as a result of a 28% increase in income tax collections.
This revenue increase was due to a 56% accumulated growth in corporate income tax. Annual property revenue increased by 503%, explained by the increase in CORFO’s revenue from lithium extraction contracts with SQM and Albermarle.
To a lesser extent, revenue from windfall profits at the top ten large private mining companies (known as GMP-10) increased as a result of the high copper price in 2022 and lower refunds in payment systems.
Public spending in Chile
Current spending fell by 26.3% in real terms for the year ended December 31, 2022, compared to the previous year, while capital expenditure linked to public investment increased by 4.7% in real terms.
The fall in current spending is mainly explained by subsidies and grants reducing by -45.6% in real terms, due to the high comparative base in 2021 attributed to Universal IFE payments (Universal Emergency Family Support during the pandemic).
The variation in capital expenditure was explained by an annual decrease in investment of 18% in real terms, which was offset by an increase in capital transfers of 31.3% in real terms. This was mainly due to the implementation of a new budget structure for regional governments, where investment initiatives are not recorded as investments, but as capital transfers.
Total Central Government spending in the fourth quarter was 107.4% of the approved Budget, which included the Transitional Emergency Fund (FET). Current spending was 111.9%, explained by measures associated with the “Chile Apoya Plan” (to increase security, relieve inflation, support the unemployed, create jobs and support the vulnerable), and capital spending was 86.3%.
Implementation of the FET COVID-19 Fund and additional support measures amounted to Ch$5,476,606 million (97.2% of the current budget), including sectoral investment measures, the public health strategy and the IFE Laboral and Protege employment subsidies.
Furthermore, the Chile Apoya Plan was implemented in July, including measures such as Mepco (fuel price stabilization mechanism), the extraordinary winter grant, additional IFE Laboral and Protege employment subsidies, and measures associated with the monthly compensatory contribution triggered by increases in prices for the Basic Food Basket.
Further information about Chile's global role, its economic outlook and investment trends can be found in this article.
Source: El Mercurio