Chilean lawmakers want to raise US$6 billion taxing the ultra rich

After winning a surprise victory in Congress against the government over pension reform, Chile’s opposition are back on the attack. This time they are setting their sights on a tax for the ultra rich.

Legislators from the Communist Party to the Christian Democrats submitted a bill that would set a one-time, 2.5 percent levy on individuals with more than US$22 million in wealth. The bill entered Congress at the commission level this week, with communist legislator Karol Cariola saying it aims to collect as much as US$6 billion.

The government opposes the proposal, which Finance Minister Ignacio Briones called impractical. Still, Briones and other ministers had also lobbied against the popular bill allowing people to withdraw money from their pension savings. That insistence turned into an embarrassing defeat in Congress as some government lawmakers voted with the opposition. Billionaire President Sebastián Piñera won’t want that to happen again.

“These taxes have been tried before in other places and generally they fail to collect, or collect very little,” said Ricardo Escobar, former head of Chile’s tax agency in an interview with Pauta Bloomberg radio.

The bill doesn’t specify how it plans to calculate a person’s net worth or how it will take debt into account, Escobar said.

Chile has the second highest income inequality among OECD member countries, after Costa Rica – Costa Rica was invited to join this year. A study from Boston Consulting Group cited by El Mercurio said that 140 individuals in Chile held about 18 percent of the country’s wealth and that about 23,700 people have wealth between US$1 million and US$100 million.

Similar tax measures for the ultra wealthy are being discussed in Argentina, Brazil and Peru, which has led to a jump in the number of people in the region asking for advice on how to relocate to countries with lower tax burdens.

The move is being driven by populism, said Escobar.

“If Chilean politicians could ignore the law of gravity they would pass a law tomorrow allowing everyone to fly,” he said.