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Original article: Gobierno logra aprobar compensación municipal cuestionada por favorecer a las comunas que más recaudan

The government led by José Antonio Kast has successfully passed a financial compensation scheme for municipalities due to the exemption from taxes for those over 65, part of its mega taxation reform project, which has faced criticism for favoring the municipalities across the country that generate the most revenue.

With a narrow margin of 27 votes in favor, the Senate approved this Tuesday the report from the mixed commission that outlines the formula for compensating municipalities for the loss of revenue stemming from the exemption for senior citizens, which was the last pending regulation in its criticized “National Reconstruction ” law.

This outcome resolves the last disagreement that had stalled the initiative since July 22, when the far-right administration was forced to withdraw the urgency of the project after realizing it lacked the necessary support for approval.

Under the approved compensation formula, the funds will be sourced from the Public Treasury, meaning through the general national budget—

Specifically, the General Treasury of the Republic must restore both the decline in contributions from the Municipal Common Fund and the own revenues that each municipality will no longer receive due to the exemption.

However, access to these funds will not be automatic, as municipalities must meet two specific conditions: keep their staff information updated and achieve a 30% reduction in permit processing times, using the average recorded between 2023 and 2025 as the baseline.

“Residents Across Chile Will Have to Fund Astronomical Budgets of High-Income Communities”

This measure has sparked criticism among mayors nationwide, with many labeling it as “unjust,” “regressive,” and further deepening territorial inequalities.

The mayor of Maipú, Tomás Vodanovic, warned that “Municipalities like Las Condes will lose $13 billion as their residents will not pay contributions. Yet the government decides to compensate 100% of those resources through the national budget.”

“In other words, residents of Maipú and the rest of Chile, through their taxes, will have to finance the extravagant budgets of high-income municipalities. This further exacerbates the massive inequalities that already exist, with extremely regressive financing,” he stated.

The mayor of Lo Espejo, Javiera Reyes, described the formula as “grotesque and abhorrent,” adding that the mechanism “increases inequality, forcing the poorest and humblest people in our country to end up financing the luxuries of wealthy municipalities.”

She explained that this compensation mechanism allocates 120 billion pesos to the Municipal Common Fund (FCM) and 80 billion directly to municipalities, from which nearly 40 billion is directed solely to six municipalities (Las Condes, Lo Barnechea, Vitacura, La Reina, Providencia, and Ñuñoa), while the remaining 40 billion is distributed among 339 municipalities.

In light of this situation, the mayor of Quinta Normal, Karina Delfino, led a statement supported by over 100 mayors across the country, requesting Kast to ensure that the US$200 million pledged by the government for compensating the tax exemption be fully transferred to the Municipal Common Fund (FCM).

However, the far-right president chose to ignore the proposal and refused to amend the mixed commission’s agreement.

During the debate, opposition parliamentarians insisted that the formula proposed by La Moneda increases territorial inequality as it returns more money to the municipalities that currently collect more.

Government Negotiations to Secure Votes

The approval of the regulation was the result of intense last-minute negotiations that highlighted the fragility of the right-wing coalition in Parliament.

According to reports from El Mostrador, the voting outcome was orchestrated in the office of Finance Minister Jorge Quiroz, who managed to secure the votes of Senators Matías Walker and Sergio Gahona through a signed political agreement.

This document commits the Executive to prioritize efforts and secure funding for the reconstruction of the regions of Coquimbo and Atacama, which were severely affected by the storms that ravaged the northern area of the country.

Walker’s situation was particularly critical, as he had conditioned his support on the government providing concrete assurances about these resources, even demanding that they be incorporated through an additive veto.

However, the vote that ultimately greenlit the initiative came from Senator Pedro Araya, of the PPD, who became the only dissenting voice within the opposition by backing the report from the mixed commission. His decision followed a series of conversations with mayors from various municipalities and with Interior Minister Claudio Alvarado. The legislator justified his vote by arguing that, in the current context, the compensation mechanism appears to be the only available tool to ensure that municipalities continue receiving the funds they will lose due to the exemption.

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