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Original article: La promesa del chorreo: Crecimiento sin derrame

By Venus Reyes Palacios, Researcher at Fundación SOL

Recently, the government of José Antonio Kast unveiled the «National Reconstruction and Economic and Social Development Bill.» This expansive and ambitious initiative encompasses various topics, from economic reactivation measures to responses to recent wildfires.

The diverse range of topics has justifiably led to its classification as a miscellaneous or «tutifruti» law. This column explores the underlying motivations of the proposal and its potential effects on the working class.

The government argues that «at the fiscal level, low economic dynamism has hindered the generation of sufficient revenue to sustain the legitimate aspirations of citizens in education, health, welfare, and security.» However, paradoxically, the project does not address these aspirations or advance the expansion of social rights.

The government aims to make Chile a more attractive destination for investment through two main strategies: first, by reducing corporate taxes on profits from 27% to 23%, and second, by simplifying project approval processes (often referred to as «permisología»).

This initiative comes with the promise that future economic dynamism will fund social needs and rights. Nonetheless, the message is clear; it sets aside the demands of the working class, making them contingent upon economic growth eventually benefiting society as a whole.

Once again, this represents a trickle-down policy that delays addressing urgent structural problems like low wages and pensions, as well as access to social rights such as healthcare, education, and housing.

The government’s insistence on the trickle-down hypothesis lacks empirical support; there is no conclusive comparative evidence that this approach improves the living conditions of working families. In Chile, this formula has resulted in a highly unequal society, where the richest 1% holds over 50% of the wealth and the richest 10% controls more than 80% (according to data from the Internal Revenue Service’s Office of High Wealth).

Once again, the working class is left waiting for the wealth generated by capital to trickle down. Meanwhile, from 2020 to 2026, the cost of living has risen by over 40%, while wages have failed to keep pace.

According to ESI 2024, from 2019 to 2024, the average real net income of employed individuals increased by merely 6.6%, representing an increase of about $55,000 over five years. In contrast, during the same period, real GDP grew by 10.1%, or 53% more than the average wage growth. These figures confirm that growth is not equitably distributed.

Despite the obvious focus on pushing for tax reform, President Kast announced that «the number one priority is to create jobs.» However, Finance Minister Jorge Quiroz stated during his presentation to the Chamber of Deputies’ Finance Committee that «there’s no guarantee that more people will be hired.»

The statements are contradictory, and the government’s top economic authorities do not seem to be aligned. More worryingly, the administration continues to overlook a key aspect: creating jobs solely in quantitative terms barely scratches the surface of the problem. Without improvements in job quality and wages, an increase in employment will hardly translate into better living conditions.

Today, having a job does not guarantee a decent life. According to data from the 2024 Casen Survey, 55.7% of workers earn less than $600,000 net, and 63.5% of employed individuals could not lift an average household of three out of poverty, especially those who rent their homes.

Despite this dire situation and the urgent solutions required, the government persists in utilizing the same trickle-down strategy that has dominated Chile for decades. During this time, it has not been proven that tax reductions result in increased investment; in fact, it can have the opposite effect by boosting capital profit margins.

The data supports this trend: based on information from the Central Bank, between 1990 and 2024, profits have grown at a faster pace than investment.

To expect different results, it is vital to explore different paths, and for that, it is crucial to consider alternatives from the labor movement. Research shows that strong collective bargaining models and robust unions are compatible with economies exhibiting higher levels of employment, better wealth distribution, higher wages, and lower inequality.

Exiting the crisis does not involve cutting rights or impoverishing the working class under the promise of growth that does not benefit everyone. The solution is collective: strengthening wages through union organization and establishing effective wealth redistribution mechanisms.

This May 1st, Labor Day, it is more urgent than ever to advance the strengthening and unity of the working class to confront reforms that perpetuate a model that fundamentally remains unaddressed.

Venus Reyes Palacios

La entrada The Choking Promise: Growth Without Overflow for Chile’s Working Class se publicó primero en El Ciudadano.