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The Socialist Party In Chile Gets to Work Destroying the Economy

August 27, 2014 in Economics

By Ryan McMaken

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Axel Kaiser at Mises Brasil has penned a helpful update on the situation in Chile where socialist president Michelle Bachelet was elected to a second non-consecutive term in Chile. Bechelet’s second term appears to be far more ambitious in its efforts to introduce a series of socialist programs and reforms, and it certainly looks to be far more damaging than the administration of Ricardo Lagos, who seemed largely concerned with promoting relatively-free trade in spite of his own status as a member of the Socialist Party. 

Below is the Google Translate version of Kaiser’s article (edited down a little and corrected by me):

Michelle Bachelet Intends to Destroy the Institutional Foundations of Chile’s Economy

by Axel Kaiser

Only five months have passed since the socialist government of Michelle Bachelet took power in Chile, but it has been enough to make economic growth in the country collapse. The main cause of this sudden and dramatic decline in economic activity is the increased uncertainty generated by the new Chilean government, which aims to take a tabula rasa approach to to the institutions of the free market that allowed Chile to become the most prosperous country in Latin America.

One of the most harmful proposals is a massive tax reform, which has already been approved, which will dramatically increase the corporate income tax in Chile, leaving it above the average for OECD countries. Moreover, this tax reform – which was strongly opposed by associations of Chilean entrepreneurs, and is losing popular support – grants the national tax agency arbitrary powers over taxpayers.

Another target of the radical socialist Bachelet program is the flagship pension system in Chile. As is widely known, Chile was the first country to introduce a social security system that is managed by private companies and is based on individual capitalization accounts. Under this scheme, each month, the Chilean workers deposit a percentage of their income in an account under your name, which is administered by private companies called AFP (Pension Fund Administration). The arrangement works just like a funded system.

Thus, when the Chilean workers retire, they – unlike all other current worldwide pension systems – do not depend on other workers to continue contributing to the system to receive their retirement; they just get back all the money applied adjusted for inflation plus interest.

Unlike the state pension system created by Bismarck and copied all over the world – technically called pay-as-you-go – the Chilean system is …read more

Source: MISES INSTITUTE

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