Spending cuts, corporate tax reductions, and the easing of permitting requirements are part of a package of measures the government seeks to spark Chile’s economic takeoff.
The economic agenda in Chile under President José Antonio Kast combines fiscal austerity, investment incentives, and tax adjustments with the aim of restoring growth and strengthening confidence in the country’s economy. His program includes cuts in public spending, reductions in corporate taxes, and measures to accelerate investment permitting, in a context marked by expectations of economic recovery and internal political challenges.
Marking a clear departure from his two predecessors, the new president of Chile, the ultraconservative José Antonio Kast, decided that he will reside in the Palacio de La Moneda rather than in a residence financed with state funds—an action that could signal austerity as one of the defining features of his administration, which he described during his campaign as an “economic emergency” government.
The announcement has been well received by Chileans, who trust that Kast will fulfill his promise to reinvigorate key areas such as:
- Economic growth and productivity
- Greater efficiency within the public sector
- Improved security and public order
These are three of the issues that most concern the inhabitants of a nation that has long displayed one of the most stable economic performances in the region and that, despite its shortcomings, continues to be perceived as a model for its neighbors.
In other words, the new president will do everything possible to return Chile to its pre-2019 state, when the social upheaval that erupted in September destabilized the social and economic foundations that had underpinned its reputation as an advanced country, although he must do so in the midst of a turbulent global environment and persistent domestic tensions.
Lowering expectations
Although his characteristic determination remains unchanged, José Antonio Kast appears to have understood that moderation is an indispensable quality in political discourse. Perhaps for that reason, he has recently repeated the phrase “don’t ask us for miracles,” alluding to the fact that solving Chile’s structural challenges will not happen overnight.
“The most complex challenges for the new government will probably have to do with managing expectations,” says Arturo Garnham, a partner at the Santiago-based firm Garnham Abogados. His opinion aligns with that of several analysts who believe that the economic agenda in Chile will require patience from investors and citizens alike.
According to Garnham, the new occupant of La Moneda must generate confidence, and this requires stabilizing the political ground on which he operates. Key political challenges include:
- Determining whether the political opposition will support or obstruct the government’s policy agenda.
- Ensuring that government officials possess the political skills needed to avoid unnecessary conflicts.
- Maintaining stable relations with business associations and economic stakeholders.
“The second issue is determining whether members of Kast’s government will have sufficient political skill to avoid unnecessary conflicts with business associations—which are largely influenced by the opposition—and with the opposition itself, in ways that provide enough short- and medium-term confidence to investors and the markets,” Garnham explains.
Fiscal cuts: a major challenge
A proponent of reducing the size of the state and improving its efficiency, Kast made the ambitious campaign promise to reduce government spending by $6 billion during his first 18 months in office.
This fiscal consolidation is one of the most important pillars of the economic agenda in Chile under the new administration.
Several factors support the rationale behind this objective:
- According to the Inter-American Development Bank (IDB), Chile loses roughly $5 billion annually due to inefficient fiscal spending.
- Public debt has been increasing steadily as government expenditures have outpaced revenues.
- Administrative inefficiencies have expanded the cost of government operations.
Hermann González, who until last year served as vice president of Chile’s Autonomous Fiscal Council (CFA), has stated that fiscal adjustment is necessary because the country is spending more each year than it generates.
“That $6 billion addresses the fiscal deviation that has caused public debt to grow steadily,” he said.
However, Garnham believes that achieving this reduction will not be easy, particularly because many structural constraints exist within both the central government and municipal administrations. Reforms may therefore include:
- Changes to public-sector employment structures
- Reduction of inefficient government programs
- Improved oversight of administrative spending
“There is probably room for reductions. In recent years, it has been demonstrated that public spending is very inefficient. The challenge will be how to withstand resistance from the incumbents,” the lawyer notes.
Several studies support this concern, indicating that approximately 30 percent of Chile’s public spending is allocated to bureaucracy and salaries, significantly higher than the OECD average of around 20 percent.
Vicente Sáez Pinochet, a partner at the Chilean firm Sáez y Compañía, reinforces this view by arguing that the public administration payroll has become excessively large.
He notes that many positions within the public sector are associated with:
- Overtime payments and performance bonuses
- Inflated administrative structures
- Poorly evaluated social programs
“With political will and by trimming the excess from the state apparatus, it would be possible to reduce spending by much more than $6 billion,” Sáez says.
As part of this fiscal restructuring, the government also plans to review and potentially reorganize social programs considered inefficient, including universal subsidies for first-time home purchases. These programs could be replaced by direct cash-transfer mechanisms targeted at those most in need.
Nevertheless, the government must carefully balance fiscal discipline with political stability, since Chile’s powerful unions and professional associations have historically demonstrated their ability to mobilize against reforms.
The necessary reform
Another important component of Chile’s economic agenda is tax policy reform aimed at stimulating investment and improving competitiveness.
Although Kast’s proposal does not constitute a comprehensive tax overhaul, it includes several significant changes:
- Reduction of corporate tax rates
- Elimination of certain business levies
- Creation of a more integrated tax system
Under the proposal, corporate tax rates would change as follows:
- Large companies: 27% → 23%
- Medium-sized companies: 25% → 23%
Supporters argue that these reductions could increase capital inflows and strengthen business confidence.
However, critics point out that the measure would directly benefit only about 11 percent of Chile’s companies, leaving the remaining 89 percent—mostly small businesses—without significant tax relief.
To address this issue, the government is considering making the provisional tax regime introduced for small and medium-sized enterprises (SMEs) after the pandemic permanent.
Nevertheless, Garnham argues that investors prioritize stability over marginal tax reductions.
“Apparently, Iraq has a corporate tax rate of 15 percent, and I don’t see many people going there to invest,” he says, emphasizing that institutional stability and legal certainty remain the most important factors for attracting investment.
Even so, fiscal analysts warn that tax reductions could create questions about long-term fiscal sustainability, particularly regarding funding for social programs.
Attracting investment
A central objective of the economic agenda in Chile is to attract both domestic and international investment in key sectors.
Chile’s economic growth has historically relied on resource-intensive industries such as:
- Mining
- Energy
- Infrastructure
- Services
Kast’s economic team has identified approximately $100 billion in investment projects currently on hold, largely due to uncertainty about regulatory policies and political conditions.
Recent data suggests that investor confidence may already be improving:
- Foreign Direct Investment (FDI) reached $14.152 billion in 2025, representing a 13 percent increase compared to the previous year.
- InvestChile’s investment portfolio reached $65.689 billion, a 17 percent increase from 2024.
The sectors driving these investment flows include:
- Renewable energy, particularly green hydrogen
- Mining projects
- Service sector expansion
However, improving investor confidence also requires addressing regulatory bottlenecks. For many companies, one of the biggest obstacles to investment has been the complexity and slow pace of environmental and sectoral permitting processes.
To address this issue, the government will rely on the Framework Law on Sectoral Authorizations (Law No. 21.770), which:
- Modifies more than 40 regulatory frameworks
- Seeks to reduce permit processing times by 30% to 70%
- Introduces new administrative procedures for investment projects
Although the implementation of the law will be gradual, policymakers believe it could significantly reduce bureaucratic obstacles that have delayed large-scale investments.
Dangerous relationships
For a country whose GDP depends on international trade for more than 60 percent of economic activity, maintaining stable diplomatic relationships is essential.
This aspect represents one of the most delicate challenges for the economic agenda in Chile, given the geopolitical rivalry between the country’s two largest trading partners:
- China
- The United States
Although Kast has ideological affinities with U.S. President Donald Trump, economic realities complicate the situation.
According to Chile’s Undersecretariat for International Economic Relations (Subrei):
- China receives 35.2 percent of Chile’s exports
- The United States accounts for 17.8 percent
Tensions between the two powers have already affected Chilean policy decisions. A notable example is the controversy surrounding a submarine fiber-optic cable project linking Hong Kong and Valparaíso.
The United States has argued that the project could:
- Undermine regional security
- Expand Chinese technological influence in Latin America
In response to progress on the project, Washington imposed sanctions on three members of Gabriel Boric’s cabinet, intensifying diplomatic tensions.
The issue also complicated the transition between Boric and Kast, marking one of the first major controversies of the new administration.
Despite these tensions, analysts expect Kast to strengthen relations with the United States while maintaining pragmatic ties with China.
As Garnham observes:
“Trump will remain in office only for a few years, whereas the Chinese Communist Party has been in power for more than 75 years.”
For this reason, Chile’s leadership will likely seek a careful diplomatic balance as it implements the economic agenda in Chile aimed at restoring growth, attracting investment, and reinforcing the country’s position as one of Latin America’s most stable economies.