Chilean Government Pursues Dual Fiscal Overhaul: Civil Service Reform and Corporate Tax Cuts

Finance Minister Jorge Quiroz chose the weekend to fire off two structural-reform signals that, taken together, reveal the fiscal ambition of the Kast administration beyond the budget adjustments already announced. The creation of a cross-party commission to review the Administrative Statute — the public-sector labor code enacted in 1989 and barely amended since — alongside the imminent House vote on presidential vetoes to the mega-reform, sets the stage for a legislative and regulatory week that could redefine the Chilean state's fiscal room for maneuver for years. It is no accident that both moves are unfolding simultaneously: Quiroz framed them as part of a single consolidation project, arguing that a rigid statute is incompatible with the spending overhaul already under way.

The Administrative Statute reform immediately drew the hostility of the National Association of Fiscal Employees, which had been participating in a parallel technical working group mandated by Kast himself but run out of the Labor Ministry. Shifting that process over to the Finance Ministry, under the direction of an independent economist, is no minor detail: it signals that the government wants to frame the discussion in terms of fiscal efficiency rather than labor relations, a distinction that will shape both the scope of the reform and the intensity of the political resistance it faces. The three vetoes the House votes on this Monday — covering the financial right to be forgotten, anatocism, and 30-day payment to SMEs — already have the backing of the Finance Committee by ten votes to three, suggesting the Executive has the numbers, though a parliamentary override would require a two-thirds majority, a threshold the opposition would struggle to reach.

Woven through this political agenda is a deeper dispute over the country's tax architecture. The petition filed by a group of senators before the Constitutional Court, challenging the tax invariability clause built into the mega-reform, introduces precisely the uncertainty the government hoped to dispel by cutting the corporate tax rate from 27% to 23%. The senators' argument — that invariability would tie the hands of future governments — is being rebutted on solid technical grounds: invariability contracts are not automatic in their application, they require the investor's voluntary subscription and payment of a 1.5-percentage-point surcharge. What matters for markets is the calendar: Quiroz signaled that the TC should rule during August, turning the coming weeks into an uncomfortable waiting period for long-term investment projects that are looking for exactly this kind of legal certainty.

SOFOFA, which met this week with the Undersecretariat of International Economic Relations in the context of negotiations with Washington, put a number on the cost of tax inaction: its analysis estimates that the four-percentage-point cut in the first-category tax could generate between 80,800 additional direct jobs in a conservative scenario and more than 330,000 in an optimistic one over 2026–2030. Chile currently ranks 36th out of 38 OECD countries in corporate tax competitiveness, a position the industry group attributes directly to the 17-point increase in the rate since 1990. Those figures take on greater urgency in light of the data revealed by La Tercera: 42.2% of the labor force now has completed higher education, the highest historical share for that segment, and yet nearly 40% of the unemployed with that level of schooling are underemployed — a sign of structural mismatch that no tax cut alone can solve.

The external front adds pressure. The United States imposed 12.5% tariffs on Chilean products through a presidential memorandum signed on July 23, adding Chile to a list of 54 nations sanctioned on forced-labor grounds. The arrival in Santiago of USTR number-two Jeffrey Goettman in late August turns that meeting into the most delicate moment on the Kast government's trade agenda. Chile rejected the so-called Reciprocal Trade Agreements that Washington has offered to other countries — including those with existing FTAs — but the U.S. may push again. Salmon, the top non-copper product in exports to that market, sits at the center of the negotiation, which explains Undersecretary Paula Estévez's schedule of meetings with the Salmon Council and congressional committees.

Against this backdrop of trade tension, LATAM Airlines is weighing the relocation of US$1.5 billion in investments it had earmarked for Lima, following the controversial TUUA airport fee that raised costs at the Peruvian hub. No decision has been made yet, but the signal is unmistakable: regional infrastructure competitiveness matters when airlines can redistribute capacity. Delta and JetSmart have expressed similar concerns. The Jorge Chávez airport concessionaire has proposed a 36% cut, suggesting the tariff impact was unsustainable, though that concession may come too late if fleet decisions are already in motion.

On the corporate front, first-half results paint an uneven picture. CAP posted losses of nearly US$60 million, with mining cushioning a weak industrial performance, and its CEO warned that the second half of the year will remain difficult, compounded by the effects of the frontal system that hit Atacama and Coquimbo. Earnings at CCU, Andina and Embonor confirm a shift in consumer habits: less alcohol, more water — a trend that is not passing and that will force the three bottlers to accelerate the repositioning of their portfolios. SAAM, part of the Luksic group, reported revenue 10% higher than in the first half of last year, though earnings fell 6%, driven by increased tugboat activity. The ICON index of engineering consultancies rose year-on-year but slipped from the previous quarter, with more activity in early project phases: a sign of still-fragile reactivation.

What to watch this week: the House vote on the presidential vetoes on Monday, the potential TC ruling on tax invariability, progress on WOM's 5G rollout commitments — the company faces US$13.9 million in guarantee calls and a tight timeline — and the trajectory of copper, which closed the week at a record. That variable can lift fiscal revenues and cushion the pressure of adjustment, but it also serves as a reminder of just how dependent Chile's external position remains on a single metal.

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**CAP (Santiago: CAP)** — The steel and mining group posted losses of nearly US$60 million in the first half, with its steel division weighed down by adverse market conditions and the effects of the frontal system on its operations in the Atacama and Coquimbo regions. Management flagged that the second half will remain challenging, a signal that will pressure market expectations for the stock, whose exposure to iron ore prices links it directly to Chinese industrial demand.

**LATAM Airlines (NASDAQ: LTM)** — The airline is weighing the redirection of US$1.5 billion in investment away from Lima in response to the TUUA airport fee, a decision that would have direct implications for the distribution of its South American network and could benefit other regional hubs, including Santiago. The Jorge Chávez airport concessionaire has offered a 36% cut in the fee, but LATAM has not ruled out relocation.

**SAAM (Santiago: SAAM)** — The Luksic group's port and tugboat affiliate reported half-year revenue 10% above the previous year, though earnings fell 6% to US$38 million, pressured by higher operating costs; growth in tugboats, a segment with a footprint across multiple ports in the Americas, supported the top line despite the weaker bottom-line result.