A group of academics, including former Finance Minister Rodrigo Valdés, from different universities in the country, prepared an estimate of the fiscal cost of the proposed new Constitution. The team assessed that the constitutional text would mean an annual expenditure of 8.9% of GDP, in a low scenario, and 14.2% in a high scenario.
The study distinguishes three types of expenditure: recurrent annual expenditure to meet the mandate (e.g. a subsidy necessary for digital access), recurrent expenditure on state administration (creation of a new institution) and non-recurring expenditures for stock adjustments that, for a single time, are necessary to meet certain standards (for example, the expropriation of land for restitution to indigenous peoples).
It also considers two estimates: a lower one (low scenario) and a higher one (high scenario). “The former is more conservative in terms of service provision and spending. The two scenarios differ sometimes by the method used and sometimes by assumptions or the interpretation of the respective article,” the authors said in the paper.
Against this background, the group of academics estimated the estimated annual total cost of the proposed new Constitution, according to a percentage of GDP.
If the total cost is broken down by theme, the item that leads the expenditure is the right to health and sexual rights (1.89% per year of GDP in the low scenario and 2.75% in the high scenario). It is followed by the right to social security (1.33% and 2.20%) and the right to housing (1.19% and 1.67%).
The report was made by the former Minister of Finance, Rodrigo Valdés, of the School of Government of the Pontifical Catholic University (PUC); Andrea Betancor, from the Faculty of Economics and Business of the University of Talca; Claudia Martínez, from the Institute of Economics of the PUC; Guillermo Larraín, from the Faculty of Economics and Business of the University of Chile; Gabriel Ugarte, from the Center for Public Studies (CEP), and Rodrigo Vergara, from CEP.
Comparison with other countries
Regarding the experience of other countries that undertook constituent processes, the study indicates that “the available information accounts for heterogeneous results.”
“Most of the countries reviewed significantly increased their fiscal expenditure indicator relative to GDP. Of course, not all these increases can be assigned to the constitutional factor. In fact, the constitution itself may be the result of other factors or social phenomena that put pressure on spending,” they said.
“Also, in general, upward trends are observed beyond these changes and convergence phenomena,” they added.
The report highlights that in the Latin American experience, in particular Colombia (1991), Ecuador (2008) and Bolivia (2009) shows significant increases in spending.
“The case of Venezuela, on the other hand, does not show a significant increase in the ratio of expenditure to GDP. It is worth mentioning that in that case (as in South Africa) it starts at a higher level. In addition, it is possible that the high and rising inflation in that country has hindered a greater increase,” they said.
Here is the fiscal cost of other countries that developed new constitutions:
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