Kast Abandons Budget Balance, Targets 1.5% Structural Deficit by 2030

The government of José Antonio Kast closed one of its busiest economic days on Tuesday since taking office ninety days ago, publishing a fiscal policy decree that formally abandons the campaign promise of reaching budget balance and instead sets a structural deficit target of 1.5% of GDP for 2030. The decision, long anticipated by markets but politically sensitive, captures the central tensions of an economy seeking to consolidate its public finances while facing external pressures, a weakened labor market, and a political climate stirred by debates over the previous administration's fiscal management.

Finance Minister Jorge Quiroz laid out the new roadmap, which traces a gradual reduction of the deficit from -2.6% of GDP in 2026 to -1.5% in 2030, a trajectory that, as he acknowledged, depends directly on economic growth and on the assumptions built into the sweeping reform bill currently moving through the Senate. Gross debt of the central government, in turn, will remain capped at a prudential ceiling of 45% of GDP, a limit that Dipres director José Pablo Gómez described as an urgent necessity: "If we do nothing, we are going to breach the 45% prudential limit," he warned, defending the bill that expands the borrowing margin by US$6.2 billion. The proposal carries the implicit backing of more than fifty economists who came out today to defend former minister Nicolás Grau, among them Eduardo Engel, Guillermo Larraín, and Roberto Zahler, amid a constitutional impeachment process whose review committee in the Chamber of Deputies has been formed with an opposition majority.

In markets, the session unfolded with contained volatility. The IPSA tried to break a prolonged losing streak against an external backdrop that remains adverse: on Wall Street, AI-linked tech stocks returned to the spotlight after the Nasdaq tumbled more than 4% on Friday, stoking concerns about excessive concentration in the rally and a possible financial bubble. The dollar pared its initial decline as copper turned negative, in a pair that had closed the previous session at two-month highs. The FX backdrop is relevant: the downside surprise in May's CPI — with headline prices rising less than expected, partly due to an unexpected drop in bread prices, and twelve-month inflation easing to 3.9% — opened up an unfavorable rate differential for the peso against expectations of higher debt costs in the United States. The print effectively shut the door on further rate cuts from the central bank this year.

The tariff standoff with Washington adds another front of uncertainty. Minister Pérez Mackenna said the government is "confident we will be able to put forward strong arguments and negotiate well" in the face of the 12.5% tariffs announced by the Trump administration, in talks that both the public and private sectors are approaching in a coordinated fashion. Exports showed an acceleration in the latest period, although capital goods imports — mining and construction machinery and buses — broke the upward streak that had started in September 2024, a signal that may foreshadow weaker investment momentum in the coming quarters.

In the productive sector, mining drew the most consequential headlines. BHP Escondida filed its new concentrator plant project with the Environmental Assessment Service, valued at US$5.15 billion, with 41 months of construction, 19 years of operations, and a peak workforce of 6,011. In parallel, Sierra Gorda SCM and Minera Spence signed a memorandum of understanding on the sidelines of Exponor to explore operational synergies in the Antofagasta Region, a sign that the industry is betting on efficiency in a context of rising costs. All of this against the backdrop of a mining investment pipeline projected for the next decade in excess of US$104 billion, according to Cochilco — the highest on record in more than ten years.

The labor market, however, shows cracks that contrast with that investor optimism. According to a report from OCEC UDP, informal employment is advancing across Chile: in Antofagasta, informal employment grew 11.3% year-on-year against just 1.1% for formal employment, while in Coquimbo the former rose 17.5% and the latter remained flat. CPC president Susana Jiménez summed it up bluntly from Geneva at the International Labour Conference: Chile has accumulated 40 consecutive months with unemployment above 8% and informality levels of 26.8%, while boasting one of the highest minimum wages in the region but the lowest labor productivity per hour worked in the OECD. SOFOFA, for its part, quantified that a four-percentage-point cut in the corporate tax — from 27% to 23% — could generate at least 80,800 additional direct jobs, an argument that gains weight as the sweeping reform advances through Congress.

In the coming days, the attention of markets and the political establishment will focus on three simultaneous fronts: the Senate vote on bank secrecy, whose outcome remains uncertain after a double tie last week and the possible disqualification of a key senator; the legislative progress of pension reform, with the AFPs stepping up their lobbying before the Chamber's Finance and Labor committees; and the outcome of the tariff negotiation with Washington, whose result will heavily shape export prospects and the exchange rate in the second half of the year.