Government's tax reform collapses before crucial Senate vote amid urgent growth crisis.

President José Antonio Kast's sweeping tax reform reaches a decisive week in the Senate on Monday with its political architecture in ruins: the agreement the Executive believed it had sealed with the PPD disintegrated within hours last Friday, after Finance Minister Jorge Quiroz introduced an amendment lowering the corporate tax rate to 22% — one point below what had been agreed — without prior consultation with the lawmakers who had pledged their support. The scene that followed, with bi-minister Claudio Alvarado instructing Quiroz from outside the Senate Finance Committee chamber to withdraw the amendment, encapsulates the fragility of a negotiation that should define the country's economic direction but which, so far, has been built on sand. The full Senate vote is scheduled for Wednesday, July 15.

What makes the episode especially revealing is not the misstep itself, but the deeper reading it exposes: the government urgently needs a reform that anchors investment expectations, yet the manner in which it is being processed erodes precisely the legal and tax certainty it promises to restore. Senator Loreto Carvajal (PPD) sums up the paradox bluntly: "For the government to try to erase with its elbow what it wrote with its hand only confirms the deficiency of its reform." The PPD now demands, as a condition for resuming dialogue, a cut to the specific fuel tax — a politically thorny demand in a context where Brent hovers near USD 80 per barrel following the ceasefire breakdown declared by Donald Trump, after having touched nearly USD 120 at the peak of the Iran crisis last April. Chile, according to GlobalPetrolPrices.com data, ranks among the countries where the pass-through from crude prices to retail prices was most intense, though the past week brought reductions of 100 pesos in 93-octane gasoline and 231 pesos in diesel.

The Cadem poll for the second week of July quantifies the political cost of this economic quagmire with a figure that has no recent parallel: 56% of Chileans rate their household economic situation negatively — the highest level since March 2014. Unfavorable projections about employment reach 88%, the highest reading since April 2021, and 80% believe the economy is stagnant or in retreat. Presidential approval stands at 38%. This accumulation of pessimism is not merely subjective: the Universidad Andrés Bello Economic Barometer confirmed that Chile's economy deteriorated for a second consecutive month in June, though the pace of decline moderated from May, with only 38% of variables worsening versus 58% the previous month. The unemployment rate stands at 9.4% for the March-May rolling quarter, with more than 950,000 people out of work.

It is against this backdrop that the debate over the exact magnitude of the corporate tax cut — whether the first-category tax drops to 22% or stops at 23% — takes on a relevance that goes well beyond technicalities. SOFOFA estimates that a four-percentage-point reduction from the current 27% would generate at least 80,800 additional direct jobs over four years, with an optimistic scenario exceeding 330,000 positions. The distinction between 22% and 23%, on that logic, is far from trivial. Renovación Nacional welcomes the reduction to 22% that the Executive incorporated at the request of its caucus; the PPD rejects it as regressive. Independent Senator Matías Walker, who could be the swing vote, leans toward 23% but has warned that he will vote in favor of "all agreements that allow us to return to growth."

Approval of the sweeping reform is also the threshold that local capital markets are watching with unusual attention. Florencia Stefani, head of research at LarrainVial, notes that the main driver for the Chilean stock market in the second half will be domestic, and that the reform's approval in Congress will be a key factor for both passive and active flows into equities. Bank and academic experts agree that the new regime will trigger portfolio rebalancing at the AFPs that could inject up to USD 7 billion into Chilean equities, while simultaneously reducing exposure to foreign fixed income.

The capital market, for its part, shows signs of its own vitality. Annuity sales rose nearly 40% in the first half of 2026, with insurers already having sold 64% of the total volume marketed during all of 2025 — a record that reflects pent-up demand from pension-system retirees. In the corporate debt market, Link Capital partner Gonzalo Covarrubias anticipates that mining suppliers, forestry firms, and banks will drive bond issuance in the second half, though he stresses that approval of the government's miscellaneous bill will be decisive for those placements.

On the institutional front, Codelco resolved a dispute on Monday that had strained its relationship with the Comptroller General: the state copper company withdrew the economic protection appeal it had filed in June against the oversight body, after the Comptroller published Resolution No. 14/2026 on July 9, establishing an alternative control system for the corporate operations of state-owned miners. The dispute had arisen over the Special Lithium Operating Contract granted to Minera Ascotán, a Codelco affiliate. At the same time, the company faces another delicate internal front: former Budget and Management Control Manager César Márquez, dismissed in May following an alleged overproduction case that reached the Public Prosecutor's Office, has filed suit seeking his reinstatement and claims that all information on the case was always "in plain view of the CEO, vice presidents, the entire executive team, and the board."

On the labor policy agenda, the government submitted a labor-flexibility bill for the tourism sector to Congress on Monday, which would allow workday cycles of up to 52 weeks and extend the limit on consecutive Sundays worked from 8 to 12. The initiative, submitted with maximum urgency, has drawn criticism from former ministers Camila Vallejo and Jeannette Jara, who warn that in practice it would enable 52-hour workweeks. Bi-minister of Economy and Mining Daniel Mas is simultaneously projecting the creation of 50,000 jobs before October through the "Modo Empleo" plan, with hiring subsidies covering up to 50% of the minimum wage — 60% in the case of women.

What unfolds in the coming days is decisive for the economic year. If the sweeping reform passes the Senate on Wednesday, the equity market will receive the first meaningful domestic catalyst in months, and the corporate debt issuance pipeline could